LIKE LOTTERY, N.C. INCENTIVES ABOUT COMPETING WITH OTHER STATES
05/05/05
Gary D. Robertson
Legislators who talk about taxpayer-funded corporate incentives sound a lot like lottery proponents who've been grabbing headlines lately.
 
They would prefer not to be forced to sprinkle tax credits and cash payments to lure companies to set up shop or expand in North Carolina. But like gambling revenues, they argue, North Carolina can't afford to lose jobs to surrounding states.
 
"I don't think anybody likes to be in the incentives business," said Rep. Bill Owens, D-Pasquotank, a co-sponsor of a bill to retool the William S. Lee Act, the state's primary incentives program.
 
Not surprisingly, as the chief spokesman for a lottery in the House, Owens sounded a similar refrain.
 
"I think a lot of us agree that maybe the state shouldn't be in the gambling business," Owens said on April 20. "Unfortunately, what's worse than us being in the gambling business is allowing hundreds of millions of dollars to flow out of our state to educate other kids."
 
It's a pretty sure bet that a Lee Act replacement – touted by supporters as more flexible and easier to understand – will pass. The Commerce Department is on board, while the state's top business lobby wants some modified version of the 1996 law to continue.
 
The game of incentives, though, will take plenty of grief along the way.
 
"I've never liked them," Rep. Phil Haire, D-Jackson, said after the replacement bill passed the House Commerce Committee last week. "But they're a necessary evil."
 
The Lee Act, named after a former Duke Power Co. executive, has been North Carolina's primary incentives tool since it passed in 1996.
 
Businesses in nine eligible categories took $66.4 million in credits in 2004, mostly by creating jobs, installing machinery, training workers and performing research. Urban, more prosperous counties qualify for smaller credits compared to poor, rural areas.
 
Gov. Mike Easley's administration has moved toward targeted cash grants as the method to lure new industries. And a 2003 study on the Lee Act shows a minority of businesses that claimed the credits said the investment was the key or deciding factor in their decision to add jobs.
 
Still, the Commerce Department and other supporters of the credits say they continue to play an important role in raising the ante to attract new business, particularly in rural areas.
 
"They've been a big help," said Rep. Joe Tolson, D-Edgecombe, who credits the Lee Act with bringing a Sara Lee baking operation and Superior Cable Corp. to Tarboro. "We've only been trying to be competitive with what other states are offering."
 
Nearly every year since it took effect, lawmakers have loaded up the Lee Act to cover additional industries and jobs, drawing up provisions to attract specific companies.
 
In 1998, they added items to lure Nucor Corp. to Hertford County and FedEx to Greensboro. In 2001, it was Lowe's Cos. to Northampton County. And last year, computer manufacturing was added to the list of qualified businesses as part of the package that brought Dell Corp. to Winston-Salem.
 
Now it's "a Christmas tree with all of the ornaments attached to it," said Watts Carr, chairman of the Piedmont Triad Partnership for Economic Development who was a Commerce Department official in the mid-1990s.
 
The proposed "Business Growth and Investment Act of 2005" would retain largely the same types of eligible businesses. Even before the bill cleared the committee, however, two new categories were added: motorsports teams and soft drink plants.
 
Credits for worker training, research and development and improvements in development zones – which were largely avoided by business – would be eliminated.
 
The state's 100 counties would be divided into three tiers – instead of the current five – based on their economic health to determine the size of credits businesses can obtain for expanding.
 
Companies that agree to build in 40 counties considered the most economically distressed would be eligible for the highest per-job credit of $12,500. The 20 most economically vibrant counties, largely in the urban Piedmont, would continue receiving $500 per job.
 
The new bill also creates or raises minimum job creation or investment requirements for companies to qualify for tax credits in urban counties.
 
"It's a little less generous to (richer) counties," said Michael Luger, a public policy professor at the University of North Carolina at Chapel Hill, and author of a 2003 report on the Lee Act.
 
At the same time, local economic developers will continue to have the same incentives tool at their disposal, regardless of their county, Luger said.
 
Critics of the Lee Act will try to add more restrictions as it winds through the finance and appropriations committees.
 
Rep. Paul Stam, R-Wake, an opponent of corporate incentives, said the proposed successor to the Lee Act, while cleaned up, still doesn't make financial sense.
 
Even if a revamped Lee Act passes, lawmakers still could be forced to get out of the incentives game.
 
A federal appeals court ruled last year that Ohio's investment tax credit violated the U.S. Constitution by favoring in-state investment over out-of-state credits.
 
The appeals court ruling currently applies to only four states, but it could ultimately affect North Carolina if the U.S. Supreme Court takes up the case or a similar case is filed here. A group led by former state Supreme Court Justice Bob Orr has said they are looking at a lawsuit over the legality of incentives.
 
For now, without a current legal challenge and business interests largely behind it, the incentives game will keep on going.
 
Even Stam acknowledges that: "This session, it will not change."