THE GAME: IT'S 'MADNESS' BUT NECESSARY, SENATOR SAYS
08/14/05
David Rice
As co-chairman of the Senate Finance Committee, state Sen. David Hoyle has helped push incentive deals through the General Assembly - multi-million dollar tax breaks for FedEx, Nucor, Merck, R.J. Reynolds and Dell Inc.

A close ally of Senate President Pro Tem Marc Basnight, Hoyle has argued repeatedly on the Senate floor that incentives are like a high-stakes poker game – the state has to ante up to win jobs.

He recently helped push through a two-year extension of tax credits for job creation and other investments under the William S. Lee Act, the state's primary tool for economic development. Gov. Mike Easley signed the bill July 29.

But even Hoyle, a Democrat who represents what is widely considered a Republican-leaning district in Gaston County, has his doubts these days about incentives. He openly questions them.

Q. How did we get here? How did we get into the incentives game?

A. "I think it was an evolution. It was not a revolution. It did not happen overnight. I can remember in 1977, when Jim Hunt appointed me to the Highway Commission, there was a pot of money called the Industrial Access Fund. We would build you a road to your plant…. I guess those were the early days of incentives."

Q. How much was it accelerated by the loss of Mercedes, BMW and Motorola in the mid-1990s?

A. "It started the ante, it did. ... We sort of laughed about Alabama - they gave away half the state, something we would never do. They signed contracts with Alabama DOT to buy all these vehicles and trucks. We laughed about whether you'd see a construction crew riding down the road in a Mercedes-Benz.

"But I think we began to realize that we were in a competitive game. And (late Duke Power chairman) Bill Lee brought this to our attention.

"That's when we decided we had to put in place a structure that would address the needs without having to come to the legislature … that a new company coming in or an existing company expanding knew what they could get if they created X number of jobs. That's been a work in progress - we've amended and amended it.

"It just seems that it's a high-stakes poker game and there are no limits what the raises are. ... It seems to me in the last couple of years that the 'ask' from the corporations willing to come here is just getting bigger. They're just wanting more and more, and they're getting it.

Q. Has it been worth it? Do you think it's paid off?

A. "I'm a realist. We've got to play in the game. We can't unilaterally disarm. We've got to do it. I wish it would stop.

"On the other hand, (former N.C. Commerce Secretary) Norris Tolson is very adamant. … He says, 'Absolutely, they pay off. It's absolutely the thing to do. It is a great investment. It is a great return to North Carolina, from the spin-off effect, from the long-term benefits of putting people to work.'

"Now we're starting to give away, through the JDIG grants, part of the withholding taxes (on new jobs). In addition, these people are still eligible for the Bill Lee (tax) credits. So it's a double-dip. They're double-dipping."

Q. You obviously seem to have second thoughts about it lately.

A. "Yeah, I am. Because I ask myself, if we keep giving away the future revenues…. If all these companies keep coming and we wind up with everybody in the state that has a business here on the welfare rolls – that's a way to look at it - who's going to pay the bills? It's madness, but I don't know how to stop it.

"I'm not willing to be on the side of killing it. I'm not willing to be on the side of calling their bluff, of saying, 'I believe Dell will come here if we don't give 'em a dime, because this is a great state….'

"There are some companies that come here because they have to come here. They need to be here. I'm on the board of directors of one of them (Shaw Group). We just put 200, 300 jobs into Charlotte - didn't ask for any incentives. We just didn't feel it was right to ask for them, because we're building major engineering projects around the Charlotte area.

"What would bother me is how many companies are we giving incentives to, and it doesn't matter whether we give any incentives, they're coming?"

Q. Your misgivings seem to have accelerated after the Dell deal. Did the state in that instance go too far?

A. "The argument you'll hear from the governor and the Department of Commerce and economic developers and my guys who are back home (is that) we didn't - that we were competitive, that Virginia and Tennessee both would have done the same thing, maybe more. We got those jobs and it gives us a presence – Dell is here. They'll employ people. It's a great corporate citizen….

"At Dell, somebody is going to maintain the roof. Somebody is going to maintain the heating and air-conditioning system. Somebody's going to cut the grass. Somebody's going to do the janitorial work. There's always going to be something breaking down that needs some mechanical work."

Q. These jobs at Dell pay $27,000, $28,000.

A. "Dell brought it to a new height for me - $245 million (in state incentives). … If you look at it over 20 or 30 years, it's $10 million a year. The people working there - will they buy cars, will they buy houses, will they spend money, buy clothes? ...

"You start looking at those numbers, and you realize that here's a company that's in the state, using our resources. We're going to educate a lot of the employees' kids at our universities - and subsidize them."

Q. I don't know how much to believe you, because I've heard you say, 'This is a high-stakes poker game' so many times and push extensions of the Bill Lee Act. Is it just lip service?

A. "That's a fair question. There's a part of me that says, 'I'd like to call their hand. I'd like to call their bluff.' I'd like to just say, 'OK, we're not playing.' And then I say, 'How would I feel if we lost?' Then somebody would point at me … and say, 'OK, Hoyle, this company's not here because of you.'

"I'd hate for that to be on my conscience, if that were to happen. I do believe if you called the bluff on some of them, you'd still get 'em, and you'd lose some. I think you'd lose more than you got – the big boys, in particular."

Q. If you took the commitments of the Lee Act or other tax breaks and instead rolled them into reducing the corporate tax rate, how much could you lower it?

A. "That's the argument that NFIB (the National Federation of Independent Business) and others who are opposed to them use - let's just lower the rate for everybody, and then everybody benefits. … But eliminating the corporate tax, that's almost a billion dollars. I think if you eliminated the corporate income tax, it would really get you a lot of attention. … I think a minor reduction of 2 percent or 3 percent (in a corporate rate of 6.9 percent) costs you $200 million or $300 million. I don't think it buys you anything."

Q. So what's the answer? Some say incentives violate the interstate-commerce clause of the constitution by favoring business in one state over another. Is the answer for Congress to ban incentives under the Commerce Clause?

A. "I would love it. I would absolutely love it. … Then we would compete state to state, head to head, on what each state really has to offer. It would come down then to the business climate. Regulators - are they friendly or not friendly to business? It would come down to investment in education and universities and community colleges. We've got to come out high there. The beauty of the state.… Listen, it's a great place to live.

"I believe if all incentives were stricken as being unconstitutional, we would get more than our share. We'd win. We'd be a big winner. … I think all states are being used, and the poorer states are the ones that are hurt the most."

Q. But how likely is that, especially in a Republican Congress where they talk so much about local control?

A. "I know at a national conference, Perri Morgan, (former state director of NFIB) had a chance to ask President Bush. … He just flat turned it down - 'If the states want to do it, it's the states' business.'

"I think … the game is going to continue to escalate. It's not going to be long before these companies are going to start asking for checks - and they're getting it to some degree with the One North Carolina Fund. We set up the One North Carolina Fund and put $10 million in it. I'm told the Virginia governor has $40 million or $50 million….

"I see it getting worse. I see the stakes getting higher. Some people will tell you we're not just competing against Virginia and Tennessee and South Carolina - we're competing against China, Taiwan, Turkey."

Q. If congressional action isn't likely, is the answer in the courts with the Supreme Court upholding the Cuno case (where a federal court found that Ohio's incentives for DaimlerChrysler violated the Commerce Clause)? Is it with Bob Orr's suit over the Dell incentives?

A. "I'm worried about Orr, because it's in state court. I would hate to be unilaterally disarmed because of a court order.

"I am hopeful that someone is successful in the federal courts in the Cuno case, that it goes to the Supreme Court and they say, 'Yes, it is a violation of the Interstate Commerce Clause.' That would be, to me, the biggest windfall that North Carolina could possibly ever hope to get.

"But if that were to happen, then does that fact then tilt the scales overseas? Does business then say, 'OK, US of A, we'll take all of the manufacturing jobs out of here. It's not far to Mexico City.'"

David Rice can be reached in Raleigh at (919) 833-9056 or at drice@wsjournal.com