Incentives game time to put up or shut up

Jan 9th, 2011
by Jeanette Doran
from The Winston-Salem Journal

Imagine that the state of North Carolina gave millions of taxpayer dollars directly to companies in certain industries as an incentive to locate here. Imagine also that the state of North Carolina singled out certain industries and select businesses for special tax breaks that other taxpayers, both corporate and individual, do not get. It shouldn't be too hard to imagine. That is precisely what is going on. Just last summer, for example, the state gave a large incentive package to Caterpillar and passed new laws increasing incentives to the film industry that allow handouts to film companies of up to $20 million per movie.


That money has to come from somewhere. Tax revenues have to be raised or diverted to pay for these programs. As a result, the public either does without government services its taxes should fund, like adequate highways and quality education, or the public faces a higher tax bill than it would have if the government had not handed away tax dollars.


Government does not earn money; it raises revenue. That revenue comes from taxes and fees. Government gets "its" money from taxpayers like you and me. Government's money is "our" money. So when the state gives money to select industries or, worse yet, select businesses, the state is really giving away our money.


I don't know about you, but when I give money to a business, I expect something in return. I give money to businesses in payment for goods or services. I give money to businesses as an investment, entitling me to a share of ownership and a part of the profits. That's what people do; that's how we are programmed to think. We work hard for our money and want something in return when we part with it. But government doesn't think like that. It doesn't have to. After all, government doesn't work for its money. That means it is up to the public to make government think about what it, meaning we the people, is getting for our money when the state gives money, i.e. our money, to private businesses.


Proponents of direct payments to and special tax breaks for select businesses and industries often tout the benefits of those programs. Proponents label these handouts "economic-development incentives" and brag about job creation. Those of us more skeptical of government payments to private industry recognize those payments for what they are: corporate welfare. We recognize the myriad reasons a company would relocate to North Carolina, including skilled workers, supporting infrastructure, and the location of suppliers and peer companies. We wonder why government does little, if anything, to ensure that we the people get something for our money when government hands it over to private companies.


Businesses planning to relocate have become expert at conning government officials into thinking they won't come but for government incentives. Still, those businesses don't prove they need the incentives to move to North Carolina. The state can close the gap between thinking and proving with small legislative changes.


A simple and easy first step would be to impose a "but for" test. That is, the state should require a business receiving incentives to show that but for payments from the state, that business would not move to North Carolina.


Proponents of incentives programs often tell us that without incentives, new businesses would not relocate to North Carolina and existing business would go elsewhere. If that is truly the case, businesses should have no trouble demonstrating that but for payments from the state, they would not come to or remain in North Carolina.


It is time the people demand something in return when the government gives away their money. Asking a corporation to show it would not have moved to or expanded in North Carolina without an economic development incentive is a simple and straightforward step toward reining in ever-burgeoning incentives packages.


If a business called you up and asked you for money, you would not just pull out your checkbook. You would ask tough questions; you would want to know what you would get out of the deal. State officials need to do the same before pulling out the public's checkbook.


With North Carolina's unemployment rate hovering around 10 percent, there will undoubtedly be lots of talk about job creation in 2011. Be wary. The state will also be struggling with a $4 billion budget shortfall. Before the state gives away money we don't have, let's at least be sure we will get something in return.


Jeanette Doran is a senior staff attorney for the N.C. Institute for Constitutional Law.