Follow the Money: Issue 89


Mar 18th, 2011
by Elizabeth Lincicome

Tax Foundation Releases New Tax Study: How does NC compare?

Hot off the presses, the Tax Foundation just unveiled the 2011 version of its well-known publication, “Facts & Figures: How Does Your State Compare?” This report evaluates the 50 states on 32 different measures of taxation and spending, including individual and corporate income tax rates, tax burdens, business tax climates, excise taxes, and state spending. So where does the Tar Heel state fall in some of the key categories?  

 

• State and local tax burden as a percentage of state income: NC was ranked #16 with a tax burden at 9.8%. NJ was ranked #1, with the highest tax burden at 12.2%.

 

• State business tax climate index: NC was ranked #41, with 1 being the best and 50 being the worst. This index is a measure of how each state’s tax laws affect economic performance.

 

• State individual income tax collections per capita: NC was ranked #14, with #1, NY, being the highest.

 

• State gas tax rates: At 32.8 cents per gallon, NC was ranked #13 with #1, CA, being the highest at 47.7 cents per gallon.

 

• State cigarette excise tax rates: At $0.45 cents per pack, NC was ranked #44, among the lowest tax rates on cigarettes. MO came in at #50, taxing $0.17 per pack.   

 

Incentives in the News: Updates

-State and local officials are giving West Pharmaceutical Services $3.5 million in incentives to expand its factory in Kinston. The incentives are not contingent on job creation. West stands to receive over $1 million in incentives from Lenoir County, up to $500,000 from the state utility fund for infrastructure improvements, and up to $2 million in tax credits from the N.C. Department of Revenue. The plant makes components for syringes and injection devices. 

 

-This past Tuesday, the NC Technology Association (NCTA) presented its wish list to members of the General Assembly over breakfast. Participants included Cisco, IBM, Lenovo, Accenture, and AT&T, among others. The state has awarded several of these businesses sizeable economic incentives packages over the last few years. Is it any surprise that one of the Association’s pitches for the upcoming year included asking legislators to approve a state tax structure that offers incentives for job creation?

 

- Lanxess Corp. recently announced it would build a $15 million plastics production plant in Gastonia, which will only employ 55 workers. The plant comes at no small cost to taxpayers. Lanxess will receive $250,000 from the One NC Fund, in addition to 15 acres of free land in the Gastonia Technology Park. Lanxess executives appear to be pro’s at playing the incentives game, making it clear that their German parent company was prepared to pick Charleston, SC over NC, unless our incentives offer was equal or better.

 

Justice Orr’s Op-Ed on Golden LEAF Draws Media Attention, Praise:   

(The following op-ed ran in the Fayetteville Observer on March 13, 2011): 

The recent controversy over the future of the Golden LEAF Foundation and its millions in assets has been couched primarily in political overtones. The governor and other GLF supporters, primarily Democrats, have lauded the successes of the 501(c)(3) nonprofit corporation, particularly in the economic-development field. Republicans, on the other hand, including House Majority Leader Skip Stam of Wake County, have characterized GLF as "a political slush fund."

 

Politics aside, there are three important issues that need to be resolved in order to properly determine the future of GLF.

 

The first is whether GLF has been true to the legislative intent of its creators and the charitable purposes set out in its charter. The articles of incorporation state the purpose as promoting the social welfare and lessening the burdens of government by "receiving and distributing funds to be used to provide economic impact assistance to economically affected or tobacco-dependent regions of N.C." in accordance with the final judgment entered in the State v. Philip Morris tobacco litigation.

 

The articles set out various areas for the use of the funds, including assistance for education, job training and employment, scientific research, economic hardship, public works and industrial recruitment, health and human services and community assistance. Since 1999, GLF has funded more than a thousand grants totaling more than $500 million. It's taken in almost $900 million, has a corpus of around $600 million and gets nearly $70 million a year in revenue from the settlement.

 

A sweet deal

 

While many of the grants awarded by GLF, particularly smaller ones, fall within the purposes set out in its charter, increasingly, the GLF board of directors has had to strain to find some tobacco-related connection to the money awarded. In fact the recent trend has been the expanding use of GLF funds to sweeten incentive deals to private corporations.

 

In 2009, for example, GLF awarded a $100 million grant to the Global Transpark for the purpose of providing a private business, Spirit AeroSystems, with a virtually free manufacturing facility. More recently, GLF provided millions to a nonprofit in Winston-Salem for the purpose of facilitating an incentives package given to the giant equipment manufacturer Caterpillar. Additional grants aiding private businesses under the guise of economic development also have been made.

 

However, the intended beneficiaries of the settlement proceeds get at best a tenuous benefit while the private corporations rake in the cash from these grants. Are the people and communities most impacted by the loss of the tobacco industry actually receiving the benefits from the settlement, or is it now primarily large corporations scoring millions in settlement funds?

 

Private business

 

The second issue is related to the first. As a nonprofit corporation with a 501(c)(3) designation by the IRS, Golden LEAF is prohibited by law from using its tax-free profits for the benefit of private companies.

 

Dan Gerlach, the president of Golden LEAF, stated recently in an interview with the Raleigh News & Observer, "We don't make grants to companies. We make grants to nonprofits and government agencies." That's not exactly true if the current laundering practice of GLF grants is taken into consideration. As noted above, the $100 million GLF grant to the Global TransPark was done for the acknowledged purpose of facilitating an incentives deal for Spirit AeroSystems that resulted in a $100 million direct benefit for the private company. Such practices would appear to violate the IRS requirements and put in jeopardy the tax-exempt status of the foundation. In the criminal field, they call it money-laundering. Is the GLF practice merely questionable or just flat out illegal?

 

Pull the purse strings

 

Finally, basic civics teaches us that the legislature under our constitutional system has the power of the purse.

 

In other words, it is the duty of the General Assembly to appropriate, in a constitutionally permissible process, the public's money for public purposes. The General Assembly cannot delegate that authority to another branch of government and it most certainly can't delegate that authority to a nonprofit corporation. Yet that is exactly how the GLF operates. All of its money, which constitutes proceeds from a court settlement for the benefit of the state of North Carolina (thus public money), goes directly to GLF. Then GLF's independent board determines how it is spent.

 

The elected members of the legislature have no role to play in that appropriation of public money under the present system. Shouldn't the legislature have control over these public funds and determine how they should be spent?

 

The time has come to get answers to these questions and decide the fate of the Golden LEAF Foundation.

 

***Reader Comments: "You should get Orr to run for Lt. Gov. since he understands legislation better than most." 

 

Quote of the week: 

“My point is this, we all have many contacts and convincing people to come to our 'small' market takes time, but once they locate here they are blown away with the results.”

 -Larry Stone, President and CEO of Lowe's, on using persistence and connections to lure businesses rather than incentives.