RALEIGH -- I think it is evident that North Carolina's headlong plunge into the depths of the economic-incentives pit is about to result in a pretty ugly splat.
On Tuesday, Gov. Mike Easley announced the final arrangements in an incentives deal offered to the pharmaceutical company Merck for building a vaccine plant in Durham County. The company promises to create 200 jobs at the site. The day before, Carolina Journal's own Don Carrington reported that a previous multi-million-dollar incentive grant, for a Verizon call center in Wilmington, may have violated a key provision of state legislation authorizing the new incentive program, called the Job Development Investment Grant.
It's called the "but-for clause." JDIG funds are to be available only to companies that would not have invested or expanded in North Carolina without the incentives. Carrington found convincing evidence that Verizon had already selected the Wilmington site, indeed that the company had begun work on the project, which is projected to create some 1,200 jobs when fully operational, before the state committee in charge of the JDIG money had even met to consider the incentive offer.
One might argue that Verizon was just responding to an expectation of getting the grant, but in that case the state JDIG committee would seem to lack the real power to consider, and possibly to reject, an incentives package. Either the law means something or it doesn't.
A similar clause applies to a $24 million pot of state funds to be used by Merck to purchase land in Durham's Treyburn area. While there's no evidence yet that this project was coming to the state, anyway, serious questions continue to swirl around the Merck deal, some having to do with the apparently huge payoff that Terry Sanford, Jr., son of the former governor, is going to make as the owner of the tract the state is preparing to purchase for Merck. Tax data suggest that he purchased the land for a tiny fraction of the purchase price that the state has already advertised it will finance. Reporters have as yet been unable to get the tight-lipped Sanford to clarify whether he was violating tax law (by failing to report and pay taxes on the true purchase price of the land) or about to make a killing in a series of what he calls "complex" transactions that, frankly, don't pass the political smell test.
In an Associated Press story that moved Tuesday evening, state officials responded to the "but-for" controversy by declaring it unenforceable. Essentially, when faced with persuasive evidence of a violation in the Verizon case (though the AP story oddly danced all around Carrington's revelations about the project without actually mentioning them), state officials said, "So what?" In doing so, they transformed the "but-for" clause into a North Carolina version of a "Santa Clause" -- an open invitation for large companies to pretend to look elsewhere and jump through some paperwork hoops in order to score large sacks of taxpayer dollars from jolly politicians.
I get the idea that proving whether a company would have come to North Carolina without the incentives is difficult, but that's an argument against playing this game at all, not throwing away all the penalty flags.
Politicians can hold all the press conferences and mouth all the rhetorical blather they want, but the direction we are going in with economic-development policy is not likely to end well.
Hood is president of the John Locke Foundation and publisher of Carolina Journal.