Clarion Call No. 189
Before the Council of State's vote on North Carolina State University’s proposed hotel and conference center, university officials asked and received a delay in the vote. Chancellor Mary Anne Fox told media that she requested the delay not because university officials were counting votes, but because they had not done enough to answer council members’ questions, especially over the issue of private financing of the project.
Basically, those questions boil down to this: if everything the university says about the project's feasibility is true, then why aren’t there private backers for the project? Behind them is the untold story that clouds the issue of private backing considerably: It’s not that the hotel and conference center project isn’t attractive to industry. It’s that the industry’s attraction to the project takes a form that isn’t attractive to the university.
As university officials explain, there’s a public misconception that private developers backed out of the plan. The developers wanted substantial use guarantees from the university. N.C. State, however, wanted to retain control of the facility, as officials there see its primary purpose is to serve the interests of the university and the several dozen companies affiliated with the Centennial Campus. So the university decided against private ownership of the facility.
N.C. State could arguably maintain control over the facility even if it were privately owned if university officials could choose not to do business with it if they disagreed with how the facility was being managed. All private interests willing to own the project, however, have pressed the university to guarantee them a specific level of business — effectively removing this veto or lever of control from the university.
University officials are thus faced with the choice of controlling the project entirely and weathering all the public-relations storms that go with it, or allowing private interests not only to own the project but also to preempt the university’s right to refuse doing business with it if its owners directed it away from its founding purposes. And private firms are so positioned that, while individually they seek massive concessions from the university in owning and operating the facility, collectively they hammer the university for not going with private ownership and operation.
This turn of events is made possible by a culture of incentives that has cropped up of late nationwide, but especially in North Carolina. The February 2001 Carolina Journal cover story, by Don Carrington, delved in depth into North Carolina’s 16-year foray into the “intervention model” of state economic development, “based on the idea that government can and should help direct economic growth to certain sectors of the state and of the economy.” As Carrington reported, “Business ‘incentives’ — tax breaks designed to lure companies to a state or encourage them to stay there — have become the cornerstone of intervention policy models.”
Carrington traced the growth of this culture to the General Assembly’s creation in 1986 of a $7,000-per-job tax credit for “creating jobs in distressed counties.” Along similar lines were the 1990 launching of the Global TransPark in Kinston; the creation under the Hunt administration beginning in 1993 of tax breaks, preferences based on location, cash assistance, and special multimillion-dollar deals to individual companies; the passage of the William S. Lee Quality Jobs and Expansion Act; and the use of the Golden LEAF Foundation, created to handle proceeds from the National Tobacco Settlement, to make awards for “economic development.”
Part of what’s behind this sea change in governing is simple hubris among legislators in subscribing to the fallacious notion that government drives economic growth. Part of it is vote-grubbing via the generation of Sen.-So&So-brought-more-jobs-home headlines. And part is the knowledge that the other states are doing it, too, combined with the unsubstantiated fear that not doing it in N.C. will mean companies will go elsewhere.
Whatever the cause, the result is that companies negotiating with government entities have built-in expectations for concessions from them. Those extra-market expectations have resulted in such things as the very recent spectacle of federal, state, and local government monies being used to bring a grocery store to the town of Salemburg (pop. 469) despite there being two grocery stores in nearby Roseboro, four miles away.
And it has till now prevented a workable deal between N.C. State and private interests in the proposed conference center and hotel. The Council of State and other interests are understandably concerned about the lack of private financing of the project. The extent of private interests seeking to leverage exorbitant concessions from the university should be a concern as well. Both result in unfair competition and unnecessary meddling in the market.