Amid the political finger pointing Thursday over a failed state tax incentives deal, the N.C. Senate’s top leader signaled his interest in a more comprehensive review of North Carolina’s entire incentives program.
“I’ve at least since the last election consistently said that one of the things that we probably need to do is take a big-picture look at what we do with incentives and where we are,” Senate President Pro Tem Phil Berger, R-Rockingham, told a roomful of reporters at the Legislative Building. “One of the issues that’s out there is we have — for lack of a better term — a laundry list of the sorts of things that the legislature historically has said these are the kinds of things that the state will do.
“Where we run into these issues is when you get outside the scope of those and you’re asking for a special deal for somebody,” Berger added. “I am particularly concerned about those special deals because the folks on Main Street in my town, the folks on Main Street in towns all over this state, they don’t necessarily have someone who can come down here and get a special deal for themselves, yet they’re the ones who are paying.”
The issues that troubled Berger surrounded an incentives proposal for German-based Continental Tire that fell through this week. Dubbed “Project Soccer,” it promised a new plant and as many as 1,300 new jobs for Brunswick County. Despite North Carolina’s incentives offers, the company announced plans to build its new plant instead in Sumter, S.C.
Less than a week before that decision was finalized, The Associated Press reported that Sen. Michael Walters, D-Robeson, and campaign donors to Democratic Gov. Beverly Perdue had ownership stakes in a Brunswick County site under consideration for the Continental plant.
Berger said he and fellow Republican senators had expressed concerns about those ties as early as August. Leading senators also raised concerns about the source of funding for $45 million in cash incentives, part of a total package of roughly $100 million, Berger said.
Perdue and N.C. Commerce Secretary Keith Crisco disputed Berger’s statements, contending that the deal fell through when Republican senators failed to agree to the $45 million.
The dispute prompted Berger’s comments about reviewing existing incentives programs. “I think it’s time for us to take a look at what’s working, what’s not working, what other states are doing, what’s appropriate for us to do,” he said. “The more we can get away from the special deals, the more likely we’re going to have a program that’s consistent, that’s fair, and that’s appropriate.”
Among the issues to be resolved is how an incentive targeting one company like Continental Tire affects its competitors. “This is a big company — we’ve got other tire companies in North Carolina,” Berger said. “Now, are we going to go back to them and say, ‘Oh, by the way, we didn’t quite give you enough,’ and write them another check? I don’t know how you even these kinds of things out, and that’s one of the things that should be a goal.”
The new Republican-led General Assembly has taken “step one” in addressing the future of corporate incentives by balancing the state budget and addressing burdensome regulations, Berger said.
“It’s our belief that when you do that you lessen the demand for these kinds of things,” he said. “I think step two is that in the interim [between legislative sessions] we probably need to be taking a look at the whole range of incentives. We would welcome any recommendations that we can receive from the executive branch or from former legislators, current legislators, citizens. It is a topic that is guaranteed to yield varying opinions about what we ought to do and what we ought not to do.”
The John Locke Foundation has opposed targeted tax incentives for years. “Corporate welfare is the much more accurate term [for targeted incentives] because like traditional welfare, these programs ultimately transfer wealth from some state residents to others without adding to economic growth or net job creation,” according to JLF’s Agenda 2010.
“Phil Berger is not the first politician in North Carolina to express reservations about incentives, and he won’t be the last,” said JLF President John Hood during an interview with Carolina Journal Radio. “Most people who vote for incentives tell you why they’re not going to vote for incentives or shouldn’t vote for incentives, and then vote for the incentives. So this is a fairly common sentiment among Democrats and Republicans: ‘We wish we didn’t have to do this, but. …’”
Unlike other incentives critics, Berger is talking about making policy changes, Hood said. Change could take different forms.
“One possibility would be to simply establish a policy in North Carolina that we will not do special negotiations,” Hood explained. “We won’t negotiate particular incentive deals with any company. We will simply provide good-quality public services at the lowest possible cost, reform our tax system so that it stops punishing investing and saving in North Carolina, and let it go.”
While that’s the “pristine, proper way to go,” lawmakers might not be willing to scrap incentives programs completely, Hood said. “The second-best idea would be to at least rein in the kinds of incentives that are offered, particularly when they are offered through negotiation,” he said. “If we’re going to have incentives at all, they ought to be automatic. If you meet certain thresholds, you get a tax rebate or lower tax rate or whatever it is.
“I’m not crazy about playing these games in the tax code,” Hood added, “but at least if it’s on autopilot, you can’t have accusations that special favors and back-room deals and political and family connections get tax money for one company and not for another.”
Mitch Kokai is an associate editor of Carolina Journal.