News: CJ Exclusives

Incentive Battle To Be Renewed In Legislature

Governor will battle legislative leaders on use of tax benefits for recruitment

RALEIGH — Republicans have been quick to claim their tax reform agenda eliminated many unfair tax loopholes and carve-outs for special interests in North Carolina, but there are strong signals that tax-fueled incentives could return in the upcoming session.

Gov. Pat McCrory is championing more incentives money for the tapped-out Job Development Investment Grant program to lure corporate interests to the state, and for lawmakers to enact legislation achieving that goal in the early weeks of the new session.

Without more money to wave at potential corporate prospects, North Carolina will not be competitive with other states, McCrory has said.

Lawmakers agree that the General Assembly not only will consider a JDIG expansion, but also will encounter renewed pushes for historic preservation tax credits, which were allowed to expire, and film incentives, which were switched from an open-ended tax credit to a grant program with a cap on annual spending from state coffers.

McCrory and Department of Commerce Secretary John Skvarla “would like to see the legislature consider and pass some changes to our incentives structure. I would like to defer until I see specifically what they are proposing,” said Senate leader Phil Berger, R-Rockingham.

“I think there’s support in both the House and the Senate … for doing everything that we can to try to make North Carolina a competitive place for the creation of jobs,” Berger said.

“Does that mean that we continue to go down the incentives road that we’ve seen in the past? Do we do some other things in addition to tax reform? We’ll just have to have that discussion” after the governor submits formal proposals, he said.

Berger noted that the Senate passed a conference committee report on House Bill 1224 last session, but the House rejected that plan. The measure included some of the provisions McCrory wants.

“That’s an example of a bill where the form actually ended up killing and trumping the substance,” said House Speaker Tim Moore, R-Cleveland. “The reason House Bill 1224 failed, in my opinion, is not because of the incentives part. It was because of a lot of the other things that we loaded on in the bill.”

While nobody loves incentives, he said, the question is what initiatives should be implemented to make North Carolina competitive with other states.

“I agree with Sen. Berger that we need to collaborate with folks at Commerce, we need to find out what it is that they need, and I believe we’re ready to try to help,” Moore said.

Ironically, on the day Moore and Berger spoke about incentives programs, Chiquita Brands International announced it was moving its headquarters and 320 jobs from Charlotte. That was just three years after it received $22 million in state and local incentives, including more than half a million dollars from JDIG, to relocate from Cincinnati, and remain in Charlotte for 10 years.

“There’s no guarantees on any of these companies when you recruit. You try to do the best you can, you try to give them a work force, but there’s more to the equation than money a lot of times,” said Senate Majority Leader Harry Brown, R-Onslow.

“If it’s all just about money and incentives, that’s a poor place to be, I think, when you’re trying to negotiate to recruit,” Brown said. Instead, the goal is to create an atmosphere that attracts corporate suitors for education and tax policy reasons, not just sweetening the incentives pot to outbid other states.

Brown said the Republican caucus would prefer to level the playing field for all business interests through tax reform and lowering tax rates, while continuing to eradicate special carve-outs some interests have enjoyed over the years.

“We’ve got an addiction to the incentive program we’re going to have to take a look at,” said state Rep. Rick Catlin, R-New Hanover.

“There are Republicans that believe incentives create jobs, and are a positive return on investment,” and must be offered to compete with other states for new business, Catlin said. “I don’t agree with it.”

Catlin said building and maintaining infrastructure is far more important than cash giveaways to entice businesses to locate in North Carolina.

“If you just look at the projections on roads and bridges for the next two decades we probably will need $2 billion to $3 billion a year added to our budget just to deal with that, and that doesn’t include water and sewer lines, ports and waterways, rivers and harbors,” Catlin said.

“One of the places to look to find the money to do what’s right is to sunset the incentives,” he said.

He also believes rewarding new businesses with corporate incentives to come to North Carolina is unfair to longstanding state-based corporations.

“I do have a very moral problem with the incentives basically going to the companies that do not have loyalty to North Carolina versus the companies that do,” Catlin said.

But state Rep. Ted Davis, R-New Hanover, is more receptive to film incentives and the historic preservation tax credit, both of which he said have been important economic development tools in his district.

“Of all these things, what is it that we can afford to do, and what would give us the biggest bang for the buck? Hopefully it would be all of them, but I don’t know that,” Davis said.

He said the incentives-laden H.B. 1224 died in the House because of strong-arm tactics of Republican leaders, and because not all desired incentives were included.

“We were told, ‘Well if you want this, you’re not going to have it addressed unless you pass 1224,” Davis said, noting that he and several other lawmakers “just got so fed up with the political game that we just voted against the whole thing.”

Davis added that “the movie industry is extremely important in New Hanover County,” defending film incentives that were scaled back from a 25 percent refundable tax credit to a $10 million grant program.

Davis and state Rep. Susi Hamilton, D-New Hanover, “sent the governor an identical letter after we adjourned last year asking him to call a special session so that we could deal with all of this at one time,” Davis said.

“I personally think the governor is on the right track in wanting to restore incentives,” Hamilton said. “My crystal ball is not really clear on it. I don’t see that much in terms of ideology has changed within either chamber in terms of tax incentives.”

Dan E. Way (@danway_carolina) is an associate editor of Carolina Journal.