Jobs Grant May Have Skirted Law

Gov. Mike Easley announced March 15 that North Carolina officials had awarded a $7 million grant to Verizon Wireless and that the company would build a high-tech call center in Wilmington. He made the announcement at the Wilmington Industrial Development office, at the airport in North Wilmington. Had he chosen to make the announcement at the company’s 17-acre building site in South Wilmington, he would have had to wear a hard hat and dodge bulldozers, because the project had already started.

An investigation by Carolina Journal revealed that state officials might have violated state laws and guidelines in making the award. The Job Development Investment Grant that the company received is to be awarded only to companies that would not locate in North Carolina without the grant. But, according to evidence found by CJ, the company had already committed to the site and had started the project before the state awarded the grant.

On March 24 a CJ reporter visited the building site and observed about 50 workers and numerous vehicles, many having out-of-state tags. There also was a sign outside Gilbane Building Company’s mobile office that read, “This job has safely worked 27 days & 8117 man hours.” Assuming the sign was updated on a daily basis, and workers were on the job Mondays through Saturdays, the project was started Feb. 21.

Gilbane, a construction management company based in Providence, R.I., has a close working relationship with Verizon. According to a May 2000 Gilbane newsletter, the company had recently entered into a 10-year contractual business relationship with Verizon. The building is being built near the intersection of Shipyard and Independence boulevards on land that is still owned by Cameron Properties Limited Partnership.

A press release from Easley’s office coinciding with his announcement said that the Economic Investment Committee had unanimously approved the Verizon grant that day and that Verizon was the eighth recipient of the state’s new Job Development Investment Grant. “The JDIG program allows us to compete for and win the attention of highly successful companies such as Verizon Wireless,” Easley said.

The estimated value of the grant is $7.2 million over 10 years. The release also said the facility is expected to be completed this year, the company would invest $29 million, and it would hire up to 1,211 workers. Verizon plans to begin hiring this spring, and about 700 jobs will be created this year. In addition, the press release said specifically that “these grants are to be awarded to projects whose benefits exceed their costs to the state and which would not locate in North Carolina without the grant.”

While North Carolina has several business-incentive programs in place, the JDIG program is distinguishable by the fact that it contains a “but for clause” or “deal breaker language” — meaning the company will not come without the particular JDIG inducement. The Economic Investment Committee is required to make specific findings before a grant can be awarded. Among the findings is that “a program grant is necessary for the completion of the project in this state.”

In addition to the sign at Gilbane’s office, CJ uncovered other evidence that the project was well under way before the JDIG grant was approved.

Gilbane applied for a foundation permit for a 160,000-square-foot, three-story facility March 1 and a full building permit March 3. The building permit was granted March 12 and Gilbane paid a $9,274 permit fee. New Hanover County building inspection officials told CJ that site preparation work is allowed without a permit and confirmed that Gilbane had started activity at the site before the permit application was received.

In a March 13 letter to the New Hanover County building inspector, Gilbane Project Executive Roger McFarland said he planned to work a double shift schedule, six days a week to obtain a partial occupancy certificate by the middle of July. He said Gilbane, as allowed by the counties Third Party Inspections program, had hired S&ME Inc. to perform inspections and to expedite the inspection process.

Verizon Vice President for Finance Operations Joseph Greco made the application on behalf of Verizon. Greco submitted the application to the state Commerce Department on Jan. 13. In the application he declared that the estimated start date of construction was February 2004. Greco also answered “yes” to the question “Is a grant under this program necessary for this project to be undertaken in North Carolina?” Greco’s notarized signature follows the statement “The information provided in this application has been gathered based on diligent inquiry and is true and correct to the best of my knowledge and that of the Applicant.”

Greco did not return several phone messages seeking an explanation as to why construction started before the grant was awarded. He apparently referred the call to Verizon spokeswoman Sheryl Sellaway, who did call CJ. Even after repeated questioning, Sellaway would not explain why the project was substantially under way before the grant was awarded. “We believe that is a mutually beneficial opportunity. The citizens will benefit from the jobs we will provide,” she said.

Perri Morgan, state director of the National Federation of Independent Business, said that given her understanding of the program, she was not surprised about the Verizon situation. “To me, it bolsters the objections of small business owners across the state who do not receive incentives but continue to create most of the net new jobs. We do not understand why the jobs big business creates are more important than the jobs we create every day. While we are pleased Verizon is coming to Wilmington, we cannot understand why taxpayer dollars are being used to subsidize a company that is coming anyway. The corporate entitlement culture is doing real damage to other taxpayers.”

Documents obtained by CJ suggest that the Economic Investment committee gave Verizon an initial proposal Jan. 29.

The Economic Investment Committee is a five-member panel consisting of the secretary of commerce, the secretary of revenue, the director of the Office of State Budget and Management, one member appointed by the speaker of the House, and one member appointed by president pro tem of the Senate. Current members, respectively, are Jim Fain, Norris Tolson, and David McCoy. The other two members are the House appointee, Gene Miller of Wilmington, and Senate appointee Harrell Everett of Goldsboro.

Under JDIG, which was pushed by Easley and approved by the General Assembly in 2002, companies may apply for grants that are equivalent to an amount between 10 percent and 75 percent of the personal income tax withholdings of the new employees. The specific 10-year agreement with Verizon calls for the state to retain only 40 percent of the state withholding taxes paid by Verizon employees. The company will get back an amount equal to 45 percent of the withholdings, and the remaining 15 percent will go into a state rural infrastructure fund. Since the Department of Revenue will retain only about 40 percent of Verizon employees’ income taxes, other taxpayers will have to cover the cost of providing revenue for the state government services they consume.

The Verizon grant is actually being awarded to Cellco Partnership, which does business as Verizon Wireless. Tolson made the motion based on information provided to the committee and the committee’s findings that all conditions had been met that the grant to Cellco be approved.

CJ asked Tolson why the committee awarded a grant to Verison after the project was substantially under way. “What do you mean they have already started?” he asked. “I am not sure I know what you are saying there. You mean they had started building and doing all that stuff? That may be the case, but I am not aware of that.”

“I believe the project is a good project for North Carolina. I don’t know about the details. I did not look at the site myself,” he said.

The program criteria in use by the committee specifically says that “projects for which a grant is not found to be necessary for their completion in North Carolina will not be awarded grants.” Tolson acknowledged the condition is one of the tests. When asked who certified that the condition had been met, he said the committee takes recommendations from the Department of Commerce and that department officials certified that all the conditions had been met.

CJ also asked Tolson whether anyone had promised grants before the committee voted. “Absolutely not, not to my knowledge,” he said.

A local person who worked on the project was Scott Satterfield, CEO Wilmington Industrial Development, Inc. He was not involved in the details of the JDIG process, but said that he thought the grant was necessary to get the project. “The company in the early stages of the project made it very clear to the recruitment team that this was a very competitive project that was looking at several locations and that state and local incentives would play a major role and would be necessary,” he said. “Our job was to take it seriously and uncover all opportunities that the project was worthy of.”

When asked about the timing of the grant after the construction had started, Commerce Department spokeswoman Linda Weiner told CJ, “What we are talking about is a company that had a site and chose to make improvements at their own risk. There is no formal approval until the committee makes a public formal offer. The company put their truthfulness on the line. It has to count for something.”

But the award still has one more hurdle. According to state law, grants are not binding until a written Community Economic Development Agreement has been prepared by Attorney General Roy Cooper and signed by all required people, including Cooper. At press time, Cooper’s office would not comment or confirm the status of the Verizon agreement.

Don Carrington is associate publisher of Carolina Journal.