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Post-Boeing, Incentives Debate Rages

Both sides say the policy is unfair but disagree on what to do about it

No matter how North Carolina slices them, “targeted economic incentives” — such as the $534 million package offered to Boeing to start a new plant at the Global TransPark in Kinston — discriminate against companies already doing business in the state, both supporters and opponents of the inducements say.

But they disagree on what can be done to solve the problem.

North Carolina’s chief architect of incentives, Gov. Mike Easley offered the state’s largest-ever incentives package to Boeing in December. In return, Boeing would build a plant at the GTP, where workers would assemble the company’s new 7E7 jetliner.

Perri Morgan, director of the North Carolina chapter of the National Federation of Independent Businesses, said the state is wasting its time offering incentives. Other factors, such as quality of life and an overall tax climate, are more important to companies. “All the money in the world wouldn’t determine where they’d go,” she said.

Small companies drive the state’s economy, Morgan said. “Existing businesses in North Carolina create 80 percent of all new jobs. It’s appalling that the tax money these businesses pay is being used this way,” she said. “Incentives create a competitive disadvantage for our businesses.”

But an incentives policy “does give lawmakers an opportunity to go back to their districts and say ‘look at what I’ve done,’” Morgan said.

Sen. John Kerr, D-Goldsboro, a member of the Senate Commerce Committee and in whose district the GTP resides, said the offer to Boeing was based upon sound public policy. “In the scope of things, I thought it was a good offer. I’m glad that we at least showed we were business-friendly.”

“You’ve got to be competitive. If we don’t provide jobs for our people, we’re lost,” he said. “You’ve got to keep up with Joneses.”

Included in North Carolina’s incentives were 539 acres of land at the GTP, valued at $10.8 million, and $225 million in tax-exempt bonds for a building provided by the state and “a third party.” Among other unusual inducements were $20 million for the University of North Carolina system to provide a masters-level curriculum for Boeing workers and $40 million for workforce training, including a new high school that would specialize in aviation training. Other significant incentives were a $20 million tax grant by Lenoir County, a $42 million tax credit for machinery and equipment, a $28 million grant for job development investment, and a $45 million grant for a property-tax exemption.

Boeing’s $900 million plant at the GTP would have created 1,200 jobs, and its suppliers would have employed about 500, Secretary of Commerce Jim Fain said.

Many states entered the competition for the Boeing plant after the company announced last June that it planned to build the 7E7 Dreamliner aircraft. Some states, including North Carolina, raised the amount and value of incentives in each new round of bidding for the project.

In the end, Everett, Wash., where Boeing builds its entire wide-body line of 747s, 767s, and 777s aircraft, won the 7E7 project with a total incentives package of $3.2 billion.

Washington’s bid more than likely totaled about $7 billion after state-provided infrastructure was counted, Kerr said. “At least we haven’t gone crazy like other states,” he said. “We’ve got reasonable incentives in North Carolina. We don’t have a Cadillac program, but you at least have to come to bat. I’m for reasonable incentives.”

Rep. Paul (Skip) Stam, R-Wake, said he thinks North Carolina’s offer was far from sensible. State officials were “not in their right mind if they offered that. They shouldn’t have offered anywhere near that. I think infrastructure and training are OK, but not tax breaks.”

A better policy would be to let the free market, instead of incentives, determine where companies locate, Stam said. “There’s a fallacy that states need to get involved instead of allowing payment that normally would occur if the money is left in a free economy.”

Stephen Slivinski, senior economist for the Tax Foundation, a nonprofit organization in Washington, D.C., said that’s exactly what should happen. “Generally, incentives wind up being counterproductive at worst.”

“How can anyone say the incentives worked? At what cost did that seeming-success occur?” he asked. “And at whose cost?”

“The per-job cost of each one of these things is quite large. You’d be better off cutting taxes for everyone rather than cherrypicking a certain industry or business,” Slivinski said.

Officials’ narrow-mindedness is another drawback to incentives, he said. “A lot of these [incentives] are geared toward old-line industries like Boeing.”

Targeted incentives basically are unfair to other businesses, he said. States should improve their competitiveness by providing “a level playing field” for all companies.

Sen. Charles Albertson, vice chairman of the Appropriations on the Natural and Economic Resources Committee who will represent Kinston’s senatorial district the next full session, said he, too, thinks incentives penalize smaller businesses.

“It’s not fair. But I don’t know how you’d change that,” he said.

It was unfortunate, though, he said that Boeing didn’t come to the GTP. “I think it’s sad,” he said. “But if you want to compete, you’ve got to offer incentives.”

The excuse that “everybody does it” doesn’t hold water, Morgan said. The bidding war among states has become fierce, she said, and action to curtail incentives needs to be taken on the congressional level. Also, North Carolina could refashion its laws to make the state competitive without using incentives, she said.

Rep. Connie Wilson, R-Mecklenburg and chairman of the House Commerce Committee, said incentives are a mixed blessing.

“Boeing was a wonderful once-in-a-lifetime opportunity for Kinston,” she said. And generally, she said, she thinks incentives are appropriate. “I wish it were a perfect world, but it’s not a perfect world.”

A bidding war among states is one of the drawbacks of incentives, Wilson said. “It puts us in a danger, upping the price to compete with other states. It could damage our revenue in the future.”

She said she understands why small businesses, which receive no help from the state, oppose targeted incentives. “Small businesses in North Carolina have every right to complain. North Carolina should have the best business climate, but we don’t.”

North Carolina doesn’t need incentives to attract business, said David Mills, executive director of The Common Sense Foundation in Raleigh. “The state is ultra-competitive as it is,” he said. “Incentives are giveaways to big corporations. We’re providing corporate welfare for them.” Besides, he said, there is no proof that incentives have any impact, that businesses would have come to the state anyway.

Incentives also are unfair to the state’s citizens, Mills said. “In tight economic times it’s painful to see North Carolina giving away money to businesses. Job creation isn’t something the government is good at. It should be providing education, health care, and a safety net for those who need it.”

The Commerce Department worked with the governor’s office to prepare the incentives package, called “Project Olympus,” over a period of months, starting in early summer.

North Carolina’s proposal did not constitute a commitment, state officials said, but rather a basis for a final negotiation of terms. Those terms would be subject to final approval of the governor as well as the review and approval of the General Assembly, local government jurisdictions, and various other board and authorities. To get that approval, Easley said Dec. 12, he would call legislators back to Raleigh for a special session if Boeing chose the GTP.

After winnowing a list of possible sites in North Carolina offered by the Commerce Department, Boeing settled on the GTP as a finalist in its nationwide search. Boeing officials had visited North Carolina “five or six” times during its search, Fain said.

Some other incentives in the package were $3 million for road improvements, $2 million for site preparation, $10 million for water-sewer improvements, $1 million for a day-care facility for Boeing employees, $28 million for transportation infrastructure, $20 million to upgrade airport operations and services, and a $17 million credit in real property improvements.

North Carolina was forced to do something, Kerr said. “We didn’t start this war on incentives. Our great heroes in Washington wouldn’t let us have taxes on the Internet, and that’s not fair to your little local business.”

Mills and Morgan, though, said states that use incentives are following a dangerous policy. “It’s mutually-assured destruction,” Mills said. “Unilateral disarmament wouldn’t be such a bad idea.”

“If we have another September 11th, we’re going to be in trouble having commitments to these long-term contracts,” Morgan said.

Richard Wagner is editor of Carolina Journal.