Opinion: Daily Journal

Glamour Shot Incentives

RALEIGH – When it comes to the hotly debated topic of government subsidies for business, the image typically conjured up by corporate-welfare proponents bears little resemblance to the actual practice. Call it the Glamour Shot of economic development.

First, the fuzzy-lens, cosmetically enhanced version. Picture a run-down mill town, its longtime anchor employer either bankrupt or departed for some tropical clime. The tax base is devastated. The jobless rate is high, the underemployment rate even higher. Retailers have been socked in the gut by the income losses of their customers, and now stand outside their stores, heads turned toward the horizon, waiting like Jericho characters for a mushroom cloud named Wal-Mart. A tumbleweed blows by, perhaps followed by a ravenous pack of wild dogs/Republican neocons.

Then, the community’s wise and far-seeing leaders break the exciting news: a savior has been found! A new employer is moving in, thanks in part to a small but crucial package of tax breaks and cash subsidies. A children’s choir begins to sing. Hardscrabble farmers and tough-as-nails working moms tear up. Local tax coffers begin, like Grimm’s porridge pot, to overflow with endless fiscal goodness.

Okay, now the unadulterated, sharp-focused, mascara-less version. In reality, most state and local incentive deals happen in North Carolina’s wealthiest and most populous cities and counties. They happen where the labor market is already tight, where tax revenues are already surging, and where income growth is already solid. The incentive deals enrich economic-development consultants, who conveniently insist that they are ubiquitous and essential, even though there is little empirical evidence to suggest that incentives determine most business decisions or confer net economic benefits.

Thanks to good reporting by the Triangle Business Journal and other media, we’ve long known that most tax breaks and cash grants from state government go to projects in Mecklenburg, Wake, and similar places. Now, thanks to a new report from the North Carolina Institute for Constitutional Law, we can confidently say the same about economic-development incentives at the local level.

NCICL used a combination of document requests, city and county minutes, press releases, and news clippings to find incentive packages local governments in North Carolina granted from 2004 to 2006. The organization was able to identify 353 such packages, totaling $403 million in expenditure or foregone revenue collection projected over various time frames (the largest single package in the study, $165 million for Google’s server farm in Lenoir, assumes a 30-year time horizon).

Now, the Google deal did happen in a rural community recently beset by plant closures and layoffs. But for the most part, NCICL found that local incentive deals got done in economically healthy communities, not the needy ones. Excluding Google, about three-quarters of all the local incentives authorized during the period were tied to projects in the Triangle, Triad, and Charlotte regions. While some of the counties in these regional clusters have faced significant economic challenges of late, many of the subsidized firms really did locate or expand in Charlotte, Raleigh, the Research Triangle Park, Wilmington, and other cities with vibrant economies.

I would never argue that incentive policies should attempt to steer economic-development projects from cities to rural areas, or from one region of the state to another. Attempts at economic central planning are – for basic, unavoidable reasons – unjust and doomed to failure. I am merely pointing out that if you accept central planning and a redistribution of economic-development announcements as goals of incentive policies, these goals are not being met. Policymakers shouldn’t pretend otherwise.

There is nothing wrong with state lawmakers and their counterparts in city and county government worrying about the wrenching changes and economic challenges facing rural and small-town North Carolina. But they need to choose policy responses that are consistent with sound principles of government and, as usually comes in tandem with that, are likely to work. Improving the quality of basic services such as water and highway access can make locations more attractive, as can the search for government efficiencies to allow for tax-rate reductions. As a state, North Carolina needs a more cost-effective means of improving the quality of education, a general topic within which there is certainly no shortage of specific, promising ideas.

Most importantly, state and local leaders need to get a clear look at the problem. It isn’t to be found in political Glamour Shots. A bright light and a mirror are all they need to get the picture.

Hood is president of the John Locke Foundation.