Is it the economy, or is it stupidity? That’s what North Carolina’s citizens want to know after the General Assembly recently approved a package of “incentives” for corporations that Gov. Mike Easley said would boost the state’s economy.
Legislators staged a special session Dec. 9, in less than a day, to study the incentives and to work their miracles. Alacrity of such magnitude proves once again that no one can spend money — someone else’s — faster than a bunch of politicians.
During the fast and furious legislative session, Easley and the GA gang gave away hundreds of millions of dollars in subsidies primarily to two corporations that really need it: the gigantic Merck pharmaceutical company and R. J. Reynolds Tobacco Holdings. The deal comes, paradoxically, only a few years after North Carolina, led by then-Attorney General Easley, and other states sued tobacco companies and won billions of dollars in a settlement.
The way Easley and some legislators are selling the “investment,” North Carolinians are getting a real bargain. We’ll break even on the Merck deal, they say, in about 11 years. After 20 years, though, is when we get the really big payoff: $20.6 million, which is called “a net positive impact on the state budget.”
If those numbers are reliable — and we all know how reliable our state’s politicians are — my calculator tells me that the rate of return on the state’s so-called investment would be much smaller than the yield in the markets. North Carolina officials would have served the state better by investing, say, even in an index fund. That’s assuming, of course, that Merck lives up completely to its end of the agreement of investing hundreds of millions of dollars and generating hundreds of jobs in the state. Keep in mind that RJR recently eliminated more jobs than the 800 the company is supposed to bring to North Carolina.
But wait, there’s more, as they say on those cheap TV commercials that sell each and every product for $19.99. These investments will boost North Carolina’s gross state product by as much as $1.43 billion over 20 years. That figure may sound gross, but it is actually trivial — something in the hundredths of one percent of the cumulative gross state product North Carolina is likely to experience over the years.
Among investors, I certainly couldn’t be considered an expert. But I would imagine that any broker on Wall Street who tried to sell a scheme like that would be investigated by the feds and probably thrown into the pokey for a long time.
More and more people in the business world nowadays are finding out that the public isn’t in any mood to suffer any more corporate con artists. But in state-government circles it’s quite OK to soak the public. It’s OK because state leaders passed laws that enabled them to do it. Instead of being called corporate predators, in North Carolina though, they’re just called creative and caring politicians.
Now that a lot of legislators have swallowed the bait, Easley and his allies hope to turn the incentives into a feeding frenzy. Cries for a slice of the pork are coming from everywhere.
Rep. W. Eugene McCombs wants a huge helping for Rowan and Cabarrus counties, which “have lost 5,000 jobs and no one, it seems like, is trying to help them.” Rep. Edgar Starnes said he wants to know what good the incentives package would do for his constituents in Caldwell County. Folks in Lenoir County want to know what happened to a sweetheart deal that they were promised would bring Boeing aircraft company and save the Global TransPark.
Not to worry. Easley has assured us to just wait, there’s more. The General Assembly will bless the rest of North Carolina with more and bigger “incentives” when the legislature reconvenes this spring. Maybe we’ll see the governor doing a $19.99 TV commercial to set the stage before then.
But I have a sick feeling it will cost us a lot more than that for a long time.