Lee County officials are pushing a tax-funded incentive to a Canadian company that is looking to operate in Sanford, where it would compete directly with a homegrown steel fabricator and service center has been in business for more than 60 years.
Allied Crawford, a subsidiary of the North York, Ontario-based Crawford Steel Inc., promises to create about 40 jobs in Lee County, where unemployment was 12.1 percent in February. But the move potentially could shutter Sanford Steel & Pipe Corp., which never has accepted government funding.
“We never sought it, and we don’t agree with it,” said Steel & Pipe President Brian McRae of the proposed incentive. “Free enterprise is free enterprise. We need $500,000 worth of equipment right now. [The economic downturn] has been terrible, but we have managed to hang in there. The downturn in housing was the biggest thing to hit us on the service center. You just about have to give a job away to get the work.”
Allied Crawford would be one of nearly 100 companies to receive some sort of economic incentive during Gov. Bev Perdue’s two years in office. During that time, the state has spent upward of $2 billion to lure businesses to the state, according to the governor’s website. That figure includes another $28.3 million the state provided for a Caterpillar manufacturing facility in Lee County. The company is expected to create 325 jobs by 2014.
Meantime, it’s impossible to say what impact, if any, taxpayer incentives have had on overall employment. In February, the state reported an unemployment rate (not seasonally adjusted) of 10.1 percent — 0.6 percentage points above the national average of 9.5 percent, according to the federal Bureau of Labor Statistics.
What is unusual about this proposed incentive is that Allied’s gain could come at a cost to a going concern. Tax-funded incentives typically are targeted to lure a company that doesn’t have any existing local competitor. In this case, however, the handout from the state could put a North Carolina company out of business.
The odd nature of this arrangement initially worked to Steel & Pipe’s advantage. The Lee County Commission in January nixed a plan to provide $90,000 in incentives for the Canadian rival. The county had planned to kick in $51,000 in tax breaks; Sanford officials had considered an additional $37,000 in unspecified incentives.
County Commissioner Linda Shook later told The Sanford Herald that the deal was shot down because it would have given Allied Crawford an unfair advantage over Sanford Steel & Pipe.
In early February, Allied Crawford Chief Executive Officer Gary Stern blasted the locals, saying he would take his $3.5 million investment elsewhere. “As of today, I said I’m not spending any more time on it,” Stern said.
Then on Feb. 16, the Sanford City Council voted 3-2 to support and endorse Allied Crawford’s application for a $480,000 grant from the North Carolina Rural Economic Development Center, under the Building Reuse and Restoration Grant program. The city submitted an application to the Rural Center to assist Allied Crawford with renovations on the Redman Homes Building at 548 Harvey Faulk Road in Sanford. City officials agreed to provide a 3 percent match, as required by the Rural Center. The total project cost for retooling the vacant 122,000-square-foot building, built in 1997, is estimated at $4.1 million.
McRae believes that Allied’s proposed expansion would pose a considerable threat to Steel & Pipe‘s service center. Steel & Pipe buys steel in bulk from mills, breaks it down, and sells it off in pieces. In February, McRae said Steel & Pipe started getting requests for letters of credit from Allied Crawford. “They’ve got a guy calling on our customers who we normally service,” McRae says. Some 71 percent of Steel & Pipe’s revenue comes from the service center, he says.
McRae’s family didn’t build the company with their own hands, but might as well have. Steel & Pipe began operations as a steel service center in 1961 with a 70’ by 60’ runway. McRae’s father, Larry, went to work for Steel & Pipe as a warehouse manager in 1966. Over the years, the company gradually expanded its operations to the 11 acres it now rests on north of Sanford. The elder McRae was named president of the company in 1983. After founder James King died from cancer in 1986, Larry McRae became majority owner. Brian joined the company as its controller in 1993 after graduating from East Carolina University with a degree in finance. He was named president of Steel & Pipe in 2009.
At its height in 1999, Steel & Pipe employed 57 workers. The company’s work force gradually began shrinking during the post-9/11 recession. In 2003, steel prices skyrocketed and have never corrected, says McRae. In late 2007, the recession crippled the construction industry. Today, Sanford Steel & Pipe employs 32 people.
“If they come here and receive $500,000, and we lose one job — that’s not right,” McRae says. “All we want is a level playing field.”
Founded in 1996, Allied Crawford has eight facilities in the southeastern U.S. and employs approximately 181 workers company-wide. Its parent company is headquartered in the Ontario province of Canada. The terms of the grant require Allied to create the promised jobs within 18 months of undertaking the project and to retain those jobs for a minimum of six months.
The Rural Center announced March 1 that it had awarded 46 grants totaling $5.4 million to create jobs and promote economic development in rural counties. The center says the grants will create or retain 1,400 jobs.
Bob Huets, director of the Lee County Economic Development Corporation, who orchestrated the initial incentives deal with Lee County commissioners during a closed-session meeting in January, told Carolina Journal this week that the EDC “is still working with that project.”
“We don’t like to talk about those projects until they land,” Huets said. “We don’t have any comments.”
Kristy Bailey is a contributor to Carolina Journal.