The incentives game is not for locals

In Raleigh, Gov. Beverly Perdue recently charged the members of her Economic Development Board "to put into place a system of economic development that works for every county and every city in this state." Meanwhile, the Guilford County commissioners continue to wrestle with a proposal to use $1.3 million in tax funds for economic incentives to small businesses -- a proposal promoted as a way to support small businesses that don't get the multimillion-dollar incentive deals that the Dells and Googles get.

Both sentiments strike a responsive chord because North Carolina does in fact need to create a new model for economic development -- one that is fair to new and existing businesses and that benefits the range of businesses in our state from multinational conglomerates to small, homegrown operations.

Although neither the governor nor the Guilford commissioners have asked for my opinion, let me start the debate with a simple but effective proposal: Get local governments in our state out of the incentives business, particularly when it involves targeted incentives that go to only one business or at most a handful of favored businesses.

Before the loud groans of angst begin from those who primarily benefit from the incentives game, let's take a realistic look at how local incentives invariably play out. On the one hand, you see situations like the one involving Dell, which announced it was coming to the Triad area after receiving a commitment for several hundred million dollars in special grants and tax breaks from the state. However, Dell then proceeded to play Forsyth County against Guilford and Davidson, so as to ultimately top off the incentives grab with $35 million in local incentives from Winston-Salem and Forsyth County.

Another example of a giant company in the local incentives game is Google, which after getting a multimillion-dollar incentive package through the General Assembly then turned its huge economic power and leverage on the small mountain county of Caldwell and the town of Lenoir. Local officials there, desperate to get investment and jobs for their area, succumbed to Google's threats (false, in my opinion) that it might locate elsewhere. The result: The struggling local governments promised millions in additional incentives on top of the state package.

At the other end of the financial spectrum is an array of local incentives that border on the ridiculous when it comes to actually incentivizing large corporations. The town of Cary just awarded Deutsche Bank $75,000 in local incentives to locate a facility in Cary. Even the most novice business mind knows that $75,000 is not going to influence a multibillion-dollar company's decision about where to locate its facilities. In North Wilkesboro some months ago, local government gave corporate giant Lowe's an incentive package of less than $100,000 to let it know it was appreciated. And over in Durham, the city gave Burt's Bees $138,750 to move from northern Durham County to the downtown area.

These examples and hundreds of others around the state point out the absurdity of local governments being in the incentives business. First, most incentives reward only one company with tax breaks or grants, and those companies are either moving from one North Carolina community to the new one, or as in the Durham example, within the same county. Robbing Peter to pay Paul is not an economic development policy that makes sense. And when it comes to negotiating with corporate powers like Dell, Google or Apple, local governments are simply outgunned. The pressures on locally elected officials to "deliver" on job creation puts those officials in the position of simply being unable to say no or effectively negotiate down the demands of these corporate power brokers. And since the information about the competition for the project is secret, local governments (and even the state) never know what they are really bidding against.

Finally, an economic development policy that pits one North Carolina community against another strongly favors the large, wealthy counties like Mecklenburg and Wake at the expense of smaller and less-affluent areas. Surely an economic development policy that allows our larger, economically strong cities and counties to raid their struggling fellow North Carolina communities of desperately needed jobs and businesses is fundamentally flawed, if not straight out unconstitutional.

I recognize that North Carolina is not getting out of the incentives business, but if the state is negotiating an incentives package for a large corporate entity, there is no reason for local governments to be thrown like lambs to the slaughter in further negotiations about the final site. And there is certainly no reason to encourage local governments to compete against each other in the unfair world of targeted incentives bidding. Getting local governments out of the incentives business will save millions in taxpayer dollars at the local level that can be better used for education, infrastructure improvements, public safety and, yes, tax relief. If this is done, then economic development dollars at the local level can be spent more effectively in recruiting new businesses and encouraging existing businesses rather than pouring tax dollars down the proverbial drain.