Corporate Welfare Weekly - July 10, 2009 – Issue 6

Recent Announcements…

$20,700,000 in additional tax breaks has been promised to Apple by the city of Maiden and Catawba County over the next ten years. Catawba County Board of Commissioners and the county’s Economic Development Corp. just announced this week that Apple will build their new data center in Maiden.

            ~John Dayberry, Hickory Daily Record, July 7, 2009

Problem? Well, as of Thursday July 9th, the technology giant has not confirmed that it has locked in Maiden as its choice. After the county’s announcement on July 6^th, Apple spokesman Mike Foulkes made the general statement that it was the company’s “desire and hope” to build in Catawba County.

~General staff and wire reports, Hickory Daily Record, July 9, 2009

Desire and hope? This is not exactly the language of commitment.

$46,000,000 in tax breaks has already been promised to Apple by the state over the next 10 years.

$120,000 to Alpha Inc., a global supplier of plastic packaging, from the One North Carolina Fund. They will be opening a new manufacturing facility in Raeford and claims 40 jobs will be created over the next three years.

            ~ Press release from Governor Bev Perdue’s office, July 8, 2009

$370,000 in local incentives has been approved for Ingersoll Rand at a joint public hearing with the Town of Mocksville and Davie County. Mocksville will provide up to $148,000 in incentives and Davie County will provide $222,000. It is said the company will bring 20 jobs to the area. The company has conducted major job cuts as recent as March of this year.

            ~ Michael Hewlett, Winston-Salem Journal, July 7, 2009

This announcement by the Town of Mocksville and David County comes right after a Davie County Board of Education meeting that was held on March 9, 2009 which estimated that Davie County schools will lose $200,000 based on FY 2008/2009 state lottery quarterly revenues. Public school budget cuts have been recommended for FY 2009/2010.

$40,000 to Adhezion Biomedical, LLC. from the One North Carolina Fund to help the company expand in Hudson. The company claims it will create 20 jobs.

            ~Press release from Governor Bev Perdue’s office, July 7, 2009

Current estimates show that Adhezion’s annual revenue is approximately $1,100,000.

Quote of the week…

“These packages send unintended signals to the marketplace. First, it tells the market that your tax system is so out of line that you need specific tax breaks to get a business to locate in the state. Second, it tells your local businesses that they are foolish for staying in the state and paying taxes to subsidize another business with better political connections...”

“…Targeted incentives are to a state’s economy what steroids are to the human body – short-term results that eventually weaken the bones, cause heart failure, or worse, impotency.”

~ Scott Hodge, president of Washington D.C.-based Tax Foundation. June 3, 2009 press release in which Mr. Hodge criticized North Carolina’s Apple incentives deal.

Discouraging Facts…

As reported in June’s week 4 newsletter, Baldor Electric landed a total of $157,000 in incentives to create 114 jobs at its Kings Mountain plant in North Carolina. In actuality, Baldor is streamlining its operations and has laid off about 120 employees from their factory in Columbus, Indiana.

            ~AP story, Arkansasbusiness.com, July 1, 2009

Editorial Economic Viewpoint…

By:  Shelley Gonzales

Graduate student in Economics

North Carolina State University

Granting financial incentives to a corporation does not “create” jobs out of thin air as our legislators would want us to believe. Consider this…every job “created” is also a job is lost somewhere else. State officials want us to believe that the jobs promised by an incoming company will be in addition to the number of jobs already here. While unemployed individuals may fill a small portion of the positions offered by the incoming company, the majority of new hires are just transfers from another region or industry, mostly from within the state. We are shoveling out money for “economic growth,” but our elected officials are either completely dismissing or just ignoring the fact that we are just moving around the existing work force. Would we have experienced economic growth in other areas of the state had the money been, say, given back to all of North Carolina’s businesses? How much real growth is our state sacrificing in order to give one or two big corporations a massive tax break?

The economic growth philosophy that is being used by state officials ignores a fundamental economic principle, opportunity costs. Opportunity cost is the value of the next best alternative use of a resource. While it is more difficult to quantify the migration of labor and the number of jobs that may have otherwise been created if the money was disbursed in a different way, it is dishonest to ignore these factors altogether. For example, what if the legislature cut corporate taxes for all businesses in the North Carolina by the same amount as the corporate incentive give-a-ways? This would not only encourage all companies already doing business within the state to hire more workers, but it would also draw those coveted corporations, both big and small, to move to or expand within the state.

Our legislators need base their decisions on net benefits. They are in the habit of praising the “abundant” benefits, but are not nearly as willing to expose the full costs beyond the basic monetary costs. This provides a result that is not only skewed, but dishonest. If the legislature will not calculate the full cost of the corporate incentive programs, which is accounting for opportunity costs as well as monetary costs, they do a huge disservice to individual taxpayers as well as every loyal business in our state.

Please visit the North Carolina Institute for Constitutional Law website for more information