Corporate Welfare Weekly - July 24, 2009 – Issue 8
Jul 24th, 2009
Recent Announcements…
$2,200,000 from the Job Development Investment Grant (JDIG)
$1,000,000 in tax rebates from Henderson County
$500,000 in tax rebates from the city of Fletcher
These incentives come just two months after the company laid off 90 workers from its Morganton plant. The company has recently cut approximately 16,000 jobs across the company, in the U.S. and abroad.
The company claims it will bring more than 300 jobs to Henderson County.
~Andrew Dunn, Charlotte Observer, July 21, 2009
$62,000 in grants from the One North Carolina Fund to Sencera International Corporation, a thin film solar module manufacturer, to build a 35 megawatt solar module factory in Charlotte. In addition to this grant…
$1,039,721 in local incentives from the City of Charlotte and Mecklenburg County. The city and county incentives represent 90% of what the company would have paid in property taxes over a 3-year period.
~Wade Fulghum, Program Manager Economic Development Team, North Carolina Solar Center, July 23, 2009
$116,300 in grants from the One North Carolina Fund to Yale Industrial Products, Inc. The company claims it will invest $3 million and create 65 jobs over the next three years.
~Abby Cavenaugh, Anson Record, July 20, 2009
Economic incentive packages have been offered to Wilsonart’s laminate plant, BorgWarner’s auto cooling parts factory, and Warm Factory in Fletcher. Both the City of Fletcher and Henderson County offered support for the three projects by offering economic incentive packages with matching funds coming from the companies.
~Julie Ball, Asheville Citizen Times, July 2, 2009
75% rebate of county taxes due on new investment over 5 years has been unanimously approved by the Rowan County Board of Commissioners for Freightliner’s Cleveland plant. The grant will come from the Rowan County Investment Grant Program. Freightliner only has to agree to maintain its current 695 jobs and expand as the economy and Department of Defense contract allows.
~Jessie Burchette, Salisbury Post, July 21, 2009
On the horizon…
$8,000,000 may be given to Sanderson Farms, a Mississippi chicken-processing company after they revived their plans to build a $121.4 million complex in Kinston starting this summer. Does it sound like they need $8 million in incentives to carry out a pre-existing business plan?...
“We are pleased that better overall market conditions, our financial performance and a strong balance sheet have put us in a position to continue to grow our company,” Sanderson Farms CEO, Joe F. Sanderson, Jr.
~Alan M. Wolf and Jonathan B. Cox, News & Observer, July 24, 2009
$2,600,000 in incentives to Greenfire Development may be granted by the Durham city council to help finance the conversion of the SunTrust tower into a hotel. There is still some reservation within the council because a prior incentives offer given to the company expired because the company didn’t finish the project in time.
~Ray Gronberg, Herald Sun, July 24, 2009
Quote of the week…
“I have never seen a company lay off in one place and get incentives to hire a new set of workers in a nearby location…This one takes a new prize…that takes chutzpah from the company.”
~Joseph Coletti, Fiscal and Health Care Policy analyst for the John Locke Foundation regarding the recent state and local incentives for Continental Automotive.
“Some are tire kickers, I know that.”
North Carolina Secretary of Commerce Keith Crisco regarding the 47 active incentives projects being pursued by the NC Department of Commerce.
Encouraging Tidbit…
North Carolina Secretary of Commerce Keith Crisco has admitted that the millions of dollars in financial incentives given to Dell Computers in 2004 have not paid off. This admission is good news for taxpayers because we now have a top state official on record admitting that the Dell deal has not produced any benefits to the North Carolina economy. Dell was awarded hundreds of millions of dollars in incentives and the company still made the decision to shrink their North Carolina work force earlier this year due to their desire to outsource the manufacturing of its computers.
When asked recently whether Dell’s $282 million incentives deal has been a success, Crisco responded, “It has not been yet…we need three to four years to judge it in total.”
Regarding incentives in general, Crisco said “The truth is, we have a short-term problem.” He claims we have no alternative to offering incentives because other states are offering them. When asked about whether the states should collectively reach an agreement to limit or stop the practice, he said, “We’ll be happy to take a seat at the table.”
~Dale Gibson, Triangle Business Journal, July 23, 2009
Discouraging Tidbit…
The film credit expansion is expected to worsen the NC budget shortfall, not improve it!
A recent John Locke Foundation Spotlight report states that the recent expansion of the film tax credit will make the hit to the wallets of North Carolina taxpayers even more painful. According to the report, the General Assembly’s own fiscal research staff estimated a negative fiscal impact of $11.2 million under the 15% credit and that the negative return could expand to as much as $74.5 million under the 25% credit.
An Ernst & Young study states that the state government will lose as much as $0.33 on each dollar with higher tax credit of 25%. The study even recognized that 39% of wages paid by the film industry would go to out-of-state residents!
The report explains that in 2005, before the initial 15% film tax credit was created, North Carolina was home to 64 movie and television show productions, #5 in the nation. Even due to this high number of movies and TV shows, they only generated $300 million* in economic activity – 9% of the state GDP. Even after their 15% credit was passed, there is no evidence that North Carolina’s film industry provided a significant positive impact to North Carolina’s GDP.
~Joseph Coletti, Fiscal and Healthcare Policy Analyst and Jacob Burgdorf, Policy Research Intern, at the John Locke Foundation, John Locke Foundation Spotlight, July 22, 2009
*If you think $300 million in economic activity from the film industry seems significant, remember from last week’s newsletter that the golf industry has a $5.3 billion impact on the North Carolina state economy. If our legislature is so determined to conjure up some economic development magic, it seems they should be providing tax credits to the golf industry, not the film industry. Instead, they give a more generous tax credit to the film industry, while considering raising taxes for the golf industry.
Editorial Economic Viewpoint…
By: Shelley Gonzales
Graduate student in Economics
North Carolina State University
The “Broken Window Fallacy”
Consider this story…a hoodlum throws a brick through the window of a bakery. The bakery owner must now replace this window at the cost of $250. But wait! This will create business for the glazier! If that window was never broken, what would happen to the glass business? Now, after fixing the window, the glazier has $250 more to spend somewhere else, which they in turn spend somewhere else, and on and on to infinity. The concept is that this broken window will spur continual economic activity. Sounds good right? The broken window, which started out as a nuisance turned out to be a benefit to the public! So what’s the problem?
Let’s look at the story from a different perspective. Since the baker had to spend $250 to replace the broken window, he can no longer spend that $250 on the new suit that he intended to purchase. Since he had to replace the window, he will have to forgo the suit. Instead of having both the window and a suit, now he has just a window. Since the baker couldn’t buy his new suit, the suit-maker is now $250 short of what he would have earned had the baker’s window not been broken. The increase in business for the glazier is merely a loss in business to not only the suit-maker, but the fabric store, the textile plant, and on and on to infinity.
People tend to only count the business of the glazier because the benefits are observable. They rarely consider the cost of the new suit that will never be made. So with regard to net benefits, no new employment has been created and no new growth has been “stimulated.”
This story is called the “Broken Window Fallacy,” originally created by Frederic Bastiat, a French classical liberal theorist and political economist. The story is also a lesson in the law of unintended consequences.
It may be good politics for legislators to make grandiose claims that they are “creating” jobs or “stimulating” the economy, but what is best for the economy is to have a long-run focus, which may tend to cause a sting to the economy in the short-run. This is better than having a short-term focus, which could lead to a severe sting to the economy in the long-run. With regard to corporate welfare, we are in a sense “breaking the window” to give money to a few “special” corporations (the glaziers), but we are in turn taking away money and business from taxpayers and other “not so special” corporations (the suit-makers). What if North Carolina did not provide any incentives to those “special” companies? Well, there would be more money for taxpayers or more money for existing businesses in the state. This could come about in the form of a tax cut. Companies and/or taxpayers would have more money in their pockets to spend on additional consumables or provide more jobs. As for the corporations receiving incentives, they may have still come to the state regardless and we could be benefitting from having both the glaziers and the suit-makers in business and prospering!
Please visit the North Carolina Institute for Constitutional Law website for more information