Capital Goods: July

Outside perspective

Few subjects are more prone to make politicians appear hypocritical than business-recruitment incentives. The reasons are obvious: Giving taxpayer money to companies with multimillion-dollar bottom lines is distasteful, and incentives can trip incumbents come election season. Candidates not in power usually are more skeptical of them. Once elected and competing with other states to bring home the recruiting bacon, their tune often changes.

Running for governor, Pat McCrory did quite the dance to avoid being pinned down on the issue. As the favorite, he played most issues as safe as possible. But you can only be so careful under the scrutiny that comes with running for statewide office. At one point, a spokesman told a reporter, “Pat opposes upfront cash incentives with no guarantee of the jobs coming or staying in North Carolina. Pat believes it is more appropriate to focus on existing North Carolina businesses to help them grow and create jobs.” Later, McCrory acknowledged he would continue to offer the inducements, qualifying the statement with talk of a “return-on-investment formula.”

Six months into his term, reality has replaced rhetoric. Barely a week goes by without McCrory crowing about some relocation or plant expansion in the state. The announcements almost always include a reference to state incentives. With Republicans firmly in control of the legislature and the governor’s mansion, no scaling back of incentives appears imminent, despite discussions to the contrary. The state Senate’s proposed budget more than doubles the money for one of North Carolina’s key incentives, the Jobs Development Investment Program, bringing the total to $51 million.

Secretary of Commerce Sharon Decker recently told lawmakers the state needs incentives to stay in the race. “I do think that in today’s competitive environment that we are taken off the list if we don’t have those tools in our quiver,” she said. Democratic governors and legislative leaders mixed the same metaphors lamenting a fate that forced them to rain tax breaks and money on companies to keep South Carolina or Georgia from wooing them away. However, that doesn’t mean the McCrory administration won’t change how it recruits industry and promotes the state.

McCrory and Decker plan to create a private, nonprofit corporation to take over several functions of the N.C. Department of Commerce (cover story, June), including travel-and-tourism marketing, small-businesses development and international company recruitment. It could oversee incentives. Regional economic-development partnerships are facing the chopping block. The proposal appears similar to Indiana’s structure. McCrory sees the approach as creating cohesion for the state’s recruitment efforts. It appears to enjoy support among GOP lawmakers, though Jim Martin, the last Republican governor before McCrory, called a similar idea raised during the 1980s “dumb and dangerous.” It might be a while before any shift occurs. Decker says the changes would likely take 12 to 18 months to complete.

Even with state leaders agreeing on many economic policies, incentives have the potential to create fractures. When Decker recently addressed legislators, a couple of House members spoke about their use in less-than-glowing terms. Rep. Chris Mills, a Pender County Republican, believes incentives use taxpayer money to pit companies that are new to the state against those already here. Mills co-sponsored a bill that would gut film incentives (Regional Report, June). As legislators plowed into reworking the state’s tax structure, some proposed using wider tax breaks instead of incentives.

Decker is not shy about sharing her stance on incentives. She told lawmakers that talk of eliminating them may have cost the state business. The McCrory administration also made it clear it has no interest in seeing the carve-outs for movie and TV productions disappear. That’s how the game goes. When you are on the outside looking in, arguments against incentives — their inherent unfairness, how they rob the public coffers, their questionable effectiveness — come easy. When you are in power and your career hinges on bringing in jobs, it gets harder to hate them.

Scott Mooneyham is editor of The Insider, www.ncinsider.com. Email him at smooneyh@ncinsider.com.