That’s the breaks

 In 2014-10
Handing the public’s money to Ford so it can outperform Chevy isn’t right — unless you have a stake in Ford’s success and don’t mind tipping the scales. Once common sense, that notion is considered outdated by economic developers and others who think business incentives are an essential tool for growth. The trick is outbidding or outsmarting other states, then touting the deal as revolutionary. Our state recently granted AvidXchange Inc., a Charlotte software company, $10 million in incentives over 12 years, tied to job growth. The 300-employee company pledges to add 600 more over four years as it helps “Charlotte become a leader of innovation much like Silicon Valley,” CEO Michael Praeger says.

But a surprising thing happened in Raleigh that could gum up future deals: Legislators limited how much money state and local officials can hand out. In addition to breaks for film production and rehabbing historic property — for more background on both, see our May issue — proponents wanted to start
a $20 million-a-year “Catalyst Fund” to close incentive deals. That’s tip money compared with what some governors ante up, but it seemed excessive to lawmakers. For the first time in many years, they killed an incentives bill in open debate rather than in a backroom, says House Speaker Pro Tem Paul Stam, a seven-term Republican from Apex who opposes targeted tax breaks.

Local officials term the action harmful to North Carolina’s future and pressed Gov. Pat McCrory to call back lawmakers to fix their mistake. U.S. Sen. Kay Hagan criticized her Republican opponent, House Speaker Thom Tillis, for failing to prime the incentives pump. As many as 10,000 potential jobs might be jeopardized as the state runs out of incentives money — as soon as this month — the N.C. Commerce Department warned. (The state has a labor force of 4.7 million.) To avoid a battle before the election — and because he didn’t have the votes to get incentives passed, Stam says — McCrory punted the issue to next year.

The former Charlotte mayor, who has emceed scores of press conferences lauding companies receiving breaks, promised a special session if a “major job-recruitment effort develops and it requires legislative support.” You know, like North Carolina’s $107 million bid to Japan’s Toyota Motor Corp., which eyed Charlotte for its North American headquarters earlier this year. That trounced Texas’ $40 million package, yet Toyota picked Plano, with an executive telling the Houston Chronicle that incentives weren’t a key factor. Academic studies show costs of labor, electricity and transportation matter more, along with good schools and civic charm. But support for incentives is entrenched. In central North Carolina, officials are assembling massive tracts to attract an auto plant, an effort certain to require millions of dollars in incentives. “If I could get the government to send me a check, I’d do it, too,” Stam says. “But the people telling us we have to do this are the ones making money off the process.”

Equally unimpressed is Jim Goodnight, CEO of Cary-based SAS Institute Inc., No. 2 on this year’s list of the state’s 100 largest private companies. “One of the challenges that we are facing is keeping talent from being stolen away from us by companies the governor pays hundreds of millions of dollars to move in here,” he said at a conference last month in Raleigh. “I am very opposed to companies looking for a big handout to come here.” But what does he, co-founder of a $3 billion company with 13,600 employees, know about economic growth?

 

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