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The Inclusive Economy
Incentives at $1.2 billion a year
Posted on 12/07/2007 @ 03:35 PM
By Jonathan B. Cox
Tax breaks make up most of state enticements to businesses, analysis finds
The state has spent $3.7 billion in the past three years on incentives to attract businesses, according to a draft report released Tuesday.
The majority of that assistance -- almost 90 percent -- comes as tax breaks, the 56-page study said. It was written by the General Assembly's Fiscal Research Division at the request of a legislative panel that is evaluating the perks.
The report is among the most comprehensive efforts to quantify enticements used to get business to expand in North Carolina. While cash grants are usually easy to tally, it's harder to account for other expenditures such as those for worker training.
"Until this was put together, the state has had no idea how much it is spending on and off budget or what the trends are," said Bill Schweke, an incentives critic and a vice president with the Corporation for Enterprise Development in Durham.
Complete figures aren't yet available for this fiscal year, but the state will spend at least $1.2 billion on incentives, the report said. In the last fiscal year, which ended in June, the total was almost $1.3 billion. And in the fiscal year that ended in June 2006, the state spent $1.2 billion.
"That's a lot of money," said Sen. David Hoyle, a Gaston County Democrat and co-chairman of the committee. It was established after the state came under fire for large incentives to companies including Dell and Google.
"Are we getting $1.2 billion of benefit from it?" he asked. "I probably doubt it."
The report doesn't assess whether the benefits outweigh the costs. Nor does it include incentives that local governments offer.
The authors' calculations do include money spent by state universities and community colleges for economic development and cash put toward roads and other transportation.
While tax breaks accounted for the biggest chunk of the spending, only about a quarter of the $4.9 billion in tax reductions approved by lawmakers this fiscal year had an economic development purpose, the report said.
Officials who award incentives often say tax breaks are best. That's because they have no value unless a company acts. A company promised a tax break on power, for instance, gets no benefit unless it uses electricity. Even then, it's funny money, supporters say, because the state isn't cutting the company a check.
But tax breaks mean the state is missing out on revenue it could put toward other uses.
Even as North Carolina has increased the amount of tax breaks it offers, it has increased the money allocated for incentives in the state budget. Between June 2002 and June 2007, appropriations from the general fund increased 180 percent to $117.4 million.
The committee wants more information on whether that spending is worth it, how North Carolina compares with rivals and whether officials need to make changes. At a meeting Tuesday, they heard from a representative of the UNC Center for Competitive Economies. He proposed an 18-month, $350,000 study.
"Don't we already know what the answer is going to be? That, 'It depends.' Doesn't it really depend on what the economy is doing, what China has done?" said Rep. Pryor Gibson, a Democrat from Anson County. "I'm positive it's in our best interest to keep XYZ company with 1,000 jobs, even if they're making buggy whips."
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