Open incentives deals
Wednesday's lead editorial.
Taxpayers don’t know much about economic incentives, and what they think they know may be wrong.
A few state legislators aim to change that, but they’re making slow progress.
One is Rep. Pryor Gibson, D-Anson, a House Finance Committee chairman. He recently filed a bill that would require businesses applying for state incentives to tell the N.C. Department of Commerce what deals they’ve been offered by other state and local governments. Some information would be considered a public record; some could be protected as confidential.
The point is, the Commerce Department wouldn’t be suckered into bidding too much to land a new company.
After these deals are made, the public invariably is told the state paid only what was necessary to compete for a lucrative project. Gibson’s bill would reveal the truth.
Predictably, there’s not much support for the measure in the current legislative session. But there is a stronger movement under way, one that aims to ascertain the long-term effectiveness of state incentives policies.
One accomplishment so far was a legislative study released in December that found the state has spent at least $1.2 billion in each of the last three years on incentives, most in the form of tax breaks.
“Are we getting $1.2 billion benefit from it? I probably doubt it,” state Sen. David Hoyle, D-Gaston, told The News & Observer of Raleigh at the time.
While Hoyle may “probably doubt it,” many taxpayers assume that big tax breaks for companies like Google and Dell return dividends because of the jobs they create, the suppliers they buy from, the tax-base growth they account for and the attention they draw to their communities. But no one really knows how much all that’s worth.
Answers may be coming. The legislature has commissioned a study by the Kenan-Flagler School of Business at UNC-Chapel Hill to quantify the economic impact realized for the billions spent. The results should guide future incentives policies.
Some state and local elected officials flatly oppose incentives. But most say it’s too risky to give up tools designed to help North Carolina and its cities and counties lure businesses that otherwise could locate somewhere else.
Gibson and a few like-minded legislators are searching for other ways. His bill contains a provision that says the state should “explore options for multijurisdictional agreements that would limit the use of economic development incentives.”
The pieces fit together. Suppose a business must disclose that it’s considering sites in several Southeastern states. If North Carolina has incentives pacts with its neighbors, all can offer similar deals and refuse to bid against each other — putting an end to the increasingly costly and counterproductive competition.
The keys are knowledge and accountability. The public should know more about these deals so it can hold the state accountable for results.
Comments (1)
To report abuse of the comment feature on this site, please use the feedback form at the bottom of any page.
In the incentives game, the interplay between business and government is highly strategic, and hence it's not always easy to predict how policy will affect the game. Gibson's disclosure proposal might not actually help North Carolina. Perhaps businesses will decide to approach us first, before they have other offers and therefore with nothing to disclose. Then North Carolina, knowing that it's "going first," will have to guess other states' offers before making its bid. It might end up working in our favor, but it might not.
The proposal for multijurisdictional agreements holds much more promise. The basic fact of the incentives game is that in spite of its wastefulness, it's hard for state and local governments not to play. Anything that constrains state or local behavior, whether a regional pact or a federal law, would narrow the gap between local and national objectives.
Posted on June 11, 2008 8:06 AM