Monkeying with incentives not role of good government
PASQUOTANK COUNTY — In June of last year, our County Commissioners considered the question of providing tax incentives to the developers of the shopping center adjacent to Walmart.
The developers proposed the question with the unstated suggestion that the failure to approve the incentive might jeopardize the project. The only Commissioner to vote against this proposition was Frankie Meads.
The other six members of the Commission Board voted in favor of providing the incentive – a 50/50 split with the City Council — under the presumption that there was too much to lose, or gamble, that the developer might actually pull the project. Considerations of how much money the developer had expended up to that point got lost in the shuffle, and our elected officials took the path of least resistance — with taxpayer money.
Local governments should focus on making their communities conducive to economic growth and business investment by keeping property and sales taxes low, while minimizing business regulations and assorted fees.
The focus of county budgets should be on essential government services, making sure that these services meet the needs of business. This focus would include providing reliable sources of water and transportation services that accommodate the desired lifestyles of the workforce and the needs of industry.
Beyond this, city and county government should allow business investment to take its course.
Real economic growth cannot be accomplished by targeting some businesses for special subsidies while burdening other businesses and citizens with the cost of those subsidies.
North Carolina’s county governments divert hundreds of millions of dollars in taxpayer money to private businesses in an attempt to attract economic growth and job creation. These subsidies come in a variety of forms, including property tax exemptions, direct cash grants, land conveyances, and low interest loans. These programs put county governments in the role of economic planner – a futile and misguided mission to pick economic winners and losers.
Typical of such efforts is one in Cabarrus County’s “Economic Development Grant Program,” described on the county’s website:
A Grant approved by the Board of Commissioners may be an amount equaling up to 85 percent of the real and personal property tax actually paid on assets eligible for this Program. The minimum incremental increase in assessed value of assets shall be $1.5 million, except in those cases where the Grant is used to encourage the development or help ensure the success of certain targeted businesses and/or geographic areas, where the threshold shall be at the discretion of the Board of Commissioners.
These grants are awarded with two main goals. One goal is to increase employment opportunities within the county as well as to increase the assessed valuation of the property.
Similar programs are in operation in most other counties in North Carolina. Furthermore, some of these grants are not only used as a way of enticing new investment. For example, Buncombe County recently transferred $84,000 from the pockets of county taxpayers to a plastic card manufacturing company.
This company as already been manufacturing its cards in the county and was investing in a $4.4 million expansion.
Apparently the $84,000 grant was awarded after the $4.4 million had already been invested. It was announced in October 2013 that the grant was approved. In the same announcement, the marketing coordinator for the company announced that the expansion was nearly complete. The $84,000 appears to be an after the-fact reward for investments already made!
While subsidies may benefit a targeted business or even entice a new business to locate its operations within a county, there is no such thing as a free economic development grant. These grants harm existing business and other taxpayers. Such policies do not generate net benefits for a county. Instead, they are wealth transfers that hurt some and help others.
When a county decides to use tax dollars to entice a new company to set up shop in a community, that money must come from somewhere. Local businesses and their employees must pay more in taxes and other costs to support the subsidized industry. As a result, economic growth for those businesses not receiving subsidies is discouraged. In reality, the subsidies end up being a mechanism for transferring wealth from existing businesses to the subsidized businesses and the people who work for them. That is why they are often referred to as corporate welfare.
Tax incentives have long been a tool by businesses, particularly in difficult economic times, and economically challenged counties, to offset some development cost in the name of Economic Development.
According to an insider familiar with the details of the proposed deal having to do with the shopping center next to Walmart, county and city officials hoped to structure the incentives in a way that would not be harmful to the interests of the taxpayers.
There is no doubt that officials believed the developer might walk away if the $325,000 were not approved. By then, the developer had invested considerable sums of money and was not likely to stop the development from going forward. But the developer played a successful game of chicken!
In that same context, we have seen numerous examples of businesses such as Dell Computers, and others, who achieve the tax incentives paid by the local government and then eventually walk away from the project altogether. For the sake of our elected officials and the citizens of this county, we can only hope that our investment in this project pays off over the long term.
Editor’s note: The John Locke Foundation contributed to this report.