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But
just as rural counties begin tasting Piedmont prosperity, By Steve Tuttle Three years after North Carolina bit the bullet and began offering tax credits and incentives to attract new and expanding businesses, the state is back atop national industrial recruitment rankings with a record $7.8 billion in new investment last year. But despite a growing consensus that the policy is going gangbusters and is beginning to enliven even rural communities, state leaders and the public still seem uncomfortable with the idea of manipulating the tax code to leverage growth. After landing the huge Nucor Corp. steel recycling mill in rural Hertford County and the Federal Express air cargo hub in the Triad last year — two national industrial recruitment plums for which the state offered a combined $288 million in tax credits and incentives — this year's trophy is a new DuPont installation in Bladen County that will manufacture the next generation of Teflon(tm). DuPont has broken ground on the $40 million demonstration plant near its existing 510-employee Fayetteville Works site in Bladen County, with plans for it to become one of a series of projects in a $275 million complex on a 2,200-acre plant site. The company says it will hire 100 additional people for what will be high-tech, high-paying manufacturing jobs. The facility will commercialize a new Teflon process using carbon dioxide compounds developed by Dr. Joe DeSimone in labs at N.C. State and UNC-Chapel Hill. DuPont considered other states but chose North Carolina after Commerce Department officials came up with tax credits and incentives worth $44 million over the next 20 years. Although there was some grumbling in the General Assembly — the length of the tax credits is twice as long as previous Bill Lee Act recipients — legislators ratified the deal this summer by lopsided votes in the House and Senate. By the way, the correct figure for the DuPont tax incentive is $44 million, assuming a full build-out of the site. Newspaper reports have put it at $55 million, apparently figuring the 20 percent technology commercialization investment tax credit on the entire $275 million development costs instead of just the machinery and equipment to be installed. While the total of Bill Lee Act tax credits given to DuPont and a few others by the General Assembly this year — roughly $60 million — pales in comparison to the $288 million Nucor and Fed Ex received, opponents were more vocal this time criticizing what they call “corporate welfare.” Conservative Rep. Art Pope (R-Wake) was among a small group of legislators dead-set against approving the incentives, a number that included — for opposite political reasons — arch liberal Rep. Paul Leubke (D-Durham). “Even if you believe tax incentives are a good tool, whether in fact it is a factor in deciding where businesses locate is an open question,” said Pope, an executive with family-owned Variety Wholesalers Inc. in Raleigh. “It also is a poor public policy decision and may be unconstitutional. Even if it is constitutional, it basically is unfair because you are subsidizing one company that is competing against other businesses and employers,” he added. Barry Hudson, assistant site manager of the DuPont Fayetteville site in Bladen County, is sympathetic but disagrees. “I understand the opponents to tax incentives. But it tends to be very competitive today for each of the states to attract new businesses. It certainly was a factor to decide to expand this facility in North Carolina,” Hudson said. “There were a couple of other locations we were considering and these incentives gave us what we needed to be able to say we want to be in North Carolina. “These are high-tech jobs with qualifications that are quite extensive and require a lot of training,” Hudson added. “Our belief is that this a very good investment for the state and our local community. The benefit to the county and to the state will far outweigh the money saved on taxes.” Plus, the DuPont plant proves manufacturers and markets can quickly be found for new products coming out of the state's research universities. (See the July issue for a report on Dr. DeSimone's R&D successes.) Commerce Department officials insist that the DuPont agreement — and every other Bill Lee Act tax credit deal the state has extended to attract new businesses — will more than repay itself in a few years through increased economic activity and new jobs generated. Moreover, they say, recruiting Nucor and DuPont supports what is now the primary goal of the state's economic development policies — creating good-paying manufacturing and service industry jobs in rural counties to replace disappearing textile and agricultural jobs. “We're seeing a record number of jobs lost in plant closings” in counties outside the Piedmont metro areas, said Commerce Secretary Rick Carlisle. “We lost 23,000 jobs last year (in the state). This year through June we've already lost 20,000. Gaston County in 18 months has lost 3,400 manufacturing jobs and the rural areas are really being hit hard. “We must be aggressive in reaffirming out commitment to spreading the prosperity that the Triangle, the Triad and Charlotte have enjoyed out into the rural areas,” Carlisle added. “And they best way to do that is to create good jobs.” The policy is succeeding in creating jobs, particularly in the Northeast and Southeast regions, home to the only six counties that lost population this decade — Hertford, Washington, Bertie, Northampton and Edgecombe in the Northeast and Jones County in the Southeast. The Northeast region, usually last in economic development state statistics, shot up to fourth place last year, after the three urban regions, and ahead of the Asheville area. Now the payoff comes as those tax-incented plants and factories begin hiring. Five thousand two hundred people applied for 250 jobs when Nucor began hiring at its huge steel recycling mill rising from coastal lowlands on the Chowan River near Winton — jobs paying $60,000 annual average salaries where average wages are $17,140. Thousands more are expected to line up in nearby Edgecombe County when cable TV retailer QVC begins filing the 800 new jobs it will create at a $70 million, 1-million-square-foot distribution center it will build near Tarboro, its fourth such installation. Announced in July, the facility will sprawl across 293 acres. QVC, a division of Comcast Corp., said it will provide a comprehensive benefits package for full-time employees, including tuition reimbursement. Construction is to begin this fall. Under the Bill Lee Act, as amended by the General Assembly this year, QVC will be eligible for job creation, worker training and investment tax credits worth about $12 million. Earlier in the summer, CVS Corp., which operates nearly 300 drug stores in North Carolina and more than 4,000 nationwide, said it will construct a 750,000-square-foot, $60 million distribution center in Warren County, one of the state's most economically distressed areas. The facility, on a 125-acre tract near Manson, initially will employ 250 but officials said plans call for hiring 600 people by 2002. CVS will pay average wages of $26,400 in a county where wages average $17,345. Because Warren, Edgecombe and Hertford and 25 other counties are classified as the most economically distressed, the state's highest tax credits apply for each job created, for each worker trained and for the company's entire investment in plant and equipment. The DOT often helps with access roads and utilities and local community colleges quickly begin offering specialized job-training classes. Elsewhere in rural North Carolina, the state rolled out the red carpet in March for Germany-based Homanit GmbH and Co. KG to welcome its new fiberboard manufacturing plant in Montgomery County, another distressed rural area. In its first expansion outside Germany, Homanit will invest $90 million and create 150 new jobs at a 600,000 square-foot building near Mount Gilead. Homanit will qualify for Bill Lee Act tax credits for jobs creation, investment and worker training plus a $50,000 grant from the Industrial Recruitment Competitive Fund to help with relocation costs. The company also will get grants totaling nearly $2.5 million from the state's Industrial Development Fund, Clean Water Bonds, community development block grants and other assistance. The DOT will build assess roads to the plant. There would be an even bigger success story in rural economic growth if the Wisconsin Tissue plant, announced in January for Halifax County in the Northeast with $35 million in state tax credits, hadn't been mothballed. Weeks after the announcement, Wisconsin Tissue parent Chesapeake Corp. unveiled plans to merge with Georgia Pacific Corp., and the merged company apparently won't need the new plant capacity. The postponment threw a pall over Halifax County and surrounding areas, where the plant's $180 million investment and its 155 new jobs are sorely needed. Driving home the state's commitment to spreading prosperity to rural areas, Gov. Jim Hunt appointed a blue ribbon commission to recommend the best, quickest steps to take. He named Charlotte investment banker Erskine Bowles chairman of the commission. Bowles discusses his objectives in this month's Executive Voices column. The greater number of new and expanding plants and factories in rural counties offers renewed hope for what's called the “poor half” of North Carolina. But the rich Piedmont just keeps getting richer. The vast majority of new businesses announcements, particularly those creating high-tech, high-education, high-paying jobs, continue occurring along the interstate corridors. How good are times there? Grabbing the February headlines was news that TIAA-CREF, the huge university pension fund firm, was considering locating a major new center in Charlotte employing more than 1,000 people. Again proving that the urban, affluent half of North Carolina has bottomless resources, the state asked UNC System President Molly Broad to pitch in to help nail the deal. She's a TIAA-CREF board member and personal friend of the CEO, and graciously appeared in the photo-op handshake sealing the deal. Expected to open in 2001, TIAA-CREF will pay average salaries of $33,000, officials said. Employees will work in a 137-acre suburban office park setting costing between $60 million and $100 million. “We looked at demographics, communications, educational opportunities, and workforce availability and diversity,” said TIAA-CREF CEO John H. Biggs. The company has more than 5,000 employees and $249 billion in managed assets covering more than 2.1 million individuals employed or retired from 8,800 U.S. college, universities and related educational organizations. Because Mecklenburg is so affluent, TIAA-CREF will be eligible for the smallest state tax credits of $500 per job created, taken over four years; an investment tax credit of 7 percent on investments up to $500,000, taken over seven years; and a worker training tax credit of $500 per eligible employee per year. In addition, the state DOT has agreed to road improvements at the site estimated at $800,000. The total package is worth around $3 million. Growth in the Piedmont is so gung-ho that when the state offered U S Airways a largely symbolic $1.6 million in tax credits for its new pilot training center in Charlotte, Midway Airlines, based in the Triangle, asked for equal treatment. It got it, and now not one but two airlines are happily expanding. Even textile jobs — disappearing in droves in rural counties — are being created in the red-hot Triangle, where Freudenberg Nonwovens said in March that it will invest $75 million building a 191,000-square-foot expansion to its Durham County plant, creating 300 jobs. Rep. Pope says he doesn't understand why the state offers companies incentives for picking a site the company may have chosen anyway. And he sees the pattern continuing. “Now that the doors to the state Treasury have been opened, more businesses are trying to get their share,” Pope mused. “You have more businesses asking for it now that North Carolina has a reputation for tax credits.” Even key supporters such as state Sens. John Kerr (D-Wayne), Tony Rand (D-Cumberland) and House Rep. Ed Nye (D-Bladen) openly say they're rewriting the tax laws only because the state must if it's to compete with other states in the site selection game, and only because the record shows that the tax breaks more than pay for themselves. In this environment, Pope says he believes it's becoming almost automatic for the General Assembly to approve new tax credit deals that come up each year. “Several legislators told me in private conversations that they supported Nucor and Fed Ex last time so they thought it would be fair to vote for others this time. There's also the feeling that if I vote for this new plant in your county, you'll vote for the incentive to bring one to my county next time. As someone often at the table when Commerce Department officials are negotiating tax credit packages with business prospects, Doug Byrd, director of the department's national recruitment office, says “I would prefer if I could to wave a magic wand and there be no incentives. But unfortunately that's not the way it's played. The Bill Lee Act doesn't waste money; it's credits not cash.” But expect to see the editorial pages continue carping about “corporate welfare,” says Len Scaffidi, publisher of Plants, Sites and Parks magazine, an industry bible on industrial recruitment and the national site selection business. “There is more and more of a public questioning of the advisability of some of the incentives. I think what started out as a bipartisan effort on the part of a lot of state legislatures to commit dollars for business recruitment has become more politicized as a lot of high profile deals are being questioned in the papers.” For example, Scaffidi said, Nashville recently offered to give Dell Computer an old city-owned hospital for the criminally insane as the site for a new computer assembly plant. Even though the property was sitting idle on the tax rolls in a part of town that needed a boost, the recruitment deal became controversial. “What we're seeing is that after these economic development people recruit these deals, they have to resell them to the politicians and the voters. This has become part of the drill. Ten or 15 years ago Tennessee was happy to get the Saturn plant and South Carolina was glad to get BMW,” Scaffidi said, adding: “But now people are looking more critically at these deals.” That happened in the General Assembly this summer when Rep. Pope and others stopped a bill granting some tax incentives for a LabCorp expansion in the Triad after it was disclosed the company had paid a fine to settle charges of Medicare fraud. Over some noisy protests, R.J. Reynolds was granted $6 million in tax credits to support its cigarette export program. Nobody's complaining about “corporate welfare” in Warren, Edgecombe or other counties where good jobs are scarce. Ask the 5,200 people standing in line for the Nucor jobs their opinion of tax incentives. The criticism comes from Charlotte, Raleigh-Durham and the Triad, prosperous, attractive places a company might go even without tax credits. And many are relocating here without any help. Just ask Scaffidi, who is moving his publishing company from Nashville to Greensboro. He shakes his head when asked if he got a tax credit, saying “they were looking for bigger fish.” Just in time for Christmas, the state racked up $4.1 billion in new industrial investments in the 1998 fourth quarter from businesses promising to create over 21,000 new jobs. It capped a record year for the state, with $7.8 billion in total new investment, the most since 1992 and tops in the nation. A key trend seen in the figures was the $1 billion in new investment from fogeign-owned companies and the 7,000 or so new jobs they'll create. That speaks to the state's increasing status in the international market. Still, 839 of the 1,272 industrial announcements tracked by the Commerce Department last year were by businesses expanding their existing operations in North Carolina. That says that North Carolina's best market for new jobs is in its own backyard. “Seventy percent of our investment every year is expanding industry,” says a matter-of-fact Byrd, the Commerce Department official Half way through 1999, the state has recorded more projects that last year's record pace — 198 vs. 78 — but investments are smaller, about $1.1 billion vs $1.8 billion. “We're having a good year,” says Byrd at Commerce. “The developers are very busy. We have some good quality projects. My feeling is I would rather have 10 real good prospects than 20 maybes.” Byrd says the state is attracting “a very diverse group of clients, pharmaceuticals, technology driven projects — it goes across the board. A lot of (prospects are) looking heavily at the rural areas, which is good. That's where the availability of labor is and where the costs are lower than the metro areas.” Mark Bernstein, the Charlotte attorney appointed by the governor in March to chair the N.C. Economic Development Board, says “for the most part the picture is very bright” for the state's economy to continue expanding. “We continue to have a lot of good success with new industry coming in. Obviously, the areas that are growing are primarily the urban areas. We do have some serious concern about what is happening in some of the other areas. With the problems of tobacco, textiles, we are experiencing job losses in areas that most need the jobs.” Still, Pope predicts trouble ahead. “I think you're going to see a growing grassroots rebellion against these favorable deals,” the legislator said. “Somebody will file a lawsuit challenging the constitutionality of not having a uniform tax system, and that will be the end of it.” Steve Tuttle can be reached at stuttle@nccbi.org Copyrighted material. This story first appeared in the
September 1999 issue of North Carolina Magazine. |
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