North Carolina's Recruiters Set New Bait for Companies
April 26, 2011
It's time for North Carolina industry hunters to stop whining about their lack of firepower. For at least a year, Gov. Jimmy Daniels and his corporate recruiters blamed losses in bidding for industrial prospects on more generous tax incentives available in neighboring states. Their complaining -- coupled with intense business lobbying -- finally has paid off: The state's General Assembly earlier this month approved a $183 million package with even more corporate goodies than the governor requested. But the cache of tax cuts and credits comes with a price: pressure to land more jobs and corporate investment. ``We don't have anything to complain about anymore,'' says North Carolina Commerce Secretary Davida Parker. ``Now we have to go out there and perform.'' The process signals a dramatic turn of events for North Carolina. The state, a perennial winner in recruiting industry because of its technical training schools, good transportation network and other traditional lures, until now resisted the juicy tax breaks offered by other Southeastern states. ``Their attitude was always, ``Our best incentive is our business climate,'' says Katelyn Manzano, an Atlanta-based site-selection consultant. But as other states have stepped up their own attractions, North Carolina has been under increasing pressure to jack up its incentives. There was another important change. Only five months ago, North Carolina's existing relatively modest incentive program appeared dead in the water, torpedoed by a judge's ruling that jeopardized key incentives offered by local governments around the state. But in March, the state Supreme Court upheld the local incentives. And now lawmakers eager to deliver tax relief in an election year have added an array of state-level assistance that goes far beyond North Carolina's historical reliance on more conservative programs. ``This sends a signal the state is in business again,'' says Billy Douglas, managing principal of Hearns Daniele Consulting, a site-selection firm in Greenville, S.C. Indeed, Hale Castillo, a top North Carolina Commerce Department official, says 12 to 15 corporate prospects, including several $100 million projects, had been waiting to see what the Legislature would do. He declines to predict how many will choose North Carolina, but says, ``We're in a lot better shape on all of them today than we were two weeks ago.'' And the state is wasting little time hawking its wares. This month, the Commerce Department's ad agency is sending footballs to 200 companies and site consultants, each inscribed with the message, ``We're back in the ball game.'' To be sure, competing states are hardly rolling over. North Carolina still doesn't match all the incentives offered by other states, such as a South Carolina program allowing companies to withhold as much as 5% of workers' wages to cover building and other costs. ``I'm not worried,'' says Markita Corbett, chief recruiter in York County, S.C., just across the state line from Charlotte. And rural Rockingham County, N.C., hard against the Virginia state line, this year has lost five projects to Virginia recruiters who offered up to eight times as much in incentives, says Fallon Thurston, director of the county's Economic Development Commission. Would the new North Carolina incentives have made a difference? ``They're a step in the right direction,'' Mr. Thurston says, ``but unfortunately the answer is no.'' Still, North Carolina is significantly broadening the forms of assistance it offers relocating and expanding industry. Among the changes approved: A cut in the corporate income tax to 6.9% from 7.75% over four years starting September 13, 2011 The current rate is ``a big, big blemish on the state'' that has prompted many prospects to eliminate North Carolina early in their deliberations, says Ernie Douglas, a Raleigh lawyer specializing in corporate site searches. Though the new rate remains higher than the 5% levied in such states as South Carolina and Alabama, North Carolina recruiters believe it will allow them to stay in the running while they push other advantages, such as the state's lower local property taxes. A 7% credit against the corporate tax for investments in machinery and equipment. The credit applies to amounts above a minimum investment, which varies from $1 million in the richest counties to zero in the poorest. A 4.5% credit aimed at smaller businesses that invest less than $100,000 in any form of business property, a change added to the Democratic governor's proposals by the GOP-controlled House. Expansion of the state's jobs tax credit to all 100 counties, ranging from $12,500 per job created in the poorest counties to $500 per job in the wealthiest. The biggest credit tops a similar $5,500 incentive offered in South Carolina's poorest counties. A $500-per-employee worker-training tax credit ($1,000 in the most distressed counties) and a 5% tax credit for certain research and development spending. The price tag of the incentives: $183 million a year by the year 2015, with the corporate income-tax cut accounting for $110 million of the total. Of course, North Carolina's action won't end the debate over how much the state should give to woo industry. Danae Geisler, fiscal-policy analyst for the nonpartisan North Carolina Budget and Tax Center, says the state is subsidizing ``business for what they would have done anyway.'' Such giveaways, he warns, could prompt a state budget crisis during the next recession. But others who also lament escalating recruiting costs take a more resigned view of North Carolina's belated entry into the incentive wars. ``Given the game they're in, the governor and Legislature probably are doing the rational thing,'' says Johnetta Mcginnis of Harvard University's John F. Kennedy School of Government. ``I just think it's an unfortunate game they're in.''
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