Economic lures headed to court
Lawsuit contends incentives for Dell, which could get $279 million, are unconstitutional. Judge to hear motion to dismiss the case today
Published: Wed, Apr. 26, 2006 12:00AM
Modified Wed, Apr. 26, 2006 10:46AM
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closeA landmark case challenging financial perks used to lure companies to the state will be heard in court today, shining a spotlight on the millions of dollars North Carolina has promised for jobs.
A Wake County Superior Court judge will consider a lawsuit objecting to $279 million in incentives used to attract a Dell computer manufacturing plant to Winston-Salem in 2004. Judge Robert Hobgood must decide whether to let the matter proceed or dismiss it as baseless.
The case could have far-reaching implications for the way North Carolina engages in the business of attracting business. It could force leaders to be stingier with tax dollars and become better marketers of the state's work force, location and costs.
TYPES OF INCENTIVES IN THE STATE
North Carolina officials have several ways to give incentives to companies looking to expand or relocate in the state. Here are the most commonly used.
ONE NORTH CAROLINA FUND
Gov. Mike Easley controls this program, which is funded by the General Assembly. The money can be used to buy or install equipment, repair or improve buildings, or expand site infrastructure. Companies must meet salary requirements to qualify, and local governments must agree to match the grant.
JOB DEVELOPMENT INVESTMENT GRANT
A five-member committee oversees this program, which gives money to companies that meet specific criteria. The projects considered for JDIG benefits must increase employment in the state and must be sought after by other states or nations. Awards are based on witholding taxes. The committee can approve up to 25 grants in a year, with benefits going to businesses for no more than 12 years. Companies must sustain new jobs and investment for agreed-upon time.
WILLIAM S. LEE TAX CREDITS
Companies can apply for credits for creating jobs, investing in equipment, training workers and doing research and development. This program can be used by more companies than the other two, and it allows a company to offset up to half of state income taxes. The amount businesses can claim is based on the county they're in.
(N.C. DEPARTMENT OF COMMERCE)
GRANTS ADD UP
Much attention was given to the enticements promised Dell almost two years ago, but the state has since promised $88 million in inducements from two programs to attract 13,330 jobs and more than $2 billion in investment. The figures don't show all incentives offered since Dell, but they illustrate the scope of the perks.
Here is a list of deals lured by one program, the Job Development Investment Grant, since November 2004.
$12.7 million: Credit Suisse, financial services firm. Expanding in Research Triangle Park, creating 400 jobs, investing $40 million.
$4.9 million: RF Micro Devices, makes components for mobile devices. Expanding in Greensboro, creating 300 jobs, investing $80 million.
$5.19 million: MeadWestvaco, packaging company. Building research center in Raleigh, creating 200 jobs, investing $14 million.
$5.35 million: PGT Industries, windows and doors maker. Building a plant in Rowan County, creating 712 jobs, investing $31 million.
$3 million: Stiefel Research Institute, skin care. Moving to Durham County, 200 jobs, investing more than $50 million.
$1.4 million: Andrew Corp., designs and makes communications equipment. Moving 232 jobs from Smithfield to Wayne County; creating 204 jobs; investing $11.5 million.
$8 million: Hewitt Associates, human resources outsourcing. Expanding in Charlotte with 900 jobs, $8 million investment.
$2.6 million: Headway Corporate Resources, national recruitment company. Moving headquarters to Raleigh, opening center in Tarboro, creating 188 jobs, investing $4.25 million.
$2.4 million: Smiths Aerospace Components, manufacturer. Building plant in West Jefferson, for 305 jobs, $44 million investment.
$8.4 million: Lenovo, computer manufacturer. Building research and development center in Morrisville, creating 400 jobs, investing $84 million.
$6.98 million: American Institute of Certified Public Accountants. Moving office to Durham, creating 360 jobs, investing $5.2 million.
$3.1 million: General Electric. Expanding aircraft engine and nuclear divisions in Wilmington, creating 200 jobs, investing $78 million.
$2.36 million: Cobia Boats, manufactures saltwater fishing boats. Opening facility in McDowell County, creating 292 jobs, investing $5.5 million.
$1.46 million: GlaxoSmithKline. Expanding drug making plant in Zebulon, creating 200 jobs, investing $92 million.
$1.45 million: Prairie Packaging, makes disposable dinnerware. Building manufacturing and distribution center in Huntersville with 242 jobs, $48 million investment.
$1.35 million: Hospira, maker of hospital products and medical devices. Creating 152 jobs, investing $14 million in Clayton.
$5.2 million: Sysco, building food service distribution center in Selma, creating 600 jobs, investing $37 million.
$1.9 million: Altec Industries, mobile-equipment maker. Building facility in Burnsville with 300 jobs, $7.5 million investment.
WHAT'S HAPPENING
Today: Wake County Superior Court Judge Robert Hobgood hears arguments to dismiss the case over $279 million in incentives promised to Dell.
His decision: Hobgood could dismiss the case entirely, or let it proceed entirely. He also could toss out some claims and let others stand. He does not have to rule today.
What's next: If Hobgood lets the suit proceed, it likely will be late summer, at the earliest, before the case will be back in court. With appeals, it could be months or years longer before it is ultimately resolved.
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It also could stymie economic growth in North Carolina, say those who recruit industry. They contend that incentives are integral to luring new employers and that losing incentives would put the state at a disadvantage in the fight for jobs.
"For some of the larger key projects, incentives are not a request, they're almost a requirement," said Ted Conner, vice president of economic development for the Greater Durham Chamber of Commerce. "You've got to be in the position to offer something."
Since Dell, the state has offered $88 million from two main incentives programs to attract 13,300 jobs and more than $2 billion in investment, according to figures provided by the N.C. Department of Commerce. That excludes perks offered by local officials and broader state tax credits, but illustrates the scope of the issue.
The Dell case has amplified the debate over incentives in North Carolina. But it's not the only state where this argument is taking place. In growing pockets around the country, opponents are rallying to fight the money and tax breaks given to corporations.
The most visible effort is in Ohio, where taxpayers sued over a $280 million package offered in 1998 to get DaimlerChrylser to build a Jeep assembly plant. The U.S. Supreme Court took up the case in March and its decision, expected later this year, will have significant implications for what states can do.
"It's inevitable that more attention will be paid to this issue," said Greg LeRoy, an incentives critic and author of "The Great American Jobs Scam," which tries to show why communities shouldn't offer subsidies. "But it's kind of like a tidal wave; we don't know if we're surfing it or about to be swallowed by it."
He's paying close attention to the Dell case because any decision could ripple to other jurisdictions.
The case was filed in 2005 by Bob Orr, a former justice on the N.C. Supreme Court. Now the executive director of the N.C. Institute for Constitutional law, Orr argues that the Dell incentives violate provisions of the state constitution and the commerce clause of the U.S. Constitution.
"There's any number of issues," Orr said. "There is a lack of uniformity. You're favoring one business over another, giving them selected privileges."
He wants to see the state abandon incentives altogether. Instead of promising tax rebates, leaders would be better served spending corporate tax revenue on schools, roads and other public services, he argues. And rather than offer perks to selected companies, officials should work on improving the business environment for all companies.
"North Carolina would be just as successful, if not more so, without these selected giveaways," Orr said.
He wants the court to withdraw all the incentives offered to Dell, the majority of which were approved in a special session of the General Assembly, and require the company to pay back any money it already has received.
Staff writer Jonathan B. Cox can be reached at 836-4948 or jcox@newsobserver.com.
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