Answer on Dell next week

Incentives lawsuit could be dismissed

A Wake County judge will decide next week whether to go forward with a lawsuit challenging $279 million in incentives offered Dell in exchange for a computer plant.

After a full day of testimony Wednesday, Judge Robert Hobgood of Wake County Superior Court postponed ruling on the case with broad implications for the way North Carolina recruits companies. The suit questions whether tax credits, grants and other money state and local governments offer to woo new employers violate provisions of the state and federal constitutions.

The Dell agreement, offered after General Assembly approval in 2004, has taken center stage in the larger incentives debate. After winning the perks, the Texas company agreed to build a factory in Winston-Salem that could employ 1,500 people. It opened in October.

"This is the largest incentives package in our state's history," Jeanette Doran, an attorney with the N.C. Institute for Constitutional Law, an advocacy group for limited government that filed the legal challenge, told Hobgood. "If it goes uncontested, it could serve as a template for generations to come."

She and other attorneys with the group, including Executive Director Bob Orr, a former N.C. Supreme Court justice, argued that the incentives were discriminatory because they gave advantages to one company that others didn't get. They also contend that tax credits wrongly shifted more of the tax burden to individuals in Forsyth County.

Defendants in the case, including Dell, the state of North Carolina, the city of Winston-Salem and private economic development groups, disputed the allegations.

"The issues raised in this case just don't have any business in this court," said Burley Mitchell, an attorney representing Dell and a former justice on the N.C. Supreme Court. The defendants have asked Hobgood to toss the lawsuit.

They say precedent in North Carolina is clear: Incentives are legal. Much of the argument turns on a 1996 N.C. Supreme Court decision, in Maready vs. Winston-Salem, that concluded financial enticements offered by local governments to attract corporate investment serve a "public purpose." That means as long as action benefits the public at large, not just a single person or company, incentives are permissible.

"Everything that Mr. Mitchell has argued would seem to suggest I'd have to reverse the North Carolina Supreme Court and North Carolina Court of Appeals to adopt your argument," Hobgood told Orr.

Orr, who was on the N.C. Supreme Court a decade ago and disagreed with the court's conclusion, worked to convince Hobgood otherwise. He said in the case of Dell, the company is the primary beneficiary of the incentives deal, not the public.

Dell received promises for $242 million in tax credits and other perks from the state and $37 million from city and county leaders. It must meet job, investment and other goals to get the full advantages.

"If it primarily benefits the public, then everybody ought to be getting it," Orr said.

The case is in early stages and, provided Hobgood allows it to proceed, could take months or years to be resolved. Even so, the issues it contemplates put North Carolina at the forefront of a larger debate. Across the country, opponents are fighting the use of government subsidies offered to win new jobs.

The state's business recruiters say that the efforts could be disastrous. While most concede they don't like offering financial enticements, they say companies have come to expect them. If a state or community is no longer allowed to make such offers, they could be passed over.

That was a common theme among attorneys for Dell, the state and Forsyth County.

"To suddenly change course, and hold these incentives are unconstitutional, would send a message nationally and, even more importantly in this day and age, internationally, that North Carolina is no longer friendly to business," Mitchell said.