As Regina Earp took her seat last week in the front row of an intermediate algebra class at Wake Technical Community College, Dwight Glenn prepared for a job interview with the Dell computer company in Winston-Salem.
Earp, 37, was laid off from Electronic Data Systems in Raleigh and wants to become a radiology technician. She will finish her prerequisite courses, then wait for a spot to open in Wake Tech's two-year radiography program. Wake Tech has more students seeking entry into the program than it can accommodate because of state budget constraints.
Glenn, 36, was laid off from R.J. Reynolds and is grateful to the General Assembly for promising Dell $242 million in tax breaks and other incentives so that the computer maker would build in Forsyth County.
"I'm just trying to get a decent job and retire one day," he said.
Critics of incentives note that with Dell's $242 million, the state could hire 8,500 public school teachers. Or it could provide quality day care to more than 100,000 children of low-income families. Or it could give more money to community colleges so that people such as Earp can get the training they need.
Right now, lawmakers are debating whether to keep the state's major incentives programs alive awhile longer. Two of the three programs are set to expire at the end of this year.
Gov. Mike Easley says incentives are just one way to sell businesses on North Carolina, along with investing in a well-trained work force and top-notch research universities.
But at least one person thinks the Dell deal which hinges on Dell's promise to create at least 1,200 jobs over the next five years is illegal. Bob Orr, a former state Supreme Court justice, says he plans to sue the state because he thinks the incentives violate the state and federal constitutions.
"They take scarce resources and give them primarily to the biggest and wealthiest," said Orr, who heads the N.C. Institute for Constitutional Law, a Raleigh nonprofit group opposed to incentives. "You look at Dell's last quarterly profits. Why do they need to be subsidized?"
In North Carolina, businesses are required to pay taxes on profits they make within the state. But as tax breaks for new and expanding businesses have gone up, their share of the overall tax base has gone down.
Corporate income tax collections made up 6.2 percent of the tax base in fiscal 2002-03, the most recent year for which data were available. That was down from 8.2 percent in 1997-98. At the same time, sales tax collections increased from 29 percent of the tax base in 1997-98 to 31 percent in the most recent year.
Tax credits for new and expanding businesses are one reason why corporate income taxes make up a smaller share of the state's overall tax base, said Dave Crotts, a fiscal analyst for the General Assembly. But they are not the only reason, Crotts said.
He also attributes the decline to unscrupulous accounting schemes, which make it possible for businesses to avoid their share of taxes, and the 2001 economic recession.
Bipartisan opposition
Just as support for incentives is bipartisan, both sides of the political spectrum are represented in the opposition.
Conservatives argue that the government is overstepping its boundaries in a free-market economy by giving money directly to businesses. Liberals say it is another example of government bending over backward for big businesses.
Amna Cameron, who tracks incentives for the N.C. Justice Center, a Raleigh nonprofit group focused on the working poor, said she worries that headline-grabbing deals such as Dell's have trained businesses to hit up state and local governments for incentives when they want to expand. She said the state's economically distressed communities struggle to turn them down, even if they suspect the incentives are unnecessary.
"We're now being held hostage to in-state companies who are threatening to leave," Cameron said. She added that an unwillingness to say "no" to businesses is depriving the state of money for the very things that attracted businesses in the first place.
"We're mortgaging our ability to get on that short list," Cameron said. "So it won't matter in the long run how many incentives we're willing to offer. Businesses won't want to come."
But Norris Tolson, who heads the state Department of Revenue, said incentives add to the state's tax base by encouraging business relocations and expansions. He said the state's business recruiters give incentives only when they can show a payoff.
Sometimes, though, that payoff is many years away.
North Carolina offered $39.4 million for a Merck vaccine plant in Durham last year, knowing that it would be a drain on state coffers until 2014. By 2023, the state's calculations show, it will have added $44.5 million in tax revenue.
But Tolson said Merck's selection of North Carolina provides something else: prestige. Other drug manufacturers that might have overlooked North Carolina are now likely to consider the state for a relocation or expansion, he said.
"The investments we've made on incentives in North Carolina are big, and we expect the returns to be even bigger," he said.
Local money solicited
Such deals seem to have become the prototype for business recruitment in the state.
Before last year, Raleigh Mayor Charles Meeker had never been asked about using city money to attract businesses. He has since been approached by the Greater Raleigh Chamber of Commerce to pitch in on four deals, one of which received a city incentives package. Meeker declined to discuss it, citing a confidentiality agreement.
"We're getting requests on a regular basis, but we're being very careful," Meeker said. "Typically, incentives are requested after a decision is made and don't have much impact.
"In that case," he added, referring to the one package the city has offered, "we thought it would make a difference."
Wake County last year promised Credit Suisse First Boston $2.3 million in cash grants over eight years for its plans to open a global business center in Research Triangle Park. Commissioners have since written an incentives policy, clearing the way for more deals.
Also, the town of Zebulon has a new incentives policy after offering wine-cork maker Nomacorc $150,000 in cash grants over four years for its plans to add 108 jobs locally. Nomacorc's chief executive, Marc Noel, had talked about putting those jobs in Oklahoma, where recruiters offered an attractive package.
Earlier this year, Noel remarked of the Dell deal, "Does it encourage others to say, 'Hey, wait a minute; can you do something for us, too?' Yes, it does."
Greg LeRoy, author of "The Great American Jobs Scam," due in July, traces the rise of incentives in North Carolina to a pair of automobile-assembly projects that the state failed to win in the early- and mid-1990s. Losing a BMW plant to South Carolina and a Mercedes plant to Alabama galvanized support for the state's first major incentives program, the William S. Lee Act of 1996.
LeRoy, who works for Good Jobs First, a Washington nonprofit group concerned about the rise of incentives nationwide, criticizes the Dell deal in his book.
"Somehow, people got it in their heads that because you didn't get Mercedes and BMW, you had to give away the candy store," LeRoy said. "But they're missing the big picture."
LeRoy noted that North Carolina enjoyed one of the nation's fastest-growing job markets in the '90s, including the first half of the decade when incentives were not widely available. He sees that as proof that investing in education, infrastructure and worker training is a smarter strategy than pursuing "gold-plated deals."
But that strategy doesn't generate the big headlines, nor does it offer jobless workers quick relief.
Tolson, the Revenue Department chief, said the state might have created even more jobs in the '90s had it not been reluctant to give incentives. "We still had unemployment in our state, I'll remind you," Tolson said. "And folks who didn't have jobs probably didn't think we were doing so well."
