Novartis incentives put town in hole

Holly Springs offered more than it has; now leaders are working to spare taxpayers the tab

HOLLY SPRINGS -- Holly Springs leaders have promised a drug maker more in economic incentives than they have to give, according to town documents.

Town leaders knew about the "gap" well before July 18, the day they announced their $20.8 million deal with Novartis Vaccines & Diagnostics, documents show. They signed off on it anyway and then celebrated landing the company's flu vaccine plant with smiles, handshakes and a reception that featured custom-packaged candy bars.

A few days later, Town Manager Carl Dean wrote about the gap, approximately $8.85 million, in a far more somber tone.

"The Town of Holly Springs is over-extended and has significant gaps in meeting the demands of Novartis," he wrote in a July 27 letter asking the Golden LEAF foundation of Rocky Mount for nearly $5.6 million. "We felt comfortable assuring Novartis we would meet their needs knowing that our partners would support us."

Holly Springs leaders say taxpayers won't have to finance Novartis' demands, including 167 acres of cleared land, a new road, water and sewer service and a new fire truck, among other things. They will have to find other financiers for the road, the fire truck, water lines and a new sewage station, documents show.

Officials in town hall knew about the shortfall more than a month before they finalized the deal. Jenny Mizelle, the town's economic development director, spent the early part of the summer searching for others to help the town pay for its promises to Novartis, according to her notes. "Need to close gap," she wrote about a conversation she had one Sunday in June.

Dean later blamed the town's "gaps in funding" on "fierce" competition for Novartis and "the fast pace of negotiations."

In an interview this week, he said that it is unlikely that the town's taxpayers will have to cover the shortfall. Although nobody has explicitly promised to help the town out, he said that he has been assured by a number of groups that his town of about 18,000 people would be "competitive" for monetary assistance.

"I don't want to go so far as to say everything's a done deal," he said. "But I'm not losing sleep over it."

Dean and other town leaders are gambling on the largess of the federal government, the state government and the Golden LEAF foundation, among others.

It is a risk. A few towns around the state have found grant money to pay for unfunded projects required by economic incentive deals. Most of those, though, were far less ambitious than Holly Springs' $8.85 million campaign, according to economic development specialists.

"I wouldn't say that's never done, but it's not common," said Michael Luger, director of the Center for Competitive Economies at the UNC Kenan-Flagler Business School.

Town leaders say they were "aggressive" in pursuing Novartis because they think a flu vaccine plant could help turn a town too small to interest Outback Steakhouse into a business hub. If it is successful, Novartis says its promised $267 million, 350-employee plant could expand greatly.

To get the company, town leaders expanded an initial, $6 million incentive package into the $20.8 million offer that required them to borrow millions, promised to make plowing Novartis' road a priority when it snows and promised to consult the company whenever the town changes the name of the road leading to the plant, town documents show.

Dean said town leaders kept one thing in mind as they negotiated: "We're not going to put the town in a financial situation where our eyes get bigger than our mouth."

Still, he acknowledged in a July 6 letter to Golden LEAF that they cut a deal that "is riskier" and "also more of a burden to the town" than incentives that kick in once the company starts paying taxes and hiring employees.

"To land this company," he wrote, "the Town is willing to make this extraordinary commitment."

Now, town leaders just need to find others who will help them.

It may take a while.

Dean's notes indicate that he does not know whom the town will ask for $1.5 million of the $8.85 million shortfall. Novartis officials recently told the town they will not limit their hires to help the town qualify for a $750,000 federal grant for helping low- and moderate-income people. And Golden LEAF, the group town leaders hope will fork out nearly $5.6 million, seldom gives out more than $2 million, according to its president.