Gov. Cooper weighs in on incentives
Gov. Roy Cooper ended his first year in office with a flurry of job announcements in December that featured at least 10 projects, including what he touted as the largest investment by a manufacturer ever in rural North Carolina.
“The Jobs Governor,” the state Democratic Party crowed in a news release.
But as Cooper awards corporate incentives in exchange for those promised jobs, and as he courts Amazon and Toyota with the lure of major incentives packages, he faces criticism from conservatives.
Republicans say the jobs created in recent years are a result of changes they have made to the tax code since 2013, including lowering the tax rate on businesses. Some, even if they support state incentives programs, criticize Cooper as a hypocrite for decrying cuts to business taxes as “corporate giveaways” while offering incentives to select companies that move here.
Meanwhile, a conservative advocacy group is taking its gripes a step further. Americans for Prosperity and its branch aimed at young people, Generation Opportunity, say the state should stop offering incentives altogether because it’s an unfair use of taxpayer dollars. The organizations, which have received funding from groups linked to the Koch brothers, launched digital media campaigns that slam Cooper for offering “corporate welfare.”
The effort is meant not only to hold Cooper accountable but to relate to young voters, said Anna Beavon Gravely, spokeswoman for Generation Opportunity’s North Carolina chapter. You may see their ads on Facebook, Twitter and Instagram, she said.
“We (millennials) are a generation very concerned with fairness and equality, and that same feeling applies to incentives,” Gravely said. “Corporate welfare is taxpayer money being given to rich businesses, which takes away from people who are struggling to make it.”
Cooper said in a December interview that incentives aren’t a giveaway, noting they are tied to capital investment and job creation. No company gets tax credits if it doesn’t meet specific criteria.
“We can make targeted, accountable incentives for the creation of jobs. This makes sure that the incentives that you give to companies directly result in good-paying jobs for our people,” he said. “And that’s a lot different than just across-the-board giveaways to corporations and the wealthy at the expense of education and tax cuts for the middle class, particularly with no guarantee that they’ll bring good-paying jobs to our state.”
Jobs at stake
Cooper isn’t up for re-election until 2020, but the argument over who gets credit for the state’s economic success could be important to North Carolinians as they go to the polls next fall, when Democrats could win more influence over state politics.
Republicans now have so many seats in the N.C. General Assembly that they can override Cooper’s vetoes. But Democrats think they can capitalize on animosity for Republican President Donald Trump and break the GOP supermajority in the legislature.
The Republicans’ top line of defense? The economy. Republicans say changes they made to the tax code before Cooper took office are the reason companies are moving to North Carolina and why Forbes magazine rated North Carolina as the best state for business in the country.
In 2013, the GOP-led legislature, along with former Republican Gov. Pat McCrory, in 2013 cut personal and corporate income tax rates while expanding the field of goods and services that the sales tax applies to.
The tax bill that Congress passed and Trump signed into law just before Christmas gives North Carolina Republicans a chance to tout their success and Democrats a chance to highlight how state tax cuts have left the state facing a projected budget shortfall in 2019.
North Carolina is one of 238 states and cities in the running for Amazon’s second headquarters. The company, which expects to spend $5 billion and eventually employ 50,000 people at the project, says it will make a decision within a year.
Amazon’s search has created a bidding war for the project, with Newark, N.J., offering up to $7 billion in tax incentives and Dallas offering access to a bullet train. North Carolina officials kept quiet about what the state is offering, but recently launched a $92,000 advertising campaign in Amazon’s backyard of Seattle.
Meanwhile, Toyota is on the verge of announcing where it will build an auto plant with Mazda, and North Carolina is reportedly among the finalists. The project would create up to 4,000 jobs and entail an investment of $1.6 billion. Bloomberg News has reported that the companies want an incentives package worth $1 billion. It’s unclear what North Carolina is offering.
$185M committed already
The criticism of Cooper comes in a year when the state struck deals to potentially grant as much as $185 million in incentives to 54 companies if they meet the state’s criteria for creating jobs and investing in infrastructure.
A large chunk will go to Triangle Tyre, which Cooper announced on Dec. 19 will receive more than $66 million from the state and $86 million from Edgecombe County to open a manufacturing plant in Kingsboro and create 800 jobs over the next five years. The company said the incentives package, worth a total of $152 million, was crucial in its decision.
In total, the 54 companies have committed to invest $2.85 billion and create 12,637 jobs in the state over the next three to 12 years, according to David Rhoades, spokesman for the N.C. Department of Commerce.
That’s an increase from 2016, when the state granted companies up to $66.9 million if they fulfill promises to invest nearly $1.39 billion and create 7,300 jobs.
Also this year, the legislature passed a budget that would allow larger incentive packages for companies that invest more than $4 billion in the state and create at least 5,000 jobs. Those companies wouldn’t be subject to the state’s current cap on incentive packages. Cooper vetoed the budget over unrelated objections, and the legislature overrode his veto.
Donald Bryson, director of Americans for Prosperity-North Carolina, said the goal of the group’s “Reverse Robin Hood Cooper” campaign is to hold the governor accountable and raise awareness about giveaways.
“Yes, they might be creating jobs, but what they’re doing is pulling jobs from other North Carolina businesses,” Bryson said. He noted the state’s deal earlier this year to bring Credit Suisse to Research Triangle Park. The company, which plans to hire 1,200 workers and invest $70.5 million, will get $40.2 million in state incentives if it meets its hiring and investment targets.
Bryson argues that the deal is unfair to BB&T, First Citizens and other local banks. North Carolinians “are having to pay for a foreign, Wall Street-traded bank to move here and take talent from those banks,” he said.
Ford Porter, a spokesman for Cooper, said that “instead of criticizing job creation, Republicans should work with the Governor to invest in education and job training and ensure that our economy works for middle class families and not just those at the top.”
Bryson acknowledged that McCrory also used incentives to attract jobs. But McCrory, Bryson said, “didn’t walk around the state campaigning against corporate tax giveaways.”
Fighting over giveaways
Cooper’s campaign website features criticism of low corporate tax rates.
“While some of the biggest companies, including out-of-state corporations, have received tremendous giveaways, many of our small businesses and working families have seen tax increases, sometimes disguised as fees,” he said, according to a statement on the site.
Cooper doubled down on that criticism as some Republicans – including U.S. Sen. Thom Tillis – touted North Carolina as an example for congressional Republicans to follow as they rewrote the tax code. Cooper wrote in an opinion column that N.C. Republicans’ tax changes in 2013 disproportionately benefited the wealthy and big corporations, saying “These tax giveaways are now straining our state’s budget and (forcing) middle class families to pick up the tab.”
The op-ed prompted a rebuke from many Republicans, including state Rep. David Lewis of Harnett County. Lewis responded with a column of his own, pointing to the state’s declining unemployment rate and growing rainy-day fund as evidence the tax changes are helping North Carolina.
In an interview, Cooper said companies are more interested in a state’s workforce than than its corporate tax rates.
“The No. 1 incentive to businesses in North Carolina is a well-trained, skilled workforce that’s educated. So we have to make the investments in education instead of tax giveaways to the wealthy,” Cooper said.
State Rep. Jason Saine says Cooper’s claims about tax cuts are misleading. Cutting the corporate tax rate allows businesses to keep money that’s “already theirs,” he said.
“Gov. Cooper believes in giving tax breaks to massive out-of-state corporations when it will lead to a photo op, but not to small and medium-sized, home-grown business that are the backbone of our economy,” Saine said. “We’re not giving any money away with tax reform; we’re simply lowering the burden of government on already stretched pocketbooks.”
Do incentives work?
Incentives are offered under the condition that companies hire locals and invest in infrastructure over a specified period of time. Considering this is Cooper’s first year in office, it’s difficult to tell whether his administration will see a high return on investment.
A 2015 review of incentives by WRAL found that, for incentive projects announced from 2009 to 2012 (when Democrat Bev Perdue was governor) most of the jobs had failed to materialize.
McCrory, elected in 2012, said he’s philosophically opposed to incentives, “but in the real world, you have to deal with them.”
“You’ve got to have people willing to say no, and we walked away from many,” McCrory said. “There was no doubt we were sometimes being used. At that point, you’ve got to walk away.”
At a national level, many economists see incentives as poor economic policy. The costs of corporate taxes pale in comparison to many other location-specific factors such as qualified workers, proximity to customers and quality public services, according to the Economic Policy Institute, a left-leaning think tank.
“We’ve done some work on this in the past, and the existing research literature really indicates that states would be better-served spending the money they use ‘smokestack chasing’ to making public investments – particularly investments in early childhood education,” said Josh Bivens, Economic Policy Institute’s research director.
Nathan Jensen, a professor at the University of Texas and founder of the Economic Development Incentive Evaluation Project, says many incentives deals are unnecessary.
“This means that they are being offered to companies that were going to invest even without the incentives and thus they are a subsidy for firms with no impact,” Jensen said in an email.
Corporate tax cuts, meanwhile, consistently yield results, said Mike Walden, professor and N.C. Cooperative Extension economist at N.C. State University.
“There is much literature to support the idea that lowering the state corporate tax rate does have a positive impact on state-level economic growth,” Walden said. “I think this is because the corporate tax rate is one that directly impacts a corporation’s ‘bottom line.’ ”
Don’t expect changes
If criticism of incentives programs grows, should voters expect to see changes in policy?
Jensen says no because “even though incentives are ineffective and expensive, voters often believe that they work,” he said.
“Thus an elected politician can offer incentives to companies, and if the company comes, they can point to the incentive as the deal maker that brought in the company,” he said. “If the company goes elsewhere, they can use it to deflect blame by showing the voters they did everything possible.”
In this “hyper-polarized partisan environment,” don’t expect the rhetoric to die down either, said Michael Bitzer, professor of politics and history at Catawba College in Salisbury.
“Cooper believes that the workforce environment is important to company relocation efforts; legislative Republicans believe that the tax environment is important,” Bitzer said. “Both are probably right, but neither side wants to give to the other, so it’s the heated rhetoric that makes for such divisive efforts, even when the ultimate goal for both is to bring jobs and economic value to the state.”
Voters could look to Wisconsin – where Taiwan-based FoxConn could receive up to $3 billion in tax credits and breaks to locate in Racine County – for the inverse situation, said Kyle Kondik, managing editor of “Sabato’s Crystal Ball” at the University of Virginia Center for Politics.
Wisconsin governor “Scott Walker and majority Republicans are touting the FoxConn deal while Democrats, the minority party there, are decrying it,” Kondik said. “I’m not sure either party is 100 percent consistent on corporate incentives.”
Correction: An earlier version of this story incorrectly said Gov. Roy Cooper signed last year’s state budget that included an expansion of incentives. Cooper vetoed the budget over unrelated objections and the legislature overrode his veto.