Monday, November 29, 2010

Spending to lure business makes sense

The Salisbury Post

Cash grants and other incentives have helped generate $35.5 million in net revenue for Rowan County since 2000, according to an economic development study.

A 10-year snapshot of incentives awarded to Rowan County companies shows using money, discounted land and utility extensions to lure private industry has paid off, advocates say.

Rowan County economic developers are touting the results of an impact analysis of incentives dating from 2000. While taxpayers have paid companies $8.9 million to locate or expand in Rowan County, projects lured with an incentive have generated $44.4 million in property taxes.

"The revenue many times exceeds what we've provided in assistance, and there are literally thousands of jobs directly created by these companies," said Robert Van Geons, executive director for RowanWorks, which serves as the county's Economic Development Commission.

The 20 companies that have received incentives since 2000 mostly cash grants now employ about 4,100 people. Without these projects, Rowan County would have to raise the tax rate by more than 5 cents to maintain current services, Van Geons said.

"It shows that every citizen and business is benefiting from a tax rate distinctly lower than if we hadn't done these projects," he said.

While incentives have become a standardized part of the economic development process throughout North Carolina, they remain controversial especially cash grants, which opponents have dubbed "corporate welfare."

But every county offers them, and both opponents and supporters agree they are here to stay, at least for the near future.

Cash grants will play a critical role in Rowan County's economic recovery, advocates say.

"You can't win a game if you're standing on the sideline," said Carl Ford, chairman of the Rowan County Board of Commissioners.

Opposition remains

Incentives are government subsidies for business, and cash grants are the most egregious form of assistance, said Jeanette Doran, an attorney for the N.C. Institute for Constitutional Law.

"It's money going from public purse to the corporate bottom line," said Doran.

The N.C. Institute for Constitutional Law has sued the state over incentives, including those awarded to Dell Computers and Google, but has yet to win a case.

Because cash grants come from the public coffers, they reduce the county's tax revenue, she said.

"People have to do without money that could go for schools, road construction and infrastructure," Doran said.

Incentives only benefit targeted businesses, said Jim Sides, who voted no to cash grants as a Rowan County commissioner from 2004 to 2008. Sides will return to the Board of Commissioners in December for another four-year term.

"They harm existing businesses and other taxpayers that don't get the benefit of incentives," Sides said. "Nobody should pay less taxes."

Jobs lured

Advocates argue that while incentives cost the county some money, without them Rowan could not compete for companies, expansions and jobs. Incentives have lured projects promising more than 1,660 jobs since 2000.

"Obviously, they've made a huge impact on economic development in our county," said Randy Gettys, who serves on the RowanWorks board of directors.

A common refrain about incentives goes like this: "I hate incentives, but they are a necessary part of the game."

"I used to say it too," Gettys said. "I don't say that any more."

The impact analysis makes it clear, Gettys said, that incentives are a smart long-term investment, not a necessary evil.

"They pay back very quickly, they're not giveaways, and they're only earned by performance," he said.

Commitment required

To win a cash incentive from Rowan County, a company must promise to create jobs and invest in capital improvements. The company earns back a certain percentage of property taxes over a set period usually 75 percent back over five years if it performs as promised.

Tax breaks, or investment grants as they are officially called, are figured on the assessed value of new capital improvements. Existing buildings and land don't count the company must pay 100 percent of the taxes on old property.

Local economic developers fight the bad rap caused by some high-profile failures. Dell Computers left just five years after North Carolina used $240 million worth of incentives to lure the company to the state.

Rowan County incentives are different and more conservative, Van Geons said.

"Nobody has been paid in advance, and nobody has been paid when they didn't have the jobs they had committed to," he said.

People often mistakenly believe the county pays money upfront, or that companies get paid regardless of their performance, he said.

Actually, some companies end up receiving less money than they expected because their property depreciates over time, Van Geons said.

All incentives have been cash-flow positive, meaning the county has never lost money on a project, he said.

Even Alcoa, the only Rowan company that closed after receiving a cash incentive, paid nearly $130,000 in taxes for a net gain of $92,000, Van Geons said.

Alcoa did not pay back its incentive $37,500 in 2006 because the company performed as promised for the year it earned the incentive, Van Geons said.

The county has lost two other projects lured with incentives, although neither received a payment. Wind Tunnel Extreme never materialized, and Sustainable Textile Group in China Grove has not met performance criteria.

Tax breaks necessary?

One question dogs the incentive debate: Would the company have come anyway?

PGT Industries plant manager Monte Burns said probably not.

"Without them, there would be a high probability that we wouldn't be here," Burns said.

So far, PGT, a windows manufacturer on Heilig Road, has received three checks totaling $162,213 from the county coffers. As long as the company maintains 300 employees, PGT will receive annual incentive grants for two more years.

Rowan County lured PGT from Davidson County in 2006 with a good price on the old Draftex building and the promise of tax breaks.

In 2005, the housing market was booming in Florida, where PGT has a 60 percent market share for hurricane-resistant windows. The company had outgrown its Davidson County plant and was looking for a new location.

"Davidson County put together a very aggressive package," Burns said.

Davidson offered what amounted to free land, with tax incentives and bonds to help fund the construction of a new plant, he said.

However, Rowan County already had a building, plus a better property tax rate, he said.

"The bean counters said this one makes the most financial sense," he said.

Proof or risk

No one can prove incentives made the difference, Sides said. Companies do not have to provide evidence that they would not have come to Rowan County or expanded an existing business without an incentive, he said.

"Of course they're going to tell you that," he said.

Van Geons said a company must show a project is competitive and that incentives play a role in the decision. However, he acknowledged, "you don't know for certain that the project would not have happened in your community without it.

"In the end, there are times when you know for certain that what you've put on the table wins a deal, and there are times when you know for certain that what you've done helped a local company expand," he said.

Incentives helped

Incentives helped Rowan County land Henkel, a $25 million project that promises to create 103 jobs, said Nancy Lee, Henkel regional director who served as plant manager last year when Henkel won a five-year tax break from Rowan County and $206,000 grant from the One North Carolina Fund.

Henkel was planning to consolidate operations, going from six plants to two. The Salisbury plant, formerly the adhesives and electronics materials operations of National Starch and Chemical, was in the running.

"I felt we were in competition with all the plants," Lee said. "The incentives helped to make us more attractive."

Lee worked in partnership with economic developers to land the expansion. She said Van Geons guided her through potential incentives available from the state, county and city to put together a competitive package.

The Salisbury site also offered a good workforce, close proximity to Charlotte and a record of performance with National Starch, she said.

But all of those aside, the tax breaks were crucial, she said. The company wanted to choose a location where it can maximize the return on investment, she said.

"I was looking for dollars to make this the best return on our investment," Lee said.

Open discussion

The intense debate surrounding incentives caused RowanWorks to complete the 10-year impact analysis, Van Geons said. The study took more than seven months, using numbers and information pulled from tax records, meeting minutes from the Board of Commissioners, formal agreements and old Salisbury Post articles.

"We've done our best to put together the most accurate, strictly factual representation of the projects that have announced in last decade," Van Geons said. "I believe our efforts have a positive impact on the economy, and we want to have open discussion about it."

RowanWorks will prepare an executive summary of the impact analysis and host a public presentation, including a question-and-answer session, about the findings.

Even without including the projected economic impact of companies that receive incentives, such as ancillary jobs created like day-care providers or service contractors, the results are impressive, Van Geons said. And the report provides a baseline for moving forward and judging the success of future incentives, he said.

"Now we have a cornerstone at the turn of the millenium that we can build on," he said.

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