by Julie Tisdale
City & County Policy Analyst
The incentives game just keeps getting worse. It used to be that state and local governments would put together a package to help lure a large company for a major project bringing significant numbers of new jobs to an area. It’s the sort of thing that most people think of when they think about corporate incentives. It’s the model at play, in extreme form, for Amazon’s HQ2, and the sort of thing we saw recently with the Toyota-Mazda plant that North Carolina didn’t quite get. And it’s the type of package that’s repeated time and time again in large cities and small towns across North Carolina and the United States.
That sort of incentive package is problematic, as we’ve written time after time after time here at the Locke Foundation. It distorts the market, puts governments in the position of picking winners and losers, and tends to give preference to big, outside companies over home-grown businesses with deep roots in local communities.
But bad as those deals are, increasingly we see deals that are even worse. Just such a deal passed in Alamance County this month – as much as $262,000 to Honda to expand a plant that already operates in the county, bringing precisely no new jobs. That’s right, none.
Here’s the basic structure of the deal. This Honda plant builds small engines for things like lawnmowers, not cars. Honda already has a plant producing these engines in Swepsonville, a very small town in Alamance County just a few miles from Burlington. The latest estimates from the Census Bureau put the entire population of Swepsonville at a little over 1,300 people, which makes it particularly remarkable that the Honda plant alone employs about 1200 people. No doubt this is the major employer not only for Swepsonville but also for surrounding communities. I absolutely understand why the town and county are eager to keep Honda and see them expand.
Honda proposed a $10.5 million expansion of the plant, adding 116,000 square feet. About 100,000 square feet of that will be additional production space, and 16,000 square feet will be office space. The county will give $157,000 in incentives for that. And they’ve agreed to another $105,000 if Honda spends at least $10.5 million on equipment. These incentives are worth 1.5 percent of the investment in the plant space, and no more than 1 percent of equipment cost. Does anyone believe that Honda’s decision to expand the plant and buy equipment, or not, is dependent on that 1-1.5 percent? Sure, Honda will take it if it’s offered to them. They’d be crazy not to ask. But is that money make or break for the expansion? I have a really hard time believing that it is.
And it won’t bring new jobs. No one’s claiming that it will. It’s just about trying to make sure the county doesn’t lose any of the jobs that are already there. Honda is planning to branch into some new products, and Alamance County wants to make sure those new products are produced in Swepsonville, even if it won’t mean any increase in local employment. According to Triad Business Journal,
Williams (president of the Alamance Chamber of Commerce) said though no new jobs would be added, part of process of adjusting manufacturing processes to a new product would be retraining employees, so the board wanted to “make the point of retaining people.”
“Honda Power has been a good corporate citizen in Alamance since 1984,” Williams said. “We were happy to be responsive to this request.”
That means we’ve moved from an environment where governments used incentives to lure new, major economic players, to one in which they’re essentially paying bribes to get existing employers to stay. This is not real economic growth, and it’s a terrible deal for taxpayers.
Not only that but does it really make sense to say that, because Honda’s been around for years, they’re entitled to taxpayer money just for staying? What about the small barbershop that’s been there for 50 years, the family café that’s been passed down from parents to children, or a local mechanic whose been repairing local cars for decades? Are those not good small business citizens? Why the preferential treatment for Honda?
Local governments need to resist the temptation to offer these kinds of deals. Instead, they should lower taxes across the board, reduce regulations, ease up zoning restrictions, and make it easier for all businesses – big companies like Honda or small local shops – to thrive in their communities.