John Locke Update / Research Newsletter

Business Incentives Hit Henderson County

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There’s been news in Henderson County this week about an announcement from GF Linamar that they’ll build a state-of-the-art aluminum die casting plant in Mills River.  And it does indeed sound pretty great.  They’re promising 350 new jobs, which is a lot anywhere, and particularly in a town with a population of around 7,000.  Those jobs are supposed to have an average salary of nearly $48,000, which is well over the average income in Henderson County.  The company is investing $217 million.  I understand why folks are excited.

But here’s the thing: It comes at a cost.  There’s no such thing as a free lunch, and the cost to taxpayers across the state of this particular lunch is more than $4.7 million.  There’s a $4.2 million Job Development Investment Grant (JDIG), and up to $500,000 from the One North Carolina Fund.  Those One North Carolina Fund dollars also require matching moneys from the local government.

It all adds up to millions of dollars coming from North Carolina Taxpayers in one way or another.  And all of it to lure a private company — actually a joint venture between two private companies, one Canadian and one Swiss, with combined sales of $8 billion in 2014 — to come here.

The Department of Commerce’s press release on the announcement quotes Gov. McCrory:

Our hard-working, well-trained labor force and convenient proximity to leading automakers are among the many assets that make our state the ideal choice for strategic, innovation-based ventures such as GF Linamar.

Apparently he thinks our "hard-working, well-trained labor force and convenient proximity to leading automakers" aren’t sufficient.  Another of the "many assets that make our state the ideal choice" is the access to taxpayers’ money that companies are granted by the governor and General Assembly.

If this were a unique situation, that would be one thing.  But it’s not.  Even just a quick look at the Department of Commerce’s website reveals a long list of similar announcements granting subsidies to private companies; I count four just this month.  And all of them are paid for by my taxes and yours.

Henderson County isn’t particularly poor.  It gets the highest designation from the Department of Commerce, Tier 3, meaning it’s considered one of the 20 least economically distressed counties in the state.  Which just goes to show that, far from being some sort of extraordinary measure used by the state in very specific circumstances, economic incentives have become absolutely routine.  They’re handed out with alarming frequency.

Sure, this plant will bring jobs, and jobs are good.  But it’s not good that companies have come to expect a handout for locating here.  Will we create a situation where no company will come here without a handout?  Have we already?  Doesn’t that actually weaken North Carolina, allowing companies to almost hold us hostage waiting for more corporate welfare?

And every dollar of that corporate welfare is a dollar taken from hard working North Carolina taxpayers.  This is $4.7 million dollars that families won’t be able to use to provide for their children, pay their mortgages, start their own businesses, or give to charity. 

Not only that, but these various incentives all distort the market.  Rather than simply gauging whether Mills River has the right set of characteristics to make investment there a good business decision (natural resources, workforce, stable regulatory and tax environment), companies instead consider how much cash they can get from the government.  That’s because the governor and General Assembly have decided that they know best, that they should pick the companies that are right for North Carolina rather than letting the market decide.  Through JDIG, One North Carolina, and the like, the government attempts to pick winners.  And when they pick winners, that inevitably leaves other businesses as losers – often small, local businesses who have been in North Carolina for years.

This is especially true in a place like Henderson County with very low unemployment.  According to the Bureau of Labor Statistics, unemployment in Henderson County is 4.2%, which all economists would consider full employment.  That means that a big employer, subsidized by the government, bringing lots of jobs paying high wages, will drive up the cost of labor for other employers in the area.  The little guy, the local small business that was doing ok, suddenly finds himself having to compete with a large employer who, with the help of the state, is providing wages he can’t afford.  So he’ll lose workers and possibly have to shut up shop.  That’s the sort of loser that the governor, the Department of Commerce, and the General Assembly never set out to create, but it is very likely an outcome of their actions.

The state government should provide a stable regulatory environment with low taxes for all businesses.  That, along with North Carolina’s strong workforce, well-educated people, natural resources, and location will be enough to attract businesses to come and to stay, leaving millions of dollars in taxpayers’ pockets.

 

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Julie Tisdale is City and County Policy Analyst at the John Locke Foundation. She studies the effectiveness of local spending and tax policy. Before coming to the Locke Foundation, she worked at the Centre for Civil Society in New Delhi,… ...

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