State needs to tame spending on incentives
Friday, March 30th, 2007
By Chris Fitzsimon
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// < ![CDATA[ OAS_AD('Middle'); // ]]> North Carolina was once loath to enter the economic development bidding wars. But in the last decade, as tobacco, textiles and furniture have faltered, the state and hard-pressed localities have gone fishing for jobs using the usual lure — financial incentives.
There’s nothing wrong with investing in economic development, but the risk of overpaying has to be guarded against. An admirable new report released under the aegis of the N.C. Justice Center suggests there are flaws in the method the state now uses. (See Getting Our Money’s Worth? at ncjustice.org).
The North Carolina model (compared to those of Iowa and Virginia, for example) appears to skew to the high side when figuring how much a business will be worth to the state. It needs adjustment.
The report also found that, in the specific case of the Dell plant, the state erred by accepting the company’s optimistic sales projections rather than generating independent numbers.
Defenders of the present system say the state isn’t really on the hook for all the incentives promised if the businesses recruited don’t perform as advertised. That’s true, and it’s wise policy. But those provisions also offer more evidence that North Carolina is prone to overpay. State auditors, checking tax breaks under the Lee Act between 2002 and 2005, disallowed $41 million of $110 million claimed. (more…)
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