Follow the Money: Issue 81
January 7, 2011
This past week, many residents of North Carolina got another dose of bad news on the job creation front. On Tuesday, the N.C. Employment Security Commission reported that the Triad jobless rate rose to 10.2 percent in November, up from 9.5 percent in October.
Similarly, Business First of Buffalo, a sister paper of the Triangle Business Journal, conducted an analysis of new federal employment data and found that while over half of the nation’s 100 largest labor markets are now adding jobs, the Raleigh-Cary area is not one of them. Fifty-four of America’s major labor markets had more private-sector jobs in November 2010 than in November 2009. However, the Raleigh market, which is made up of Wake, Johnston, and Franklin counties – lost 400 jobs over that time period.
Even as the local economy continues to hemorrhage jobs, public officials in counties all across the state keep awarding large incentives packages to companies that may not start hiring until 2012 or beyond.
In Sanford, for example, Lee County and city officials just awarded Italian auto parts maker Magneti Marelli Powertrain Systems a $500,000 incentives package for simply saying it will add 65 jobs by 2012. Magneti just announced a $15 million expansion to its Sanford plant, which currently employs around 290 people.
Bob Heuts, the director for Lee County Economic Development justified the massive incentives package by saying was necessary in order to encourage the company to award the work to the Sanford plant.
Other Lee County manufacturers hoping to cash in on the city and county’s grab bag of incentives giveaways include:
Beauty products maker Coty is expanding its Sanford manufacturing operations.
Caterpillar plans to expand its Sanford factory.
Static Control Components, which produces parts and toner for remanufactured cartridges used in laser printers and currently employs over than 1,000 in Sanford.
Yarn manufacturers, Parkdale Mills and Frontier Spinning Mills, are also expanding their Sanford facilities.
Gov. Perdue OK’s Matching Bids of Out-of-State Competitors
This past week the governor announced that 52 contracts have been awarded to North Carolina companies under a new policy that allows home-grown firms to match the bids made by out-of-state competitors. Here's how it works:
The N.C. Business Preference Program allows a Tar Heel business that submits a bid within 5 percent or $10,000 of the lowest bidder to match the out-of-state bidder's price.
So Jackson's Music of Winston-Salem price-matched a bid worth $18,484 for musical instruments for the University of North Carolina at Chapel Hill. The company's original bid was $124 more than the bid of a company from New York, according to the Governor's Office.
The GPS store in Ocean Isle matched a $6,249 bid for a navigation system for the Department of Environment and Natural Resources. The company's bid was $230 more than a bid from California.
Potter Oil and Tire in Aurora matched a bid for more than $1 million for fuel for the Department of Administration. The company's original bid was $13,920 more than the bid of a company from Georgia.
Perdue said, "Why spend our tax dollars outside the state when there are numerous home-grown companies right here that can offer us the same products at competitive prices."
NCICL knows that despite the spin coming from the folks at the State Capitol, the truth is our tax dollars are still going to massive incentive packages that have yet to create jobs.
North Carolina’s Gas Tax on the Rise; Will legislators impose a cap?
According to the American Petroleum Institute, North Carolina's gas tax appears to be the highest in the Southeast, next to Florida, and is the 13th highest in the entire nation. Raleigh News & Observer reporter Bruce Siceloff has the breakdown here:
Happy new tax increase, fellow motorists.
North Carolina's motor fuels tax registered a quiet increase of 0.6 cents per gallon on Saturday, the first day of 2011.
Our new state gas tax is 32.5 cents a gallon, and that's an all-time high for North Carolina.
Is this a big deal? That depends on how you look at it.
When you add a state inspection fee of 0.25 cents and the federal fuel tax (unchanged since 1992) of 18.4 cents, our government collects a total of 51.15 cents on every gallon we pump.
My solar-powered calculator tells me we're paying about $7.25 in state and federal taxes on every 15-gallon tankful, and that's 9 cents more than we paid in December.
Our legislators will want to know what we think about this. They'll have to decide this spring whether to let the gas tax keep climbing - or to put a lid on it, as they did in 2006.
Most of the stuff we buy comes with a sales tax that is figured as a simple percent of the retail price. When the price of a shirt rises, the sales tax rises, and nobody notices much.
Gas taxes and gas prices are different. They rise and fall, and we notice. Do we notice too much?
The gas tax is North Carolina's primary source of transportation money - followed by the highway use tax collected on car sales, and various vehicle fees. It's what we use to build new roads and maintain old ones, and to cover other transportation costs.
By state law, the tax is recalculated every six months, in two parts. It's a flat rate of 17.5 cents plus a variable that is the higher of two other numbers: either a second flat rate (currently 12.4 cents) or 7 percent of the wholesale fuel price.
Nobody cared about this until a few years ago, when fuel prices started climbing and that 7 percent calculation started pushing the tax rate higher, fast.
The tax reached 29.9 cents in 2006, and the legislature decided not to let it rise any more.
This made drivers feel a little better, although it didn't keep pump prices from climbing past $3 and $4. Over three years, the tax cap eliminated a few hundred million dollars of revenue the state Department of Transportation would have used for building and maintaining roads.
Then in 2009, fuel prices were down and the tax was about to drop by a couple of pennies. To keep DOT from falling into a deeper revenue hole, the legislature turned that tax ceiling into a tax floor: 29.9 cents became the minimum gas tax instead of the maximum, and it was allowed to rise higher.
Lately, as wholesale prices have climbed, the tax has reached 32.5 cents.
The law that determines the gas tax is scheduled to expire June 30. So the new Republican majority in the legislature must revisit the issue of gas tax ceilings and floors in time to determine the rate that will take effect in July.
Sen. Richard Stevens of Cary, one of a handful of Republicans who voted in 2009 to let the tax rise above 29.9 cents for two years, predicted his party would not want to see it go any higher in July.
"Republicans have generally said we're not in favor of any tax increase, and that would include continuing any temporary tax increase that would automatically expire otherwise," Stevens said. "You don't raise taxes in a recession, especially when the cost of gas is going up in general."
A few other states have changed their gas taxes for 2011 - up 6 cents a gallon in Oregon, down a fraction in Nebraska - according to the American Petroleum Institute.
Why Recruiting Incentives are Likely to Stay
In this recent piece on economic incentives Scott Mooneyham gives a shout out to our very own Justice Orr for being a warrior when it comes to fighting corporate welfare. The best line in the entire piece: "Trying to improve the attractiveness of your workforce, with better schools, isn't easy when your tax base is being eaten away with more and more corporate giveaways."
Read the full article below:
For good reason, some well-known Republicans in North Carolina have been among the biggest critics of business recruiting incentives.
One of those Republicans, former Supreme Court Justice Bob Orr, heads a legal foundation mostly dedicated to bringing court challenges of North Carolina's inducements.
Of course, Republicans promote themselves as the pro-business party. But for the ideologically pure, picking winners and losers in business doesn't sit too well with conservative ideas like free enterprise and corporate survival of the fittest.
So, now that they're about to control the North Carolina General Assembly, talk is that Republicans might undo some part of the state's business recruiting incentives.
It's probably mostly talk, for the same reasons that Gov. Beverly Perdue is sounding the alarm about any pending unraveling of incentives.
Perdue says she'll fight to save the state's incentive programs because to not do so would mean allowing other Southeastern states to outcompete North Carolina for jobs. “I don't like them, but they are part of the game,” Perdue said recently.
Perdue said she could cite two examples of companies that brought jobs to other states because they offered better incentives. The Democratic governor went on to say that Virginia, Georgia and Alabama offer better incentives.
Interestingly enough, the state that may lead the nation when it comes to lucrative incentives, Georgia, is dominated by Republican state officeholders. Republicans control both chambers of the legislature and a Republican resides in the governor's mansion.
For Republicans in that state, picking winners and losers in business is just a minor inconvenience to philosophical sensibilities. And unfortunately, Perdue is right. If North Carolina reduces its incentives while other Southeastern states ramp up their offerings, the state will lose out on new businesses in some cases. How many is up for debate.
But North Carolina's incentives are hardly wanting. A Forbes magazine ranking examining states' business climate ranked North Carolina fourth when it comes to incentives and regulatory environment.
The problem is that other states ranked high in the same category are all our neighbors, with one exception, Washington. What should concern Perdue and legislators of both parties is that two of those neighbors, Virginia and Georgia, also rank higher on labor force issues like educational attainment.
Trying to improve the attractiveness of your workforce, with better schools, isn't easy when your tax base is being eaten away with more and more corporate giveaways.
Of course, Republicans and Democrats could start doing more than paying lip service to the notion that incentives are distasteful. They could begin discussions with other states about the topic and try to put more pressure on Congress to establish some kind of reasonable limits to the regional warfare.
With a little effort, they might even force Bob Orr to focus his attention elsewhere.
NCICL Supports Sensible Economic Development Under the Constitution
The Center for Economic Development Reform (CEDR) is a center of the North Carolina Institute for Constitutional Law. Please visit the North Carolina Institute for Constitutional Law website at www.ncicl.org for more information.
This newsletter is compiled by Elizabeth Lincicome, Director of Communications and Development for NCICL. She may be contacted at lincicome@ncicl.org.
Copyright © 2009 The North Carolina Institute for Constitutional Law all rights
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