March 19, 2014 News & Views » News Feature

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Are corporate incentives worth the trouble? 

We asked an expert after Chiquita announced it would move its global headquarters overseas.

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In 2004, Dell was looking for a home for an assembly plant that would bring with it more than a thousand jobs. To lure the highly coveted project to North Carolina, the General Assembly quickly convened and approved an incentive package worth a staggering $242 million that exempted Dell from paying corporate income and franchise taxes for a few years. Dell liked what it heard; the state made cities fight for the project. Winston-Salem and Forsyth County offered about $37 million in additional incentives and won the deal.

Four years later the plant closed, shedding hundreds of jobs. The company repaid about $27 million in local incentives but not the state tax credits.

Charlotte felt that sting on a smaller scale this month when Chiquita — whom we wooed about two years ago away from Cincinnati — acquired an Irish fruit company, with plans to relocate its global headquarters from the Queen City overseas. Though it's only taken about $1 million in incentives and will maintain its North American headquarters here, the prospective merger and move has some wondering whether incentives are worth the trouble. After all, most of its 300 jobs will remain in Charlotte, but who knows for how long.

Greg LeRoy, executive director of Good Jobs First, an incentives watchdog group based in Washington, D.C., argues cities and states shouldn't focus so much on luring big companies but instead invest money and time into businesses that exist within their boundaries — into infrastructure projects or continuing-eduction programs that can ready the state's workforce if and when a company moves in. The following transcript has been edited for brevity and clarity.

Creative Loafing: So are incentives worth it?

Greg LeRoy: That depends on whether they're too expensive. Do they really change a company's behavior? You need good monitoring and enforcement in place [to make sure the company sticks to the contract]. At the very least, taxpayers should be protected if the deal doesn't pan out.

Good Jobs First measures states by how firmly they hold companies to their incentive contracts, whether states disclose the details of projects to the pubic, and whether the project actually creates jobs. How does North Carolina fare?

It's one of the top-rated overall states. No other state was in the top five, much less top three, across the board. In terms of the Chiquita deal, the state, county and city had clawback provisions written into their contract [basically, provisions that lay out consequences for moving or failing to follow the contract's terms]. They had a very good contract to start with.

What are the ills, then, of North Carolina offering incentives?

I think that when you put a lot of eggs in one basket, such as in a high-profile trophy recruitment deal, it can be demoralizing for small businesses and existing businesses. We generally think that, especially in situations like yours in Charlotte, where you have growth-management problems and a strong economy, putting a lot of eggs in any one basket is risky. It's better to manage the growth you have — make sure infrastructure is efficient and community college systems are sensitive to labor market issues. Spending money in ways that benefit a lot of employers is smart and a lot less risky.

Mega deals have surged since 2008. We just published a study that showed the total number of deals for which states can compete is quite depressed. Corporations are getting richer, and high-profile companies have the ability to offer bigger numbers of jobs and capital investment. They have much more power to barter with now.

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