July 30th / August 1st
"Twin City Rear-Ended by CAT?"
Earlier this month, local and state officials offered Caterpillar over $
70 million dollars in incentives to locate a plant in Winston-Salem. The
facility, which will cost $426 million dollars to build, will manufacture
rear end assemblies for back hoes, and is expected to employ 392 people.
Sounds great, so why am I opposed to the deal? Mainly because incentives
are nothing but corporate welfare and legalized extortion. Moreover, the
Federal Reserve Bank of Atlanta notes, "Incentives are often criticized for
driving the economic race to the bottom".
In many cases, industries who receive taxpayer funded incentives do
nothing but relocate jobs from one state to another, thereby producing no net
gain. In other instances, they create new jobs, but only temporarily, such as
with Dell, who closed their much heralded plant in Forsyth County after
snaring over $300 million dollars in perks. Then there are the companies who
remain open after receiving incentives, but soon have to cut back
production, leaving the locality holding the bag. That's what happened in Jackson
Mississippi who lured Nissan in 2002 with $368 million dollars in incentives.
But within a few years after opening, Nissan cut production, and Jackson
began losing over $300,000 per year due to a drop in projected revenues from
equipment tax.
Clearly, the system of incentives is risky, and even when it produces jobs
which last for any length of time, it does so at the expense of local
schools and other municipal entities who are unable to access the financial
resources that have been tied up in the short term. It's no wonder, then, that
at the turn of the new millennium, a group of taxpayers in Ohio opposed an
incentives package being offered to Daimler-Chrylser, and took their fight
all the way to the Supreme Court.
Unfortunately the Supremes ruled in 2006 that taxpayers did not have
standing to challenge state tax or spending decisions simply by virtue of their
status as taxpayers.
And so, for now, at least forty states are entrenched in the incentives
game where they feel obligated to offer perks, less they lose a prospect to a
competing state. But according to UNCG professor Andrew Brod, that fear
isn't justified. "It's hard to conclude that a company that is getting
incentives from State X, wouldn't have gone to State X anyway". So why offer
incentives? Brod theorizes that, "offering incentives to lure large companies
gives politicians the chance to claim credit with little risk they'll be
blamed for a deal that falls short of its promise. It's very important for
them especially in times like these, to appear to be doing something. It's
easier to do something whose rewards and benefits are hard to assess, than to
just do nothing".
But Winston-Salem/Forsyth County officials should have just done nothing
because the CAT deal is flawed for five reasons.
- First, the two states competing against North Carolina (Alabama and South
Carolina) didn't have to play by the same rules. Without full disclosure
of their bids, we had no way of knowing if CAT was yanking our chain by
pushing us for $70 million dollars in incentives. Our elected leaders should
have learned a lesson from the Dell debacle in which the computer maker led
us to believe that we needed to come up with over $300 million dollars in
perks to lure their proposed plant away from Virginia. Later, after the deal
was done, we learned that the Old Dominion only offered Dell $30 million in
incentives. And so, we committed to ten times more than we needed to in
order to land the deal.
- Second, the CAT deal is bad because it includes no guarantee that the
company will use area contractors to build their plant.
- Third, CAT made no guarantee to fill the 392 jobs with local workers.
- Fourth, CAT isn't opening its doors freely to local stores and vendors.
For example, Caterpillar has an exclusive contract with Walgreens and Walmart
to fill employee prescriptions. That leaves other chains like Target and
Rite Aid out in the cold, and excludes local mom and pop drug stores like
Andrews Pharmacy from doing business with a company who they will be
supporting with their tax dollars.
- Fifth, a good portion of the local incentive monies being committed to CAT
come from the Dell refunds, which should have been allocated to the
Winston-Salem/Forsyth County schools to make up for budget shortfalls, and
prevent teacher lay offs.
When interviewing Bev Perdue, I called on her to lobby her fellow
Governors to enact a moratorium on industry incentives. A resolution from the
Southern Governors Association, for example, would send a message to suckling
companies that the incentives tit has dried up. Not surprisingly, Perdue
hasn't lifted a finger to address this problem. Absent that solution, our local
leaders need to grow a pair, and start calling the bluffs of industry
executives who threaten to take their jobs elsewhere. If companies want to
locate here, they will locate here. If they don't, they won't. Either way, it
shouldn't be the role of government to subsidize the private sector. In
the meantime, we should at least demand full disclosure from any company who
is seeking taxpayer support, so that we don't continually get suckered into
topping other States' bids by unnecessarily astronomical amounts.
Despite my dislike for incentives in general, and for the flawed deal with
Caterpillar in particular, I still hope that CAT locates in our area, and
plans to keep hundreds of local people employed here for a long time. After
all, it's only fitting that we pin our hopes for digging out of this
recession, on a company that makes excavating equipment.
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