using economic development incentives: for better or for worse · using economic development...
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P O P U L A R G O V E R N M E N T
Using Economic Development Incentives: For Better or for Worse Jonathan Q. Morgan
The author is a School faculty memberspecializing in community and economicdevelopment. Contact him at [email protected].
S tate and local incentives to stim-ulate economic development haveincreased in North Carolina, as
they have across the United States. Stateand local governments continue to dealwith the realities of economic transitioncreated by globalization and techno-logical advances. The quest for privateinvestment and jobs in an increasinglycompetitive global economy is raisingthe stakes of economic development.The jurisdictions that aggressively useincentives to succeed in the “job wars”can potentially win big—but at whatcost and toward what end?
Some recent large deals in NorthCarolina illustrate how the immediatethrill of victory in the incentives gamemust be tempered by questions aboutthe actual net benefit to the state and itscommunities. For example, assuming thatWinston-Salem and Forsyth County hadto promise about $280 million in stateand local incentives to attract a Dell computer-assembly plant, was doing soworth it? What about the $262 millionoffered to land a Google data center/server farm in Lenoir and CaldwellCounty? A new state grant program toencourage Bridgestone/ Firestone andGoodyear to expand and upgrade facil-ities at locations in eastern North Caro-lina could cost as much as $60 million.State incentives alone totaled $3.7 bil-lion from fiscal years 2005–6 through2007–8. Some observers have a naggingsense that the state and its local govern-ments might be paying large corpora-tions too much for jobs and investmentwhile overlooking the needs of existingindustries and small businesses.1
The proliferation of business incen-tives for economic development is con-
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troversial, in part because public offi-cials often fail to assess adequately thenet return on the public investment inincentive deals. Other concerns aboutthe growing use of incentives center onwhether they work and what the ration-ale is for using them.2 The strongestargument offered by proponents for thecontinued and expanded use of incen-tives is that incentives actually influencebusiness location deci-sions. Although someevidence supports thisclaim, skeptics citenumerous studies thatshow incentives havinglittle to no positive di-rect effect on invest-ment decisions.3
This article provides public officialswith a roadmap for navigating the debateon economic development incentives.The intent is not to take a position foror against incentives, but to discuss theenduring arguments from both sides andthe latest research findings on incentivesso that readers can make informeddecisions. Many jurisdictions probablywill offer business incentives into theforeseeable future. The article may helpthem be more strategic and judicious inusing incentives to bring about desiredeconomic development outcomes.
The Evolution of Incentives in North Carolina
The State of North Carolina had nocomprehensive incentive policy until theGeneral Assembly passed the William S.Lee Quality Jobs and Business Expan-sion Act (Lee Act) in 1996. Before that,the state had relied mostly on othersources of relative advantage, such as itslow labor costs, well-developed trans-portation infrastructure, and responsivecommunity college system. A limitedtax credit for job creation and the In-dustrial Recruitment CompetitivenessFund (now the One North CarolinaFund) had been estabished in 1993, buteconomic developers and policy makersdid not deem them sufficient.4 A spateof losses of industrial projects, includingMercedes-Benz to Alabama and BMWto South Carolina, prompted state offi-cials to take a more assertive stancewith economic development incentives.
The Lee Act created an expanded setof tax credits targeted at new and grow-ing industries, with the aim of strength-ening North Carolina’s competitiveposition. An important feature of theLee Act is that it provides the greatestaid to the state’s most disadvantagedareas. The amount of tax credits avail-able to companies in a particular countyis based on the county’s level of eco-
nomic distress. Counties are grouped in-to tiers on the basis of an index of eco-nomic performance indicators. Higheramounts of incentive dollars are avail-able in Tier 1 (poorer) counties.
The Lee Act signaled that NorthCarolina was “open for business” andserious about securing its share ofindustrial projects. The act also sparkedstrategic thinking and ongoing debate
Losing some big manufacturingplants to other states in the mid-1990s prompted North Carolina tobecome more assertive in offeringdirect financial and tax incentives.
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that have resulted in the creation of ad-ditional incentives, like the Job Develop-ment Investment Grant in 2002 (discus-sed later).
In the first few years after enactmentof the Lee Act, the governor’s office and the North Carolina Department ofCommerce announced the decisions ofseveral major companies to locate op-erations in the state. In 1998, FedExdecided to build a regional sorting hubat the Piedmont Triad International Air-port, and steel producer Nucor agreedto construct a new plant in HertfordCounty. The state offered reductions insales taxes and enhanced tax credits forcapital investment to help close thesedeals. In 1999, North Carolina scoredwins by using incentives to land a QVCdistribution center in Edgecombe County,a DuPont plant in Bladen County, andTIAA–CREF in Mecklenburg County.
These and subsequent projects raisean important and largely unresolvedquestion: To what extent can the state’ssuccess in locating these facilities beattributed to the Lee Act tax credits andother incentives? That a string of signif-icant recruitment and expansion projectsoccurred in the post–Lee Act period isnot in doubt. At issue is whether the
projects would havehappened without theincentives. Most eco-nomic developers andmany public officialswill say, “Absolutelynot.” I come back tothis question later inthe article.
Over the years, the General Assemblyamended the Lee Act several times toaddress apparent deficiencies. In 2006the General Assembly replaced it with anew program (see the later sectionheaded Types of Incentives).
The most recent shift in state policyon economic development incentives isevident in the General Assembly’s cre-ation of the Job Maintenance and Cap-ital Development Fund.5 This programemerged out of an extra session in 2007when lawmakers worked out a dealwith the governor’s office to aid majoremployers in some of the state’s Tier 1counties. Lawmakers designed theprogram primarily to benefit two tiremanufacturers with locations in easternNorth Carolina. The program author-izes up to $60 million for Goodyear toupgrade a plant in Fayetteville and forBridgestone/Firestone to modernize a
facility in Wilson. Businesses located inthe most economically distressed areasof the state that invest at least $200 mil-lion in property and capital improve-ments and maintain at least 2,000workers are eligible to receive annualgrant payments of up to $4 million overten years under the program.
This new incentive program repre-sents somewhat of a policy shift becauseit does not require a company to createjobs in order to receive a grant. Jobcreation has been central to the state’seconomic development policy for ob-vious reasons. However, the Job Main-tenance and Capital Development Fundrecognizes that job creation is not theonly goal of economic development.Retaining jobs can be particularly im-portant in poorer areas, and largeamounts of capital investment can havesignificant economic and fiscal impacts.
Still, the idea of awarding grants tocompanies that only maintain existingemployment levels, or even reduce them(for example, from 2,500 to 2,200),
makes some uneasy.6
This shift in statepolicy underscoresthe irony of the ten-sion betweenbusiness investmentsin labor and capital:as companies mod-ernize and automate,they often can pro-
duce more with fewer workers.The statutory authority for local
economic development incentives existsin the Local Development Act of 1925.7
The statute authorizes cities and coun-ties to provide a number of incentives insupport of business recruitment, reten-tion, and expansion (specific incentivesare discussed later). Further, it grantsbroad authority for local governmentsto undertake a wide range of economicdevelopment activities—authority sobroad that starting with what the actprohibits is easier than specifying whatit allows. At least three incentives pro-vided by local governments that oftenare permitted in other states are not al-lowed in North Carolina: property taxabatements, loan guarantees to a privatecompany, and promises not to annex acertain parcel of property.8 Except for theincentives that state law forbids, coun-
Milestones in Policy on Economic DevelopmentIncentives in North CarolinaState Incentives
Year Event
1993 Industrial Recruitment Competitiveness Fund created by N.C. General Assembly (now One North Carolina Fund)
1996 William S. Lee Quality Jobs and Business Expansion Act (Lee Act) enacted by N.C. General Assembly
2002 Job Development Investment Grant (JDIG) program created by N.C. General Assembly
2006 Article 3J tax credits enacted by N.C. General Assembly to replaceLee Act
2007 Job Maintenance and Capital Development Fund created by N.C. General Assembly
Local Incentives
Year Event
1925 Local Development Act enacted by N.C. General Assembly
1996 Maready v. City of Winston-Salem decided by N.C. Supreme Court
A shift in the state’s economicdevelopment policy recognizes that job retention may be asimportant as job creation, espe-cially in areas of high poverty.
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ties and cities routinely use the varioustools discussed in the next section.
A significant milestone for local gov-ernment incentives in North Carolinaoccurred in 1996 with the state supremecourt ruling in Maready v. City of Winston-Salem.9 This decision reverseda lower court ruling that had declaredthe business incentives used by Winston-Salem and Forsyth County to be uncon-stitutional because they did not serve apublic purpose. At issue were twenty-four incentive deals offered by the cityand the county between 1990 and 1995that totaled more than $13 million.10 Byaffirming that local incentives serve apublic purpose, the state supreme courtcleared the way for cities and countiesto continue offering incentives to lure,keep, and expand industry.
In the wake of the 1996 Maready de-cision, local governments moved quicklyto ramp up their incentive programs.Later that year, Cabarrus County wasone of the first to adopt an aggressiveincentive policy that would essentially
grant new or expanding industries arebate of up to 85 percent of propertytaxes paid over five years.11 This idea ofpaying companies back a portion of theirproperty taxes mimics tax abatement tosome extent. However, it can be distin-guished from prohibited tax abatementwhen such payments are contingent onthe company creating a certain numberof jobs or investing a minimum amountin real property and equipment. Indeed,such arrangements can help a localgovernment avoid paying out more in incentives than it receives in taxrevenue from the company. This type ofincentive is thought to be more legallydefensible when it is in the form of acash grant that is not an explicit refundof property taxes paid by a company(see the later section headed Legality).12
The courts have not yet weighed in onthe constitutionality of this practice.
(For a summary of state and localmilestones in policy on economicdevelopment incentives, see the sidebaron page 18.)
Types of IncentivesState governments offer both tax andnontax incentives to companies. NorthCarolina’s state-level tax incentivesconsist primarily of corporate incomeand franchise tax credits and sales taxexemptions and refunds.13 The Article 3JProgram, which replaced the Lee Acteffective January 1, 2007, provides statetax credits to eligible businesses thatcreate jobs, invest in business property(machinery and equipment), or invest in real property (buildings and land).14
The credit for investing in real propertyis available only to companies thatinvest at least $10 million and create at least 200 jobs in Tier 1 counties.Article 3J tax credits are nondiscretion-ary, meaning that any taxpayer thatmeets the eligibility criteria is entitled to claim the credits.
By contrast, certain nontax incent-ives are discretionary grant programs inwhich funds are awarded on a case-by-case basis. Examples are the Job Devel-opment Investment Grant (JDIG) pro-
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gram and the One North CarolinaFund. Companies must apply to receiveJDIG grants. A five-member EconomicInvestment Committee makes fundingdecisions and awards grants on thebasis of a percentage of the state incometax withholdings generated from eligiblepositions. The One North CarolinaFund receives a nonrecurring appropri-ation from the General Assembly toenable the governor to close deals thatare strategically important.15 Otherstate-level nontax incentives in NorthCarolina most often come in the formof low-interest loans through industrialrevenue bonds, job training, and infra-structure assistance.
Many local governments outsideNorth Carolina frequently use propertytax abatements as a discretionary taxincentive to promote economic develop-ment.16 As mentioned earlier, propertytax abatement by local governments isnot legal in North Carolina.17 So localgovernments provide discretionary cashgrants to businesses instead. A recentanalysis of cash-grant incentive pack-ages approved by counties during2004–6 found that most were supportingnew facility locations rather than exist-ing business expansions.18 Cash grants
are typically paid out over a number ofyears, though some amount often isprovided up front. They are usually“performance based,” which meansthat they are tied to the number of jobsand the level of capital investment thatthe business creates. A company may berequired to forfeit some or all of a grantif it fails to meet certain performancethresholds in a given year. Some citiesand counties base the amount of thegrant on a percentage of property taxespaid by the company.
According to a recent survey of NorthCarolina local governments that I con-ducted, only zoning and infrastructureimprovements are used more widelythan cash-grant incentives (see Table 1).Other common local incentives includeone-stop permitting, state developmentzones, low-interest loans, subsidizedworker training, and relocation assistance.(For definitions of tools used by local governments that are not self-explanatory, see the sidebar on page 21.)A relatively new economic developmenttool available to local governments inNorth Carolina, tax increment financ-ing, has not been widely used to date.19
Two Cases in Point: Recruitment of Dell and Google
Although not typical of the scale andthe scope of routine incentive offers,two recent projects to recruit majorbusinesses illustrate how public officialsin North Carolina combine variousstate and local incentives to create awinning package. Dell and Google aretwo household names connected to theknowledge-based economy. Any state orcommunity would want to land projectsof theirs. North Carolina public officialsand economic developers aggressivelypursued these projects to bring jobs andinvestment to areas of the state thatbadly needed them and to mitigate theloss of textile and furniture industries.(For estimates of the state and localincentive packages offered to lure thenew facilities of these two majorcorporations, see Table 2.)
The largest part of the state packagefor Dell is a tax credit tied to the num-ber of computers produced at the newNorth Carolina facility. The GeneralAssembly enacted this special tax creditin 2004 during an extra legislative ses-
Table 2. Incentives for Dell and Google
Dell Google(in millions) (in millions)
State Incentives
Computer-manufacturing tax credit* $200.0 NA
Tax credits (Lee Act and Art. 3J) 21.4 $ 2.6
Job Development Investment Grant (JDIG) 8.8 4.8
Job training 8.3 NA
Infrastructure 3.0 0.7
Sales tax refund 1.0 NA
Sales tax exemption NA 89.0
Total state package $242.5 $97.1
Local Incentives (City and County)
Cash grants† 17.2‡ 165.0
Site preparation and improvements 13.0 NA
Land 7.0 NA
Total local package $ 37.2 $165.0
Total State and Local Incentives $279.7 $262.1
Source: The figures are my compilations from various news reports and data from the NorthCarolina Department of Commerce. NA = not applicable.
* Paid out over 15 years.† Includes $3.3 million from the Golden LEAF Foundation. ‡ Paid out over 30 years.
Table 1. Incentive Tools Used by LocalGovernments in North Carolina
Percent Reporting (n = 217)
Zoning and permit assistance 59.0
Infrastructure improvements 56.2
Cash-grant incentives 42.4
One-stop permitting 30.0
State development zone 24.0
Land or building acquisition 23.0
Site preparation 19.4
Subsidized land or buildings 17.5
Subsidized worker training 16.1
Low-interest loans 11.1
Relocation assistance 9.2
Employee screening 9.2
Regulatory flexibility 7.8
Incentives for retail projects 7.4
Source: Jonathan Q. Morgan, “2006 Survey ofLocal Government Economic Development Ac-tivities” (Chapel Hill, NC: School of Government,University of North Carolina at Chapel Hill).
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sion to ensure that Dell would locatesomewhere in the Piedmont Triad regionof the state.20 Once Dell chose NorthCarolina, local governments in the Triadregion—Davidson County, the City ofGreensboro and Guilford County, andthe City of Winston-Salem and ForsythCounty—proposed separate local pack-ages to lure the facility to their respec-tive jurisdictions.21 Winston-Salem/Forsyth had been rumored to be thefavorite and offered the largest package,which consisted of cash grants, landcosts, and funds for surveying, grading,paving, road construction, public utili-ties, and other site improvements. It isnot entirely clear how influential thelocal incentives were, but Dell decided
on the Winston-Salem site in ForsythCounty. The state and local incentivesfor Dell largely depend on the companymeeting certain performance targets withrespect to employment (1,500 jobs) andcapital investment ($100 million). Mostof the incentive dollars will be paid outannually over time. Dell did not receivea check up front for $279.7 million.
By contrast, Google’s state incentivesare mostly in the form of a full exemp-tion from the sales taxes that it wouldpay to purchase electricity and certainequipment for up to thirty years. Thesales tax exemption on electricity is im-portant for Google because a server farmuses an enormous amount of electricityto keep its many computers running
around the clock. The exemption alsomatters because the company apparentlywould not have had to pay this tax inmany other states that were under con-sideration. The local incentives offeredby the City of Lenoir and CaldwellCounty are thirty-year cash grants basedon 100 percent of business propertytaxes and on 80 percent of real propertytaxes paid by Google. These incentivegrants are estimated to total as much as$165 million over thirty years, whichprompts some to think that Lenoir andCaldwell County “gave away the farm,”so to speak, to get a server farm.22
The amount of public dollars put onthe table for Dell and Google is signifi-cant. However, the cost of each incen-tive package must be considered in re-lation to the economic and fiscal bene-fits that the companies will generate (seeTable 3). To receive the full amount ofincentives, Dell must employ at least1,500 workers at the facility in Winston-Salem. The jobs are expected to pay anaverage annual salary of $28,000.Critics point out that this is lower thanthe average annual salary of all workersin Forsyth County. Proponents contendthat the project will have a strong mul-tiplier effect on the state and the regionbecause of its ability to attract supplierfirms to locate nearby. The North Caro-lina Department of Commerce estimatesthat Dell’s initial direct capital invest-ment of $100 million and ongoingoperations will contribute more than$24 billion to the gross state product andnet the state $743 million in revenueover twenty years. Dell’s ripple effectwithin the region is projected to gen-erate an additional 6,000 indirect jobsat suppliers, service companies, re-tailers, hotels, restaurants, and so forth.
Google expects to employ 210 workersdirectly in Lenoir with an average an-nual salary of $48,300—significantlyhigher than the average annual salary ofworkers in Caldwell County. Yet thereis concern that the company will nothire local residents and will bring inworkers from elsewhere because muchof the local workforce lacks the educa-tion and the skills required for the jobsat the Google facility. Although Googlewill employ far fewer workers thanDell, its level of capital investment—$600 million—is much higher. The state
Selected Business Incentive Tools DefinedClawbacks: penalty provisions in incentive contracts that require companies
to pay back some or all of the incentive monies they received if theyfail to meet performance expectations within a certain period.
Employee screening: assistance to new or expanding companies in hiringworkers—preemployment services, job fairs, connections toemployment agencies, and the like.
Infrastructure assistance: help in providing, paying for, or offsetting thecosts of improvements to utilities such as water and sewer systems,roads, power lines, and telecommunications on behalf of a company.
One-stop permitting: co-locating, streamlining, and fast-tracking ofgovernment inspection, licensing, and permitting services to make iteasier for businesses to apply for and obtain various permits.
Regulatory flexibility: taking of steps to clarify and streamline rules, andotherwise ease the burden of government regulations on businesses.
Relocation assistance: provision of help to new or expanding companiesin relocating executives by paying relocation costs, assisting withspousal employment, aiding in sociocultural acclimation, providinghousing and child care referrals, and the like.
Site preparation: provision of funds to cover the costs of specializedinfrastructure, engineering or survey work, clearing, grading,demolition, paving, environmental assessments, and so forth, for acompany to locate at a particular site.
State development zone: a designated area of high poverty within a NorthCarolina municipality where higher state tax credits are available tocompanies that invest and create jobs.
Tax increment financing: a mechanism by which local governments issuebonds, without a voter referendum, to make public improvements that are necessary to spur private investment in a designated area.This tool relies on the incremental tax revenues that result fromincreases in assessed property values. The bonds are considered to be self-financing because, if successful, the public improvementsthey finance will stimulate new private investment and generate taxrevenues that will be used to pay off the bond debt.
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commerce department estimates thatGoogle will contribute about $1 billionto the state’s economy and net the state$37 million in revenue over twelve years.At the local level, Google will purchasea substantial amount of electricity fromDuke Energy, help increase revenuesfrom the utility franchise tax, and be-come Lenoir’s second-largest watercustomer.23 The company might end upas the city’s third-largest taxpayer, evenafter accounting for the incentive grantsit will receive.24
Issues in the Incentives Debate
The Dell and Google projects raise im-portant questions about the role ofincentives in economic development.These and other recent incentive offers,including the new grant program aimedat Bridgestone/Firestone and Goodyear,underscore why the debate over incen-tives rages on. At least five points ofcontention fuel the debate: the extent towhich economic development incentivesare (1) legal, (2) fair, (3) efficient, and(4) effective, and the extent to whichboth the process for awarding incentivesand the recipients are (5) accountable.To use incentives more wisely in fuelinggrowth and prosperity, state and localofficials must understand them in termsof these issues.
LegalityIn the Maready decision, mentionedearlier, the North Carolina SupremeCourt made it clear that local businessincentives serve a public purpose andtherefore do not violate the state consti-tution. According to the ruling, incen-tives meet the public-purpose test becausethey help create jobs and expand the taxbase. Citizens benefit through increasedeconomic opportunity and better publicservices. However, certain legal ques-tions remain unresolved and continue tobe pressed in the judicial system.
The North Carolina Institute forConstitutional Law, a group generally op-posed to incentives, filed lawsuits chal-lenging the constitutionality of the Dell,Google, and Bridgestone/Firestone–Goodyear deals. The lawsuit challeng-ing the Dell incentives claimed that theyprimarily benefited the company, failedto serve a public purpose, and violated
the Commerce Clause of the U.S. Con-stitution. The North Carolina Court ofAppeals upheld the constitutionality ofthe Dell incentives, and the North Caro-lina Supreme Court refused to hear thecase.25 The lawsuit against the Googledeal, based on similar constitutionalgrounds, was dismissed by a superiorcourt judge in November 2008.26 Anappeal is possible. The lawsuit filed overBridgestone/Firestone–Goodyear andthe Job Maintenance and Capital De-velopment Fund might reveal if thecourts will view incentives that are nottied to job creation as sufficiently servinga public purpose.27 Also, as mentionedearlier, whether the courts will deemcash grants as being, in effect, the sameas tax abatement is not entirely clear.
U.S. federal courts also have con-sidered challenges to the legality of eco-nomic development incentives. A law-suit filed in a federal district court claimedthat two particular incentives in Ohio—a local property tax exemption and aninvestment tax credit—violated theCommerce Clause of the U.S. Con-stitution. DaimlerChrysler receivedthese incentives to expand a Jeep plantin the state.28 The district court ruledthat both incentives were constitutional.On appeal, the Sixth Circuit Court ofAppeals upheld the local property taxexemption but declared Ohio’s invest-ment tax credit in violation of the Com-merce Clause.29
The Sixth Circuit Court ruling gotthe attention of economic developersand policy makers and created uncer-tainty about similar tax credits offeredin other states. The case, DaimlerChryslerCorporation v. Cuno, eventually madeits way to the U.S. Supreme Court,
which dismissed it on the basis that theplaintiffs lacked standing in the federalcourts.30 By not ruling on the constitu-tionality of the tax credit in question,the Supreme Court has left open thepossibility of future lawsuits.
FairnessThe concern about the fairness ofincentives has to do with who reaps thebenefits and who bears the costs ofeconomic development policies. Withincentives, some businesses clearly bene-fit, but others may lose. When governmentprovides tax concessions, grants, andother assistance to certain businessesand not others, its doing so has theappearance, if not the effect, of treatingcomparable taxpayers unequally.31 Theperception that incentives mostly go tonew companies locating in a communitycan breed resentment among existingfirms, particularly if they are direct com-petitors with the companies receivingaid. Moreover, the requirements of mostincentive programs that a certainminimum number of jobs be createdand a certain minimum investment bemade typically make small businessesineligible to participate.
The counterargument is that it issensible to discriminate among tax-payers and provide special treatment tothose who create large numbers of jobsand make significant investments in acommunity, because doing so benefitsthe greater good. For example, someevidence suggests that when economicdevelopment policies stimulate localgrowth, they also improve the distribu-tion of income by enhancing job oppor-tunities for minorities and people withlower education levels.32
Table 3. Estimated Economic and Fiscal Impacts of Dell and Google on North Carolina
Dell Google
Jobs (direct) 1,500 210
Average salary $28,000 $48,300
Capital investment (in millions) $100 $600
Jobs (indirect) 6,000 372
Contribution to gross state product (in billions) $24.50 $1.06
State revenue (net) (in millions) $743 $37
Source: Data compiled from newspaper articles and conversations with staff of the North CarolinaDepartment of Commerce, Division of Policy, Research, and Strategic Planning.
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If economic development incentivesdo indeed serve a larger public purpose,then their benefits should extend beyondprivate companies and industries toother taxpayers. Such an effect is morelikely to occur if the companies receiv-ing incentives hire local residents andinvest in distressed areas with highunemployment.33 The Google project inCaldwell County will certainly increaseeconomic activity in a part of the statewith above-average unemployment, butwhether local residents will get many ofthe new jobs remains to be seen.
Google will tap into the excess waterand electric power capacity created bythe loss of major textile and furnitureindustries. This outcome will yield im-portant public benefits. In the case ofboth Dell and Google, if the incentivesconvinced the companies to build facili-ties in places where they otherwise wouldnot have done so, taxpayers will gaineconomic opportunities and resourcesthat might justify the millions of dollarsof incentives promised.
On the other hand, if the incentiveswere not the determining factor, theymight be an inequitable transfer of busi-ness costs from selected corporations toother taxpayers. Is it fair for taxpayers inone jurisdiction to subsidize a businessfor creating jobs that go to the residentsof other jurisdictions? This questionhovers over the Dell project, given thatthe taxpayers in Winston-Salem andForsyth County are on the hook for thelocal incentives, whereas the plant surelyemploys people from various othercities and counties.Ultimately the fairnessof incentives is in theeye of the beholder andis a separate (thoughnot unrelated) issuefrom whether they areeffective, efficient, orworth the cost.
EfficiencyIn one sense, interjurisdictional tax com-petition, including incentives, is thought
to be an efficient way to allocate publicresources as firms seek the best locationsto achieve the optimal balance of taxesand government services.34 State andlocal governments offer incentives tomake their jurisdictions more attractiveto firms. Some argue that the efficiencyeffects of tax incentives are negated be-cause incentive competition is a zero-sum game: one jurisdiction gains at theloss of another. From a national perspec-tive, such beggar-thy-neighbor behaviorproduces no net economic gains because
capital merely re-locates from place toplace. Others refutethe zero-sum-gameargument and suggest,“State and local eco-nomic developmentcompetition may in-crease productivity,
redistribute jobs towards the high unem-ployment areas that need jobs the most,and increase national employment byusing previously unemployed labor.”35
Sharing project costs and revenueswithin a region and encouragingcompanies to hire locals andinvest in distressed areas enhancethe fairness of incentives.
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In practice, any incentive may be zero-sum, positive-sum (benefits exceedcosts), or negative-sum (costs exceedbenefits), depending on how it isapplied.36 The important point is thatany incentive amount offered that isabove the absolute minimum requiredto attract a business is inefficient from apublic-sector perspective.37
When jurisdictions use incentives tocompete with one another for jobs andinvestment, they can face a situationknown in negotiation and decision-making theory as the “prisoner’s dilem-ma.” In this view, incentive competitionbecomes a counterproductive “race tothe bottom” that could jeopardize thelong-term fiscal capacity of states andlocalities. As a former mayor of India-napolis, Stephen Goldsmith, notes,“You can’t say no, but you can’t affordto say yes” when companies requestincentives.38 Moreover, the intense com-petition among jurisdictions can ratchetup the scale of incentive packages to thepoint of overpayment, and result in ex-cessive costs per job created. Additionalinefficiencies arise from the high oppor-tunity costs of incentives and potentialrevenue shortfalls that might cause stateand local governments to provide fewercritical public services such as educationand infrastructure.39
The argument that incentives are in-efficient because they erode the tax base and undermine the provision ofessential public services ignores a keyassumption about how incentivesshould work. Incentives are supposed to help create new tax revenues. Therevenues cannot be di-verted from other usesif they never materi-alize in the first place.In a letter to the editor,former North CarolinaSecretary of CommerceJames T. Fain IIIcorrectly noted thatGoogle’s incentives represented a claimon tax revenues that would not berealized unless the company decided tolocate in the state:
Incentives offered by the state aredependent on future tax receiptspaid by the company. They areprimarily reductions of future taxrevenues that we do not now re-ceive, nor would we ever receive if Google does not locate here.Google will receive future incentivebenefits only if it creates the jobsand makes the investments thatgenerate this tax revenue for theirincentives.40
This logic holds up as long as it canbe demonstrated that Google would nothave located in North Carolina if it hadnot been offered the incentives. If thatcannot be demonstrated, then the stateis merely subsidizing a business decisionthat would have happened without anyincentive, and it is forgoing tax revenuesthat it would have otherwise received.Those forgone revenues are then notavailable for spending on education,infrastructure, and other public servicesor to facilitate lower tax rates overall.
The incentive package may have madethe difference with Google, but it isdifficult to know for sure. That Googleannounced plans for a similar facility inneighboring South Carolina withinweeks of its North Carolina announce-ment casts some doubt on how stiff thecompetition was and how decisive theincentives might have been.41
EffectivenessIn the debate about whether incentiveswork, legal justifications and theoreticalarguments must pass muster with the factsfrom empirical research. Unfortunately,the research findings on effectiveness arenot conclusive and provide ammunitionfor both sides of the debate.42 However,they offer some insights when considered
in the proper context. Part of the incon-
sistency arises fromdifferences in measuresand methods acrossstudies. There also isthe difficulty of iso-lating the effects ofincentives on economic
outcomes, which requires controlling formany other variables. A more fundamen-tal problem is knowing precisely what itmeans for a particular economic devel-opment incentive to be effective or not.The real question is, Effective at what?
A proper assessment of the effective-ness of incentives must take into ac-count how specific tools are supposedto work and what they can realisticallybe expected to achieve. It also is impor-tant to distinguish between the micro-level effects on firms and the macroleveleffects on states, regions, and commu-nities. At the firm level, incentives aimto lower the cost of doing business in away that boosts profitability.43 This is a
Table 4. The Most Important Site-Selection Factors for Large Manufacturing Firms
Ranking Factor Percent
1 Highway accessibility 96.9
2 Labor costs 92.3
3 Energy availability and costs 89.0
4 Availability of skilled labor 88.7
5 Occupancy or construction costs 88.2
6 Available land 85.4
7 Corporate tax rate 83.8
8 State and local incentives 83.4
9 Environmental regulations 83.2
10 Tax exemptions 82.8
10 (tie) Proximity to major markets 82.8
11 Advanced ICT [information/communicationtechnology] services 82.2
12 Low union profile 80.6
13 Availability of buildings 79.3
Source: Data from Geraldine Gambale (ed.), The 22nd Annual Corporate Survey and the 4th Annual Consultants Survey (Westbury, NY: Area Development Magazine, 2008), www.areadevelopment.com/annualReports/dec07/pdf/corporateSurvey.pdf.
Incentives should result in jobsand tax revenues that would not otherwise exist. But provingthat incentives influence busi-ness decisions is difficult.
w i n t e r 2 0 0 9 25
fairly immediate and direct effect onwhich there is little disagreement.
The next concern, then, is the extentto which incentives influence siteselection. At the heart of this question iswhether incentives actually function asincentives or inducements or whetherthey are mere subsidies to business. An“incentive” incites or spurs action, andan “inducement” stimulates or moves bypersuasion.44 By contrast, a “subsidy” issimply a grant or a gift of money.
If tax and other financial incentivesare to be considered as economic stim-ulus tools rather than “corporate wel-fare,” they should directly sway decisionsabout business investment and job cre-ation. On this matter, there is again alack of certainty and clarity in the re-search findings. A study of state incen-tives in Ohio identified different effectson the actual employment growth offirms compared with the employmentlevels initially promised by the firms.45
The researchers found that incentiveshad a negligible effect on actual employ-
ment growth in firms, but were posi-tively correlated with announced jobgrowth. These findings suggest thatincentives will cause firms to overstatethe number of new jobs they will create.
A recent analysis of North Carolina’sLee Act tax credits suggests that “taxincentives go to firms without signifi-cantly influencing their decisions oninvestment and employment.”46 A pos-sible explanation for this is that taxesand incentives account for only a smallportion of business operating costs andtherefore do not matter all that much.In surveys, companies tend to empha-size the importance of incentives, andthey have a vested interest in doing so.But according to Area Development’smost recent corporate survey, incentivesare only one of several factors that busi-nesses consider in site selection (for alist of the fourteen most important ones,see Table 4). In that survey, incentivesranked 8 out of a possible 25 factors.
Despite the ambiguity about whetherincentives result in the creation of jobs
and investment by firms (microlevel)that would not otherwise occur, moststudies conducted through the 1980sfound that taxes and incentives havelittle to no effect on macrolevel eco-nomic growth.47 This is counterintuitivebecause lower business tax burdens arethought to be more conducive to growth.Later research indicates that taxes mightmatter more than initially thought andparticularly that higher taxes can hindereconomic growth.48 If that is true, thenby easing the tax burden on firms, in-centives could make a place more com-petitive for business investment andthereby spur economic growth.
Assuming that incentives are effectiveat promoting state and local economicgrowth, to what extent do they workfor the people and the places most inneed? This question is related to thefairness-equity concern discussed earlier,but also has implications for the overalleffectiveness of incentives, especiallythose that target economically distressedareas. Some studies demonstrate that
26 p o p u l a r g ov e r n m e n t
poor people and places can experiencethe greatest gains from economic devel-opment incentives.49 In North Carolina,the Lee Act tax credits attempt to steerjobs and investment to poorer commu-nities by offering larger credits to busi-nesses that locate in counties with higherunemployment rates and lower incomelevels. There is evidence that this aspectof the incentive program is “particularlyeffective in encouraging firms to investmore and hire more workers in eco-nomically distressed areas.”50 In someother states, traditional incentives ap-pear to stimulate growth only in pros-perous areas, with the result thatgrowth begets growth.51
In sum, the research to date suggeststhat economic development incentivesdo not always induce firms to createsubstantial jobs and investment thatwould not occur without the incentives.This appears to be the case despite thefact that companies say incentives areimportant factors in site selection. Thecase for using incentives to promotegrowth at a macrolevel and in laggingareas is more compelling.
Ultimately, the empirical researchfindings must be interpreted in light ofthe economic and political realities ofthe new economy. Facing intense globalcompetition, manufacturing plantscontinue to close and move offshore,and people continue to lose jobs. Whenthis happens, local governments loserevenues and are sometimes left withunderused public infrastructure. Thepolitical pressure grows to do some-thing or at least to appear to be takingaction to improve economic conditions.In this context, economic developmentincentives might prove effective in waysthat are difficult to capture in numbers.
If nothing else, incentives probablyimprove the competitive positions ofstates and localities and help them closedeals. To appreciate this relationshiprequires an understanding of the site-selection process that businesses—oftenassisted by hired consultants—use indeciding where to locate or whether toexpand.52 Incentives do not typicallymatter until a firm has narrowed the listof possible locations to a few that meetall its other requirements for a site or abuilding—infrastructure, workforce, andthe like. At that point, the incentives can
tip the scale in favor of one locationover another. From a competitivenessperspective, a jurisdiction has to decidewhether to play to win or sit it out.Given how the game is played, incen-tives can help states and localities win,at least in the short run. Winning someof the time is better than always losing.In this way, incentives become a neces-sary evil in attracting and retainingbusinesses and securing the jobs and in-vestment they create.53 Against the odds,public officials might be willing to toler-ate the inefficiency of incentives if theyprovide an edge no matter how slight:
For every 10 plants offered such anincentive, the incentive would bedecisive for about 3 of them. The in-centives given to the other 7 plantswould have no effects on businesslocation or employment growth.The only effect would be an extracost to state and local governmentsof these unneeded 7 incentives.Unless economic developers cansomehow determine which of the 10 plants “needs” the incentive totip its location decision, this loss on7 of the 10 plants is a necessarycost to tip the location decision ofthe other 3 plants.54
To return to a question I posed at theoutset, Are the incentives worth it? Agood cost-benefit analysis will provide aquantitative answer to this question fora given project. Ideally the public bene-fits of incentive deals should exceedtheir costs. However, a major businesslocation or expansion project can bene-fit communities in quantitative andqualitative ways. It can serve as a beaconof hope that prosperity will return tocommunities hard hit by job loss. It canrestore self-respect to displaced manu-facturing workers who need employ-ment to support their families. For thesepeople, the debate over the effectivenessof economic development incentives isan academic exercise. Referring to theGoogle project, Lenoir Mayor DavidBarlow said, “Psychologically, the im-pact of this for our community wouldbe greater than the reality.”55 Projectslike Dell and Google also have symbolicvalue to the extent that they put com-munities on the map for future econo-mic development opportunities.
AccountabilityOne of the most common criticisms ofincentives is that they are frequentlyprovided without the recipients beingsufficiently accountable to taxpayersand the broader public interest. Corpor-ate mergers, changing economic condi-tions, and intense global competitioncan lead companies to change theirinvestment plans drastically over time.This can create the possibility thatcompanies will fail to deliver on theirpromises to create a certain number ofjobs and make a certain amount ofcapital investment.
For example, in 1999 the state offered$35 million in incentives to WisconsinTissue to build a $180 million tissue milland paper-recycling plant in HalifaxCounty with 150 employees. But a fewmonths after the deal was announced,the company was bought by Georgia-Pacific and scrapped plans for the facil-ity, so it received no incentives.56
In the same year, Corning opened a $600 million production facility forfiber-optic cable in the Cabarrus Countytown of Midland after being offeredstate and local incentives. The facilityexpanded to employ as many as 800workers at one point and had 550 when it shut down in 2002 in the face of a steep downturn in the tele-communications industry. In 2007,Corning decided to gradually restore a limited amount of production at theCabarrus facility in response to im-proved market demand.57
In an interesting twist of fate, Dell isreportedly seeking to sell all its plants,including the one in Winston-Salem, inresponse to shifting corporate strategy.How this might affect its incentive dealor operations in North Carolina is un-clear.58 Also, in December 2008, Googlenotified state officials that the slowingeconomy would inhibit its ability to addjobs and investment in Lenoir accordingto the timeline for the JDIG funds it wasoffered. Therefore, it would forgo re-ceiving the funds.59
Even when companies fulfill employ-ment and investment expectations, theestimates of the ripple effect on a com-munity are mere forecasts based on im-perfect economic models. For example,a recent report suggests that the modelused by the state commerce department
w i n t e r 2 0 0 9 27
to assess incentive packages tends tooverstate the economic benefits thatfirms will provide and leads to over-bidding.60 Using more conservativeassumptions, the authors show the Dellproject having a much smaller effect onthe state’s economy and a negative fiscalimpact on state revenues. This demon-strates that economicand fiscal impactanalysis is impreciseand must be used withcare and interpretedwith caution.
Another account-ability concern is thesecretive nature ofearly incentive negotiations. Companiesrequire that their investment plans bekept confidential to protect trade secretsand avoid tipping their hand tocompetitors. State law allows forconfidentiality, withholding of publicrecords, and protection of trade secretson economic development projectsunder certain conditions.61 As a result,state and local officials often commitpublic dollars before the details of adeal are widely known. Companies alsodemand confidentiality because they donot want information on pending plantclosures elsewhere to leak out and theywant to avoid excessive real estatespeculation that might drive up the costsof land acquisition.62 Public officials facethe dilemma of balancing the company’sneed for confidentiality and anonymityagainst the public’s right to know.
Public officials are at a disadvantagein incentive negotiations because com-panies have access to much more infor-mation than public officials do on whatother jurisdictions are offering andwhich alternative locations are viable.Only the companies know for sure theamount of incentives that will tip thedecision in favor of one place overanother. Google is alleged to have ex-ploited this information imbalance inthe negotiations with state and localofficials over its incentive package.63
Several mechanisms exist that mighthelp jurisdictions win with incentivesbut avoid the “winner’s curse” of pay-ing too much for too little in return.64
These include some safeguards alreadyadopted in North Carolina according toa survey that I conducted recently—such
as using clawback provisions, tyingincentives to company performance, requiring performance contracts, andconducting cost-benefit analyses (seeTable 5)—plus others that I didn’t in-clude in my survey because they are more commonly used at the state level—targeting distressed areas and establish-
ing standards for wagesand job quality.
Better Use of IncentivesDespite the ongoing controversy overeconomic development incentives, noend is in sight to the escalating compe-tition among jurisdictions that has beenlikened to an arms race. It is foolhardyto think that state and local govern-ments will unilaterally disarm and stop using incentives in the near future.National legislation calling for aSafeguards like performance-
based contracts with clawbackprovisions can help govern-ments avoid paying too muchfor too little.
28 p o p u l a r g ov e r n m e n t
13. Jonathan Q. Morgan and David M.Lawrence, “Economic Development,” inCounty and Municipal Government in North Carolina, ed. David M. Lawrence(Chapel Hill, NC: School of Government,University of North Carolina at Chapel Hill,2006), art. 26.
14. For an explanation of the Article 3J taxcredit, see the North Carolina Department ofCommerce website, www.nccommerce.com/en/BusinessServices/LocateYourBusiness/WhyNC/Incentives/3J.htm.
15. Units of local government mustprovide a match to the One North CarolinaFund grant.
16. Steven G. Koven and Thomas S. Lyons,Economic Development: What LocalGovernments Do, ICMA Special Data Issue 2(Washington, DC: ICMA Press, 2006).
17. Article V, Section 2(2), of the NorthCarolina Constitution states, “Only theGeneral Assembly shall have the power toclassify property for taxation, which powershall be exercised only on a State-wide basisand shall not be delegated.”
18. North Carolina Institute for Constitu-tional Law, The Incentives Game: North Car-olina Local Economic Development Incen-tives (Raleigh, NC: North Carolina Institutefor Constitutional Law, 2007).
19. Joseph Blocher and Jonathan Q. Morgan, “Questions about Tax IncrementFinancing in North Carolina,” Communityand Economic Development Bulletin no. 5(Chapel Hill, NC: School of Government,University of North Carolina at Chapel Hill, 2008).
20. S.L. 2004-204.21. See Matt Harrington, “Regional Plan
Won’t Happen for Dell Deal,” BusinessJournal Serving the Greater Triad Area,November 29, 2004, www.bizjournals.com/triad/stories/2004/11/29/story6.html; MattHarrington, “With Dell Confirmed for theTriad, Economic Developers Must NowCompete with Each Other,” Business JournalServing the Greater Triad Area, November 9,2004, http://triad.bizjournals.com/triad/stories/2004/11/08/daily12.html.
22. Jonathan B. Cox, “Lenoir Gets Google,at a Cost,” Raleigh News & Observer,January 20, 2007, www.newsobserver.com/102/story/534390.html.
23. W. Lane Bailey (Lenoir city manager),“Economic Development Incentives”(presentation at the annual conference of theNorth Carolina City/County Managers Asso-ciation, January 2008).
24. Ibid.25. Blinson et al. v. State of North
Carolina, No. 05 CVS 8378 (Wake CountySuper. Ct. filed June 23, 2005); rev. denied,186 N.C. App. 328, 651 S.E.2d 268 (2007);appeal dismissed, 362 N.C. 355, 661 S.E.2d240 (2008). For a history of the case, seewww.ncicl.org/litigation/2.
Table 5. Accountability Mechanisms Used by North Carolina Local Governments
Percent Reporting
Clawback provisions 60.7
Cost-benefit analysis 59.5
Performance agreement always required 51.2
Formal policy for eligibility 51.1
Provision for hiring local residents 18.3
Source: Jonathan Q. Morgan, “2006 Survey of Local Government Economic DevelopmentActivities” (Chapel Hill, NC: School of Government, University of North Carolina at Chapel Hill).
Notes1. See Dan Zehr, “Some Believe Incentives
Wasted on Big Business,” Greensboro News-Record, November 30, 2004, www.theboydcompany.com/Archived%20Sites/Greensboro%20News%20&%20Record%2011-30-2004.htm. See also William Schweke, “Do BetterJob Creation Subsidies Hold Real Promise forBusiness Incentive Reformers?” in Reining inthe Competition for Capital, ed. Ann Markusen(Kalamazoo, MI: W. E. Upjohn Institute forEmployment Research, 2007), 161–81.
2. A legislative study committee of theNorth Carolina General Assembly (the JointSelect Committee on Economic DevelopmentIncentives) is considering these and otherquestions about incentives. UNC at ChapelHill’s Center for Competitive Economies isdoing extensive research to inform thecommittee’s work.
3. For a review of the studies, see AlanPeters and Peter Fisher, “The Failures ofEconomic Development Incentives,” Journalof the American Planning Association 70(2004): 27–37.
4. John Manuel, “North Carolina Eco-nomic Development Incentives—A NecessaryTool or Messing with the Market?” NorthCarolina Insight 17 (1997): 23–49.
5. S.L. 2007-552.6. See Elaine Mejia, Risky Business:
NC Poised to Take a Giant Step in the WrongDirection in Economic Development Policy,BTC Brief (North Carolina Budget and TaxCenter) (Raleigh, NC: North Carolina JusticeCenter, August 2007), www.ncjustice.org/assets/library/1014_btcbriefcorpsub13aug2007.pdf.
7. N.C. GEN. STAT § 158-7.1(b) [herein-after G.S.].
8. David M. Lawrence, EconomicDevelopment Law for North Carolina LocalGovernments (Chapel Hill, NC: Institute ofGovernment, University of North Carolina atChapel Hill, 2000).
9. Maready v. City of Winston-Salem,342 N.C. 708, 467 S.E. 2d 615 (1996).
10. Lawrence, Economic Development Law.11. Manuel, “North Carolina Economic
Development Incentives.”12. Lawrence, Economic Development Law.
ceasefire in the economic war amongthe states has been introduced peri-odically in the U.S. Congress, but it isunlikely to be enacted anytime soon.Where does this leave public officials inNorth Carolina?
As others have aptly noted, incentivesare not inherently good or evil, right orwrong, wise or foolish. They are toolsthat public officials can use moreprudently—or less so—depending onthe application. Economic developmentincentives should be consistent with theletter and the spirit of the law to avoidpotential legal challenges. Beyondlegality, public officials should clearlyunderstand the tradeoffs among fair-ness, efficiency, effectiveness, and ac-countability in using incentives to pro-mote job creation and private invest-ment. Current practice in North Caro-lina incorporates many good reforms inthe use of incentives. Additional onesare possible:65
• More enforceable contracts
• Greater transparency anddisclosure
• More rigorous cost-benefit analysis
• Better state-local and regionalcollaboration
• Improved opportunities andsupport for hiring local residentsand the unemployed
• A greater focus on small businesses,existing industry, and job training
Taken together, these enhancements inincentive policy will help jurisdictionsstrengthen their negotiating positionwith companies, maximize public bene-fits, and protect the public investment inincentive deals.
w i n t e r 2 0 0 9 29
26. Munger et al. v. State of NorthCarolina, No. 07 CVS 11756 (Wake CountySuper. Ct. filed August 16, 2007). For ahistory of the case, see www.ncicl.org/litigation/6. See also Chris Coletta, “WakeCounty Judge Throws Out Google IncentivesSuit,” Triangle Business Journal, November 14,2008, www.triangle.bizjournals.com/triangle/stories/2008/11/10/daily46.html.
27. Richards et al. v. State of NorthCarolina, No. 07 CVS 20487 (Wake CountySuper. Ct. filed December 20, 2007). For ahistory of the case, see www.ncicl.org/litigation/10.
28. The State of Ohio and the City ofToledo agreed to provide a 13.5 percent creditagainst the state corporate franchise tax forinvestments in machinery and equipment anda 100 percent local property tax exemptionover ten years.
29. Cuno v. DaimlerChrysler, No. 01-3960(6th Cir., Sept. 2, 2004).
30. DaimlerChrysler Corp. v. Cuno, 547 U.S. 332 (2006). For a copy of the opinion,see http://supreme.justia.com/us/547/04-1704/concur.html.
31. David Brunori, “Principles of Tax Policyand Targeted Tax Incentives,” State and LocalGovernment Review 29 (1997): 50–61.
32. Timothy J. Bartik, Who Benefits fromState and Local Economic DevelopmentPolicies? (Kalamazoo, MI: W. E. UpjohnInstitute for Employment Research, 1991).
33. Timothy J. Bartik, Jobs for the Poor:Can Labor Demand Policies Help? (NewYork: Russell Sage Foundation; Kalamazoo,MI: W. E. Upjohn Institute for EmploymentResearch, 2001).
34. Wallace E. Oates and Robert M.Schwab, “Economic Competition amongJurisdictions: Efficiency-Enhancing orDistortion-Inducing?” Journal of PublicEconomics 35 (1988): 333–54.
35. Bartik, Who Benefits? 201.36. John P. Blair and Rishi Kumar, “Is
Local Economic Development a Zero-SumGame?” in Dilemmas of Urban EconomicDevelopment, ed. Richard Bingham andRobert Mier (Thousand Oaks, CA: SagePublications, 1997), 1–20.
37. Charles J. Spindler, “Winners andLosers in Industrial Recruitment: Mercedes-Benz and Alabama,” State and LocalGovernment Review 26 (1994): 192–204.
38. As quoted in Mary Jo Waits,“Economic Development Strategies in theAmerican States,” in Handbook of EconomicDevelopment, ed. Kuotsai Tom Liou (NewYork: Marcel Dekker, 1998), 191.
39. George R. Zodrow, “Reflections on theEconomic Theory of Local Tax Incentives,”State Tax Notes, June 9, 2003, pp. 891–900.
40. James T. Fain III, “Google’s Benefits,”letter to the editor, Raleigh News &Observer, February 11, 2007, p. A26.
41. See Bruce Smith, “South Carolina LandsGoogle Site Similar to Lenoir’s,” RaleighNews & Observer, April 5, 2007, www.newsobserver.com/104/story/560997.html.
42. See Terry F. Buss, “The Effect of StateTax Incentives on Economic Growth andFirm Location Decisions: An Overview of theLiterature,” Economic DevelopmentQuarterly 15 (2001): 90–105; Robert G.Lynch, “The Effectiveness of State and LocalTax Cuts and Incentives: A Review of theLiterature,” State Tax Notes, September 30,1996, pp. 949–53.
43. Robert L. Bland, A Revenue Guide forLocal Government (Washington, DC:International City/County ManagementAssociation, 2005).
44. Merriam-Webster’s CollegiateDictionary (10th ed.).
45. Todd M. Gabe and David S. Kraybill,“The Effect of State Economic DevelopmentIncentives on Employment Growth of Estab-lishments,” Journal of Regional Science 42(2002): 703–30.
46. Michael I. Luger and Suho Bae, “TheEffectiveness of State Business Tax IncentivePrograms: The Case of North Carolina,”Economic Development Quarterly 19(2005): 339.
47. Lynch, “The Effectiveness of State andLocal Tax Cuts and Incentives”; Peters andFisher, “The Failures of Economic Develop-ment Incentives.”
48. Bartik, Who Benefits?49. Ibid.50. Luger and Bae, “The Effectiveness
of State Business Tax Incentive Programs,” 338.51. See Ernest P. Goss and Joseph M.
Phillips, “Do Business Tax Incentives Contrib-ute to a Divergence in Economic Growth?”Economic Development Quarterly 13 (1999): 217–28.
52. See Phillip D. Phillips, “Site Selection:Corporate Perspective and CommunityResponse,” Economic Development Review 9(1991): 4–11; Mark Sweeney, “The Challengeof Business Incentives for State Policymakers:A Practitioner’s Perspective,” Spectrum: The Journal of State Government 77 (Winter 2004): 8–11.
53. Ann Markusen, “A Market-for-JobsApproach for Analyzing the Competition forCapital,” State Tax Notes 43 (2007): 39, pp. 1–6.
54. Timothy J. Bartik, “Solving the Prob-lems of Economic Development Incentives,”Growth and Change 36 (2005): 143.
55. As quoted in Nanette Byrnes, “TheHigh Cost of Wooing Google,” BusinessWeek, July 23, 2007, www.businessweek.com/magazine/content/07_30/b4043066.htm. Seealso Shaila Dewan, “Google Is RevivingHopes for Ex-Furniture Makers,” New YorkTimes, March 15, 2007, www.nytimes.com/2007/03/15/us/15google.html.
56. North Carolina Coastal Federation,“Industrializing Rural Coast,” in State of theCoast Report (Raleigh, NC: North CarolinaCoastal Federation, 1999), www.nccoast.org/publication/socreports/soc_99/RuralCoast.pdf; Arlen Boardman, “Wisconsin TissueMills Plans New Operation in NortheasternNorth Carolina,” Appleton (WI) Post-Crescent, October 15, 1998, p. A9.
57. Jordan Green, “The Tar Heel Corpor-ate Incentives Hustle: How Local Govern-ments Fight Each Other for DisappearingJobs,” Southern Exposure/Yes! Weekly,September 2005, p. 4, http://southernstudies.org/CorpIncentivesMain2005.pdf;Adam Bell, “Corning to Reopen Part of Plant in Midland,” Charlotte Observer,April 26, 2007, p. 1D.
58. Jonathan B. Cox, “Dell May Sell TriadPlant That Gained Tax Breaks,” RaleighNews & Observer, September 6, 2008,www.newsobserver.com/news/story/1208493.html; Justin Scheck, “Dell Plans to SellFactories in Effort to Cut Costs,” Wall StreetJournal, September 5, 2008, p. A1.
59. Emery P. Dalesio, “Google TurnsDown Some of NC’s Tax Incentives,” RaleighNews & Observer, December 5, 2008,www.newsobserver.com/1595/story/1322291.html.
60. See Elaine Mejia, KristopherNordstrom, and William Schweke, GettingOur Money’s Worth? An Evaluation of theEconomic Model Used for Awarding StateBusiness Subsidies (Raleigh, NC: NorthCarolina Budget and Tax Center; Washing-ton, DC: Corporation for EnterpriseDevelopment, March 2007).
61. G.S. 132-1.2 (Public Records Law);G.S. 66-152 (Trade Secrets Protection Act);G.S. 132-6(d) (confidentiality).
62. Lawrence, Economic DevelopmentLaw; Zach Patton, “Hush Money: Why AreTax-Incentive Deals Almost Always Nego-tiated in Private?” Governing 21 (August2008): 50, www.governing.com/articles/0808taxdeals.htm.
63. See Jonathan B. Cox, “Google MuscledN.C. Officials,” Raleigh News & Observer,February 1, 2007, www.newsobserver.com/126/story/538489.html.
64. Spindler, “Winners and Losers,” 192.65. Bartik, Solving the Problems; Greg
LeRoy, “Nine Concrete Ways to Curtail theEconomic War among the States,” in Reiningin the Competition for Capital, ed. AnnMarkusen (Kalamazoo, MI: W. E. UpjohnInstitute for Employment Research, 2007),183–97; Rachel Weber, “Do Better ContractsMake Better Economic DevelopmentIncentives?” Journal of the AmericanPlanning Association 68 (2002): 43–55; Scott J. Ziance, “Making EconomicDevelopment Incentives More Efficient,”Urban Lawyer 30 (1998): 33–63.