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May-June 2002

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Savvy investors never sink money into a venture without first estimating their anticipated return. Such is certainly the case when companies decide to expand or relocate their operations in a new community. But it is equally true for states and communities striving to attract and grow their economies.

That, in a nutshell, is why programs such as the William S. Lee Act are important to North Carolina. Unfortunately, it and other efforts to extend financial support to arriving and expanding industries have been inaccurately tagged as "corporate giveaways."

In this issue, we begin a two-part series on economic development incentives by examining the acrimonious, and therefore regrettable, debate over the William S. Lee Act and other state policies. We will take up local incentives later this summer. In both instances, we are doing our best to treat the issues honestly – considering the upside and downside of this highly controversial question, and giving equal time to those with different viewpoints.

In an ideal world, of course, we wouldn’t need incentives. But the fact that competing states are using them to our disadvantage means we must either get serious about incentive programs – or accept the consequences of our inaction: more lost jobs, falling real wages and eroding state and local tax-base.

It is well worth noting that opposition to incentives typically originates from "think-tanks" and academic circles, not from those who’ve had first-hand experience dealing with companies and relocation professionals. Even the most novice economic developer quickly understands that site selection occurs by process of elimination. The bottom line: locations that refuse to maintain a reasonable incentive program are viewed as unserious about economic development and quickly find themselves dropped from consideration.

My hopes are for new, more flexible incentive policies that are based on quantifiable benefits for the state and local communities. In every case, they must be shown to deliver more "value" to taxpayers than they "cost."

Expect to hear a lot on the issue this year as state officials grapple with transforming North Carolina’s economy from one based on fast-disappearing industries such as textiles, tobacco and furniture to one more compatible with the "Knowledge Economy."

Yours sincerely,

R. Scott Satterfield

Seldom has an economic development issue ignited such intense and intractable passions as that of government-sponsored incentives to industry.

Though the practice of offering financial inducements to U.S. businesses dates from the time of Alexander Hamilton, the debate was rekindled recently by the selection in March of Alabama for a major Hyundai automotive plant. State officials there offered $120 million to lure the South Korea-based multinational, with local and county governments kicking in another $25 million. On top of that, the company will be free of property taxes, except for school tax allotments, for ten years.

What will Alabama get in return? Jobs – 2,000 of them at the plant itself and another 4,000 to 5,000 created indirectly from the $1 billion facility’s vendors and suppliers.

Though North Carolina maintains a number of statewide programs that extend financial support to arriving and expanding companies, the state’s incentive menu is considered lean when measured against that of Alabama and other states it competes with regularly. At its center is the William S. Lee Act, named for the late head of Duke Energy who pushed vigorously for incentives legislation. The Lee Act, enacted in 1996 and subsequently amended, provides tax credits that may be taken against state income, franchise or gross premiums tax burdens. Credits can be claimed for job creation, investment, workforce development and R & D. They apply to firms with operations in any of the state’s 100 counties, though benefits are based on a formula tied to economic distress. Companies in less wealthy “Tier 1” counties, for example, receive the most generous credits; those operating in better off “Tier 5” counties get less. (Currently, the state lists New Hanover County as a Tier 5. Pender County is a Tier 3.)

We recognized that in order to compete in a global economy, the state needed a program that all 100 counties could take advantage of,” explains N.C. Rep. Bill Owens (D-Elizabeth City), co-chairman of the powerful House Appropriations Committee and a supporter of the Act. Mr. Owens says it is likely the General Assembly will look closely at reforming industrial recruitment incentives perhaps as early as this year. “We need to make sure we’re getting the best bang for our buck.”

Critics of government-sponsored incentives – and their numbers are legion – contend that such programs are ineffective, a waste of taxpayer money and represent an unwarranted intrusion by the public sector into the economy. Opposition spans the ideological gamut, from conservative groups such as the John Locke Foundation to liberal ones that label incentives “corporate welfare.”

“State tax dollars should be used to improve infrastructure, education and the environment rather than provide cash to corporations,” says Chris Fitzsimon, executive director of the left-leaning Common Sense Foundation in Raleigh. He believes the state is too obsessed with landing large new industries and should do more to support those already here, especially the small firms who derive little benefit from programs like the Lee Act. The bidding wars between states over projects such as Hyundai's “have become a game that companies are playing,” Mr. Fitzsimon says.

But there are plenty who see incentives as increasingly vital to a state’s competitiveness.

“Today, you can’t stand still,” says Tammy Propst, a principal with KPMG in Charlotte. The consulting firm works with companies, communities and states on site selection and other economic development issues. Because of its ideal geography, excellent workforce and comfortable quality-of-life, North Carolina has, in the past, been able to compete without an aggressive incentive program. But that has changed, Ms. Propst

says, and the state is now perceived as behind its neighbors when it comes to offering the kind of financial support today’s companies are seeking. Her research has found that North Carolina loses more projects to South Carolina that any other state – about one in every four.

“In South Carolina, there are a lot of different benefits that can be applied against different taxes,” Ms. Propst explains, “and their policies are also valuable for existing industries.” In contrast, North Carolina’s more rigid Lee Act is beneficial for some projects but useless for others. “In North Carolina, you have to shoot directly for the bull’s-eye. If you miss, it’s ‘see you later’.”

R.V. Biberstein, Jr.-President
Scott Sullivan-Vice Chairman
Russell Carter-Treasurer
Scott Satterfield-Secretary

Carl Byrd, Sr.
Mayor Harper Peterson
Meg Davenport
Rob Gerlach
Robert Greer
Paul Grimsley
Frank Hamilton, III
Dr. James Hundley
Bill King
Louise McColl
Dr. Eric McKeithan
Dr. Eugene McMurray
Gene Renzaglia
James Smith
Dwight Strickland
Robert Stuart
Gayle Van Velsor
Fred Willets, III

6.41%*

SBA’s 504 Loan Program has

20 year

Fixed Rate Financing.

For more information call:

910-763-8414

Nico Group
Mr. Haji Heera
2204-A Associate Drive
Raleigh, NC 27603
1-919-661-0006 (phone)
1-919-661-0007 (fax)
www.nicogroup.com

The City Club at de Rosset
Ms. Annie Gray Holt
23 South Second Street
Wilmington, NC 28401
1-910-343-1880 (phone)
1-910-251-1149 (fax)
www.thewilmingtonian.com

Pender Packing
Mr. Danny Baker
4520 NC Hwy 133
Rocky Point, NC 28457
1-910-675-3311 (phone)
1-910-675-1527 (fax)

Construction Systems, Inc.
Mr. Brantley E. Clifton
2830 Kenny Biggs Rd.
PO Box 783
Lumberton, NC 28359
1-910-738-5224 (phone)
1-910-739-7191 (fax)

Progress Energy
Ms. Katherine Thomas
411 Fayetteville St., Suite 2001
Raleigh, NC 27601
1-800-622-7562 (phone)
1-919-546-4784 (fax)
www.progress-energy.com

Dixie General Contractors
Ms. Shella Farrior
1326 N. Teachey Rd.
PO Box 567
Wallace, NC 28466
1-910-285-3293 (phone)
1-910-285-4097 (fax)
www.dixie-general.com

Retention Pond Services
Mr. Glenn Garrett
309 Crowatan Road
Castle Hayne, NC 28429
1-910-675-2990 (phone)
1-910-675-2920 (fax)
www.retentionponds.com

Fleming Companies, Inc.
Mr. Dennis Caire
1018 US Hwy 117 South
PO Box 565
Warsaw, NC 28598
1-910-293-7821 (phone)
1-910-293-3809 (fax)
www.fleming.com

River Enterprises, Inc.
Ms. Barbara Kelly and
Mr. Bill Stanfield
#2 Ann Street
Wilmington, NC 28401
1-910-251-8600 (phone)
1-910-251-9919 (fax)
www.elijah’s.com

Kenan Transport Co.
Mr. Ron Perryman
3201 Hwy. 421 North
Wilmington, NC 28401
1-910-762-3377 (phone)
1-910-762-6681 (fax)

Solo Foods, LLC
Mr. Willie Moore and Aaron Parker
201 W. Progress Dr. Extension
Burgaw, NC 28425
1-910-259-9470 (phone)
1-910-259-9437 (fax)

Laney Real Estate Co.
Ms. Phyllis Pearson
1650 Military Cutoff, Suite 100
Wilmington, NC 28403
1-910-256-0056 (phone)
1-910-256-6245 (fax)
www.laneyrealestate.com

Spangler Environmental, Inc.
Mr. Scott Linnenburger
3961-B Market Street
Wilmington, NC 28403
1-910-343-9375 (phone)
1-910-343-8351 (fax)
www.spangler-sei.com


Lek Pharmaceuticals, Inc.
Mr. Paul Kleutghen
115 N. Third St., Suite 301
Wilmington, NC 28401
1-910-362-0021 (phone)
1-910-362-0051 (fax)

SunCom AT&T Wireless
Ms. Julie Jadick
228 Eastwood Drive, Unit B4
Wilmington, NC 28403
1-910-793-5343 (phone)
1-910-793-3362 (fax)
www.suncom.com

Lumina Mortgage Company
Ms. Linda Skipper
219 Racine Drive, Suite A
Wilmington, NC 28403
1-910-452-3555 (phone)
1-910-452-9929 (fax)
www.luminamortgage.com

Yellow Transportation
Mr. Clarence Alford
3511 Highway 421 North
Wilmington, NC 28401
1-910-343-0471 (phone)
1-910-343-8028 (fax)

Corning Inc. has new Plant Manager
Corning Incorporated has named Tom Nettleman as their new plant manager starting this month. An engineering graduate from Auburn University, Mr. Nettleman will replace Bob Hoover at the Wilmington facility.

Donna Girardot named Executive Director
Donna Girardot has been named executive director of the Wilmington-Cape Fear Home Builders Association. She will replace Nancy McGowan, who will retire after 29 years with the association.

Donna will leave Wilmington Regional Association of Realtors where she has served since 1997.

a.d.p.r. wins big
a.d.p.r won a third district Addy award for its :60 radio spot produced for the Cape Fear Fair and Expo. The third district is comprised of Virginia, North Carolina and South Carolina. The radio commercial will now be considered for a national Addy award, to be announced later this spring.

Castle Branch opens doors
Castle Branch is relocating their company from Raleigh, NC to the Cotton Exchange downtown. They opened their doors on May 6. They specialize in employment screening, legal research and providing public access to criminal and civil records.

Inclusion of news in WID Newsletter.

Database listing of industrial properties for referrals.

Posting of commercial property on WID website.

Posting of commercial property on regional economic and NC Department of Commerce (providing property meets specified criteria).

Inclusion of your company’s marketing literature, when appropriate, in client/prospect proposals.

Building/Site Selection Assistance-if you are planning to expand or relocate, we can help you find the ideal building and/or site.

Financial Assistance-based on your company’s capital needs, WID can locate attractive financing options.

SBA 504 Loan

Industrial Revenue Bond Inducement Assistance

Community Development Block Grants