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Project X: socialize the risk, privatize the profit

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By Leslee Kulba –

The Buncombe County Commissioners held a speedy public hearing on Project X Tuesday. To rehash, the commissioners were soliciting public approval for the gifting of taxpayer dollars to an unnamed company. The commissioners and county staff told the public they could not divulge the name of the company, because the company told them not to; and they didn’t want to see all the jobs and prosperity the business would bring to Buncombe County walk out the door.

Chair David Gantt said all the commissioners ran on a platform of creating jobs, all comments from the dais were positive, and all votes were unanimous. Citizens Jerry Rice and Christina Kelly G. Merrill tried to draw attention to the absurdity of holding a public hearing on a matter about which the commissioners were intentionally keeping the public ignorant. In response, Councilman Brownie Newman assured the concerns were unwarranted, and the secrets would all be revealed in due time. But that would be after the commissioners voted, and after the public had anything to say about it.

To recap, Project X will “manufacture components for customers in a particular market that will have long-term worldwide impacts.” The county will pay Project X $2.68 million in equal cash installments over a ten year period. The county will also acquire land for two facilities and prepare the sites for construction. The costs of improvement are estimated to run around $15.7 million, and the taxpayers will pay for them in debt service for limited obligation bonds. LOB’s are one of several tools now available to allow local governments to issue debt without taxpayer approval.

In return, Project X “may,” through construction and equipment purchases, increase the tax value of the property by $126 million. And, if everything goes according to plans, it will create 52 new Buncombe County jobs while retaining all its current fulltime Buncombe County employees.

But that’s not the end of the story. County Manager Jon Creighton displayed a pie chart that showed the 52 new hires will create 33.4 indirect jobs and 25.8 induced jobs. Creighton explained the indirect jobs were created for local vendors supplying the company; induced jobs would be created as the workers return to the dentist, get their nails done, or order out for lunch. What’s more, the $268,000 invested each year will be multiplied 34-fold in community investment.

The job multipliers, of course, presuppose the county has some way to require nobody to leave a Buncombe County job to take one of the new ones. They further presuppose the usual givens in corporate welfare; viz. the company will be as successful as it claims, the company wouldn’t have located in Buncombe County without subsidy, there are no lost opportunities for job creation and economic multipliers at traditional lending institutions supplanted by government angel investors, the new company is not invading existing markets, the new facilities don’t need police and fire protection and the new move-ins don’t need schools or water, etc.

Another biggie is the assumption that government couldn’t have made better use of the money. John Hood of the John Locke Foundation has said, “Anyone who believes that the problems in North Carolina’s business climate can be overcome by a few subsidies to big business is willing to believe pretty much anything. In reality, even a billion dollars a year in tax incentives and corporate welfare can’t compensate for high marginal tax rates, inadequate infrastructure, mediocre schools, and a punitive regulatory system.”

Hood has also argued, “If the goal was to make North Carolina’s economy healthier and more productive, it didn’t work. At the same time that we got more aggressive with incentives, our economic performance began to deteriorate. Since the late 1990s, the state has continued to gain population, but economic production, job creation, and incomes have not kept pace.”

Corporate welfare bestowed on the order of seven or eight digits is a reverse-Robinhood redistribution. It takes money in taxes from the little businesses to give to the big businesses, from the 99 percent to the 1 percent, not considering how many jobs the little businesses may have to lose as a result. At the commissioners’ retreat, Newman said he would like to see the county help small businesses as well as the big fish.

Edward Glaeser of Harvard University argued job creation is primarily the domain of entrepreneurial startups. “Consider a good year, 2005, when American firms added 2.15 million new jobs to the economy. Most kinds of companies didn’t contribute to that growth; firms between six and ten years old, for example, added about 1.7 million new jobs but destroyed more than 2 million through contractions or closings, for a net job loss of more than 350,000. In almost every age group, job destruction exceeded job creation. The exceptions were two types of firms: the very old and the very young. Firms over 26 years old added slightly fewer than 100,000 jobs, on net, while brand-new firms added more than 3 million.”

The argument is usually made that the big gifts only cost each taxpayer maybe $7.50 a year, but that will all be more than compensated by the wealth and prosperity the new business will bring. In the local vernacular, the county is telling on itself. If a new factory is going to bring in tax revenue hand over fist, creating all kinds of surplus; then something is wrong with the tax structure. A right-sized government would only charge enough taxes to pay for the services the state requires or the community values. As always, the best way to attract business to the area is to lower taxes, eliminate unreasonable regulatory burdens, provide sound infrastructure, and furnish above-average public safety and education opportunities.

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