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Luring corporations costs each Asheville resident $80

Locke pic RS

Corporate incentives: business or bribe?

By Roger McCredie- Eighty dollars a head. According to the John Locke Foundation, that’s what it’s presently costing each resident per year to pay for incentives the city has paid out or has promised to various corporations to locate here.

In fact, the Locke Foundation numbers indicate that in the five fiscal years from 2009 through 2014, Asheville, the state’s eleventh-largest city, has saddled its taxpayers with a greater per capita incentive-related burden than any North Carolina city except Winston-Salem, a municipality nearly three times Asheville’s size.

And that figure has not been adjusted to include the package of tax breaks, road improvements and other enticements the city laid on the table in order to lure New Belgium Brewery away from the other cities it was considering in 2013 when New Belgium was looking for a site for its east coast brewing and shipping operations.

(An accurate per-taxpayer figure that would include the New Belgium incentives has not yet been calculated, partly because some components of the package are payable over future years and partly because the exact total value has yet to be determined. The original New Belgium incentive price tag was set at $8.5 million, but subsequent pot-sweeteners in the form of further infrastructure improvements have raised the tally to nearly double that amount.)

The specter of a possible sale of New Belgium [see “Report of possible New Belgium sale sets off new round of controversy,” Dec. 21] has rekindled an old debate: Are “incentives” – packages of cash breaks and in-kind services put together to entice new businesses to town – viable pieces of business strategy, or are they a gamble that places a direct and immediate burden on taxpayers with no guarantee of future benefits?

The Locke Foundation report further says that such incentive programs statewide are typically put together with “little or no transparency.”

”This idea of corporate tax incentives is that it’s not quite legal and not quite illegal,” said one state observer who requested anonymity. “In order to [receive them, a company] has to create jobs.”

This is evidently true. State law does lay down broad procedures and parameters for incentive packages. The North Carolina School of Government at Chapel Hill says that with regard to actual cash outlay, “the private entity must state precisely how it intends to use taxpayer money” and must provide a full accounting at the end of a given fiscal year. But on the subject of tax abatements, which state sources say have become an increasingly popular form of incentive nationwide, the North Carolina state constitution flatly prohibits them: Article V, Section 2 states that only the General Assembly, acting on a statewide basis, may devise property tax exemptions and classifications.

There is, however, an important loophole. According to the School of Government:

“These incentive policies closely approach tax abatements, but with two important differences: [either] the company receiving the incentives has paid its property taxes [or] the grant payment is contingent not solely on the payment of property taxes but also on performance of some public benefit such as job creation or construction of affordable housing.

“One note of caution,” the School of Government concluded. “No court has addressed whether this sort of policy is an unconstitutional attempt to enact a tax abatement or whether it is simply a constitutionally permitted tax grant.”

As an example of operating within this gray area, the city offered New Belgium a seven-year property tax exemption. In 2013, when she was running for mayor, candidate Esther Manheimer, in heralding the coming of the brewery, stated that it would be paying an estimated $250,000 per year in property taxes. However it was later announced that New Belgium will be receiving about $364,000 in tax breaks over the next 13 years.

In return, New Belgium said it would be bringing some 130 new jobs to the area. However, a subsequent breakdown showed that most of these positions – at least the higher-paying ones – would be filled by New Belgium either from within or through advertising from its home office in Ft. Collins, CO. Latest figures show that the brewery has hired some 40 workers and expects to hire another 40 as it begins producing product in February. The total value of the locally recruited jobs is estimated at less than $400,000.

The Tribune reached out to City Attorney Robin Currin, asking what reciprocal performance guarantees the city requires from companies to whom it offers incentive packages, as well as what effect a change in ownership would have on such a covenant. Currin said she was unable to respond adequately by press time but promised to do so in the near future.

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