Twin City rear-ended by CAT?

by Jim Longworth

Earlier this month, local and state officials offered Caterpillar more than $70 million in incentives to locate a plant in Winston-Salem. The facility, which will cost $426 million, will manufacture rear-end assemblies for backhoes and is expected to employ 392 people.

So why am I opposed to the deal? Because incentives are nothing but corporate welfare, legalized extortion. The Federal Reserve Bank of Atlanta notes, “Incentives are often criticized for driving the economic race to the bottom.”

In many cases, industries receiving incentives simply relocate jobs from one state to another, producing no net gain. In other instances, they create new jobs, but only temporarily, such as with Dell, who closed their plant in Forsyth County after snaring over $300 million in perks. Then there are 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, Miss., which lured Nissan in 2002 with $368 million in incentives. But within a few years, Jackson began losing more than $300,000 per year due to a drop in projected revenues.

Clearly, the system is risky, and even when it produces jobs that last, it does so at the expense of schools and other municipal entities who are unable to access the financial resources that have been tied up. 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 40 states are entrenched in the incentives game where they feel obligated to offer perks, lest they lose 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, “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 in incentives. Our leaders should have learned a lesson from Dell, in which the computer maker led us to believe that we needed to come up with more than $300 million to lure their proposed plant away from Virginia. After the deal was done, we learned that the Old Dominion only offered $30 million in incentives.

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 from doing business.

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 layoffs.

When interviewing Gov. 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. If they don’t, they won’t. 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 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 excavation equipment.

Jim Longworth is the host of “Triad Today,” airing on Fridays at 6:30 a.m. on ABC 45 (cable channel 7) and Sundays at 10 p.m. on WMYV (cable channel 15).