Looking For Incentive To Revamp Policy

by Paul C. Clark
Staff Writer

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December 09, 2010
The High Point City Council is big on using economic incentives to lure businesses to High Point and is preparing to rewrite its policy on using them.

Most High Point councilmembers say their instinct is that cities are using incentives more in fights between municipalities to attract increasingly hard-to-find jobs. Members of the Incentives Policy Review Committee last week heard a report from the Raleigh economic consulting firm Sanford Holshouser that backed up that theory.

The Incentives Policy Review Committee meeting drew most of the members of the City Council, but most of the committee's members are representatives of private companies, including Tom Terrell of the law firm Smith Moore Leatherwood, Phil Fowler of the Geneva Corporation, Deena Qubein of the marketing firm McNeill Lehman, Roger Sims of New York Life Insurance Co., and Ken Smith of Smith Leonard accountants. Others who attended included High Point City Manager Strib Boynton and Don Cameron, president of Guilford Technical Community College and chairman of the High Point Economic Development Corp.

High Point, which has its own electric company, High Point Electric, belongs to ElectriCities, the association of North Carolina, South Carolina and Virginia city-owned power companies. The association this year gave its members a grant to hire Sanford Holshouser to improve their economic development efforts. High Point chose to have the firm, among other things, brief the City Council on possibly more inventive ways to use economic incentives.

The use of economic incentives has become a battleground in North Carolina. Most large cities, and many small cities and towns, offer them regularly. But some don't, and there are increasing complaints from municipal officials about the necessity and cost of offering incentives. Economic incentives have also drawn a legal backlash.

The North Carolina Institute for Constitutional Law, headed by Executive Director Robert Orr, a former North Carolina Supreme Court justice, has challenged the State of North Carolina's use of economic incentives, calling it corporate welfare. The institute recently created the Center for Economic Development Reform, which issues a weekly corporate welfare newsletter listing what the center sees as incentives that serve no public purpose, instead benefiting private companies at the expense of taxpayers.

Sanford Holshouser representatives Ernest Pearson and Crystal Morphis presented the councilmembers with the results of a statewide study by the firm on the use of economic incentives.

Sanford Holshouser isn't a neutral party in the debate over economic incentives. According to the firm's website, it handles "incentive negotiations and policies on behalf of communities." The "policies" part explains Pearson and Morphis' presence at the briefing; the current rewrite of the incentives policy makes the free advice from Sanford Holshouser timely. But the "incentive negotiations" part shows that Sanford Holshouser is all for them, something the briefing by Pearson and Morphis bore out.

Pearson also said he had debated Orr on incentives, and it was apparent he is in favor of them

"I think it's a necessary tool," Pearson said. "And, as a part of a total recruitment effort that's very targeted, it can be very effective."

Pearson and Morphis were giving the committee a freebie on ElectriCities' dime, but they were also making a pitch for more work.

Pearson advised the committee's members to not include in their policy fixed amounts for available economic incentives, both because such a policy could be challenged in court – although "Bob Orr has given that sort of direct attack up" – and because it would define the lowest amount the city would offer.

"I don't know what hip-pocket negotiating authority [High Point Economic Development Corp. President] Loren Hill has," Pearson said. "But if I'm a company, you've already set your floor – I'm going to ask for more."

The results of the Sanford Holshouser study were more interesting than what advice Pearson gave the committee members. The study, in which the company surveyed municipalities and counties across the state, showed that the use of incentives is increasing, sometimes in unexpected ways.

Traditionally, cities and counties give incentives to manufacturing operations, assuming they will create the most jobs and will attract retail outlets. With much of America's manufacturing base having fled to the Far East, however, incentives are increasingly being offered to office-based companies and even to retail operations.

"Retail was creeping up there, and services are a larger number," Morphis said. "Oftentimes we think of incentives for traditional industrial development, but incentives are becoming more widely available to non-industrial businesses."

Morphis said that communities also offer incentives to retailers if they provide goods a community's residents need. One eastern North Carolina town a few years ago offered incentives to a grocery store because its residents had to drive miles to buy groceries. Other communities have offered incentives to retailers willing to open stores in high-poverty, high-crime neighborhoods.

Pearson advanced the argument usually heard in favor of incentives – that they're a necessary evil, and a community that doesn't offer them will be unilaterally disarming in the fight for new jobs.

"You never heard of retail incentives years ago," he said. "But there for some retailers, such as Cabela's and Bass Pro Shops, that's a regular part of their package. If you don't give incentives, they don't come."

Morphis said the Bass Pro Shops Outdoor World in the Concord Mills shopping complex in Concord was attracted with incentives and is now the top tourist attraction in North Carolina. The store has aquariums, waterfalls, trout streams and an indoor shooting range.

Councilmember Chris Whitley said, "Come on!"

A committee member replied, "It's the big fish tank."