Publisher's Note: This article originally appeared in the Beaufort Observer.
We have published more than enough here, chiefly from the outstanding work Warren Smith has done as a citizen volunteer, to show that Beaufort County's economic development program has been a disaster. We don't think any reasonable person can contest that. And in fact, nobody, reasonable or otherwise, has offered a substantial defense of the results of the program.
We trust that our leaders have already begun to consider how to fix this debacle. In that light we want to make a couple of points.
First, we do not think the failure of the program can and should be put on the shoulders of one person. If there is a fundamental cause of the failure it is just what Hood Richardson has said all along: The failure of effective oversight.
That failure of oversight falls on three entities: The Board of Commissioners, the Economic Development and the Committee of 100.
Fixing one, or even tinkering with all three of these will not fix the problem. The reason this is true is that the program is based on a fundamentally flawed premise. That is, that subsidizing individual businesses is not only not productive (it does not impact the overall economy of the county) and it is economically unsound in that it violates fundamental principles of economics.
An article published two years ago in the Freeman should be required reading for the Beaufort County Economic Development Commission and every Commissioner but especially the County Commissioners. In fact, we would make it a law that no politician could ever vote on giving tax money away as a "economic development incentive" without passing a minimum competency test of the content of the article. Read it and keep in mind what the State of North Carolina did with the 250 million incentive program for Dell Computers and what Tommy Thompson has led the EDC and the Gang of Five Blind Mice to do in Beaufort County.
Here's the essence of it. The market is a far more efficient and effective mechanism for creating economic growth (existing companies) and development (bringing in new companies). And a few subsidies will never trump major economic trends.
The fundamental problem with the Economic Development Commission/Committee of 100 is that it is a group (yes, it is one group) of decision-makers who have no money of their own in the deals they make with other people's (taxpayers) money. We would not have spent six million, that is producing more expense and liability than it is profit, if the County Commissioners had adopted this simple policy: Anyone who votes for an incentives deal must invest a prescribed level of their own money in the deal. Had this been done, not one of Tommy Thompson's grand ideas would have drained sorely needed resources out of the county treasury.
A good example of this point can be seen in the very wise decision the Washington City Council made recently in declining to participate in a proposal to renovate the
Hotel Louise and Belk Building in downtown Washington into low income housing apartments.
A similar idea would be for the City of Washington and Beaufort County to make all of its money thrown at "economic development" be in the form of loans rather than handouts. And the principals receiving the loans should have to put at least 50% of their own money in the deal as well as put up their personal assets as collateral.
The underlying economic principle in all of these strategies is that the market will make far better deals than will government (or a group of people who have no skin in the game.)
Click here to read the "The Canard of Underutilized Resources."
As you read this article we would suggest that anyone assessing Beaufort County's economic development program should, at very least, understand the impact of the business cycle on the allocation of resources. Warren Smith has done this for this for them in his writings on the EDC. Just at a time when the economy was declining fewer people were buying expensive boats. So what did Tommy Thompson and the EDC do? They invested taxpayer's money in boat building companies. And as they say, "the rest is history."
Now don't get us wrong. Boat building is a very productive industry. But it is productive only while the economy is growing and nearing the top. But the Law of the Business Cycle tells us (whether we want to hear it or not) that eventually the tide will recede. Then is the time to contract, not expand boat building.
If the people who have served on the EDC over the last ten years had been as smart as they tell us they are they would have known the simple fact, as Warren Smith says: You buy low and sell high.
The same principles apply to the County Treasury. When times are good you build up your fund balance to use when times are bad. Our Gang of Five, led by a chairman who is a CPA (Jay McRoy) and a county manager eager to look good to the "right people" did exactly the opposite. This was the same county manager who announced after he had spent the "rainy day" fund: "we don't have a spending problem, we have a revenue problem." History has proved he had it exactly backward. He and the Gang of Five wasted the greatest resource Beaufort County had (its fund balance) on overbuilding school facilities, industrial parks and bailout two county commissioners (McRoy and Langley) who had engaged in unethical, if not illegal, self-interests in the Chickengate deal.
But no discussion of the Mistakes of the Past would be complete without one final point. The actual blame for this mess must be placed on the voters. They not only elected the Gang of Five, but they did it over and over. Until that changes Beaufort County will remain a Tier 1 county.
