How much should the taxpayers pay a troubled business to stay in Beaufort County? | Eastern North Carolina Now

    Publisher's Note: This article originally appeared in the Beaufort Observer.

    The Washington City Council has an issue on its agenda for Monday night (5-14-12) that should be of concern for every taxpayer in the City of Washington and Beaufort County, and especially for businesses in the county. The reason county taxpayers should be concerned is that the proposal is a joint project with equal funding by the City and County.

    Here's the idea.

    National Spinning is selling its Caron division to a Canadian company called Spinrite. As it was explained by Economic Director Tom Thompson in the March 19, 2012 special called meeting of the County Commission, National Spinning previously had a workforce of approximately 90 workers in the division being sold. Spinrite will buy the business for an undisclosed amount of money from National Spinning and then turn around and hire the National Spinning management team, or at least part of it, and 60 of the 90 workers. That means 30 or so workers will be laid off.

    Thompson spun (no pun intended) the deal as "saving" 60 jobs. He implies that without the grant Spinrite will move the business back to Canada and there would be no jobs left in Beaufort. Thompson says it is a good deal for the city and county taxpayers to shell out $90,000 each to "save" the 60 jobs.

    The problem we have with this is that it is much like the debacle where the Legislature gave Goodyear a big incentive grant to NOT move jobs out of Cumberland County. A few months later, Firestone threatened to move a bunch of its jobs out of the state unless it was given tax dollars to not move its jobs.

    Historically, North Carolina (and Beaufort County) have used taxpayer funded incentives, (called "corporate welfare" by Stan Deatherage in a recent meeting) to get companies to EXPAND or bring NEW jobs to the state, county or city. This grant will only subsidize a sale of an existing business to another business while the new owners REDUCE jobs. The is a major shift in economic development policy.

    You can read more of the details in the agenda material for the City Council meeting by clicking here. The item begins on Page 57 of the download.

    Warren Smith, a local citizen who has spent a great deal of time researching the city and county's economic development program has written both the City Manager and County Manager asking them to forward this letter to the members of the commission and council. If you are interested in the issue of economic development and how your taxpayer dollars are spent you will want to read his letter.

   Commentary

    We think Mr. Smith has raised a very important issue that really needs careful review before this deal is done.

    We have a number of concerns. One is that we think careful attention should be given before we embark on a new subsidy program. We recently published an article in which we cite a report that is possibly the most important research done on the effectiveness of economic development incentives. That report to the N. C. General Assembly by the UNC Center for Competitive Economics raises serious challenges to the very assumptions upon which this National Spinning grant is based. We think both the city and county should give serious consideration and debate to the issues raised in the study.

    The second thing we are concerned about is the ethics implications of this and similar deals. Giving taxpayer dollars to entice a company to build a new plant in our county is one thing. It is something entirely different when tax money is used to pay an existing business to do something we are not prepared to pay other businesses to do.

   Why would not the city and county insist on ethics disclosure to say whether "insiders" benefitted from the deal?

   If, for example, Spinrite would not have bought Caron from National Spinning without the subsidy these grant kicked into the deal then that is something entirely different from incentivizing an outside firm to locate in the county as opposed to another county. We recently uncovered evidence that tended to point to a similar deal in which the coincidence of a major state grant appears to have enabled a local politician to sell his interest in a business for more than presumably it would have been worth without the grants. That is shady business. Just think of how many businesses would like such a deal.

   For example, suppose you own a business that has 50 employees and 40 trucks. Then suppose you need to replace some of your trucks or other equipment. Is the city and county going to buy you some new trucks to keep the 50 employees?

    So the real question that should be asked about this deal is "why this particular set of particulars?" And that is especially true when in effect this grant will subsidize the downsizing of a local company. For the taxpayers' money we will end up with fewer jobs, according to Mr. Thompson's March 19 presentation.

    The material in the city council agenda packet says that Spinrite will get the money only if they "create 90 new jobs." But does that mean 90 in addition to what was there before the sale or does it really mean that the taxpayers will be shelling out $360,000 ($180K from the state and $90K from the city and an equal amount from the county) simply to allow National Spinning to get cash out of the deal while the taxpayers actually get no NEW jobs for their money?

    Then, if you want to argue that the $360K will "save" jobs you have to, if you're going to be intellectually honest about it, answer the question of whether the state, city and county are prepared to pay any business a subsidy to keep the jobs it now has. If so, where does the line form?