Fri October 26, 2012
Dalton, McCrory Debate 'Best Incentive' For Businesses
The candidates for North Carolina governor have faced a lot of questions about how to attract new businesses to the state and keep current ones here. In their answers, Republican Pat McCrory and Democrat Walter Dalton have shown differences on taxes and incentives, but also similarities on improving the state’s workforce.
But when the actual businesses are deciding between competing states, what are their most important criteria?
Continental Tire was searching for a state last year to open a huge manufacturing plant. North and South Carolina competed against each other for it and the roughly 1,700 jobs it promised.
South Carolina won. And in the first debate for North Carolina governor this year, Democrat Walter Dalton and Republican Pat McCrory squared off on how they’d keep North Carolina from losing out on other businesses.
The 'Best Incentive'
"We have to have an incentive package," Dalton said. "The key is to make sure our incentives are competitive with other states. And the best incentive of all in North Carolina is our workforce, our people, and the strength of our community college system that does great workforce training."
McCrory replied, "Actually the best incentive for new jobs in North Carolina and the expansion of jobs in North Carolina is for everyone, both existing companies and new companies, and that is not to have the highest sales tax, the highest income tax, the highest income tax in the Southeast, which is what we have now.
So is a great workforce or lower tax burden “the best” incentive? And how big of a deal are incentive packages – those sweeteners companies get in the form of tax breaks and grants?
"Companies have a myriad of things they look for," said Brad Richardson, the city of Charlotte's economic development manager.
"And when it lines up that our tax structure is good, our labor force meets their needs, and if there are incentives that are important to help defer some of those costs up front, we win those projects very often," Richardson said.
Finding The Right Workforce
Businesses want to check off a lot of boxes before moving to a new state or expanding where they already are. But let’s start with the workforce because businesses brought that up over and over.
"We are driven to locations where we can get the right kind of people," said Cosmo Alberico of Odyssey Logistics. "That is our main asset."
"This is the important point, it was the workforce that pulled us there," said Rich Akin of TZ Insurance.
"In our plant we'll have lots of jobs that require specialized skills," said Tim Rogers of Continental Tire.
"We're a growing company, and access to the best talent in the industry is very, very important to us," said Douglas Jones of MSC Industrial.
All of those companies moved into new facilities or expanded in the last year or so, with plans to create close to 2,500 jobs. Odyssey Logistics, TZ Insurance and MSC Industrial did so in North Carolina, while you’ll remember Continental Tire picked South Carolina.
Rogers said finding the right work force there was a big reason why.
"The area had companies that manufacture in the area, and there’s also a collection of technical schools in South Carolina that can help us in the hiring process," Rogers said.
Searching For A Lower Tax Burden
He also said South Carolina's cheaper tax rates were important.
"We would prefer to invest our money into building plants and hiring people, so a higher tax rate would not be something that we would favor in any state that we would move into," Rogers said.
That’s another key issue for businesses, although one that often comes behind the workforce – how big will our total tax burden be? That includes corporate taxes, sales taxes, individual income taxes – everything you pay in a state.
The non-partisan Tax Foundation reports South Carolina has one of the country’s lowest tax burdens – 8.4 percent. North Carolina’s is 9.9 percent, highest in the Southeast.
But that rate was actually quite attractive to MSC Industrial, which has been paying the highest tax burden in the country in its home state of New York. The company distributes metalworking and other industrial products, and Douglas Jones is a vice president.
"When you look at the cost factors associated with running a business in some of our areas like Long Island versus North Carolina, there's favorable aspects to being in North Carolina." Jones said.
That's part of the reason you can hear the crunch of gravel underneath tires of big trucks pulling into a construction lot in Davidson, where MSC Industrial is building its new co-headquarters. Construction crews have put up about two stories so far of what's planned to be a 180,000 square-foot facility.
Once it’s finished, MSC plans to create 400 jobs here. Jones said the area’s workforce was a bigger draw than its taxes – he said it has the right mix of executives, finance professionals, project managers and IT experts.
"We wanted something that would complement our location here in Long Island, give us access to some of the best talent in our industry," Jones said. "North Carolina, the Charlotte area, rated very high from those aspects."
Sealing The Deal With Incentives
Jones said once MSC was down to its final choices, the incentive package North Carolina offered helped seal the deal.
Rogers of Continental Tire said incentives played a similar role in his company’s decision. South Carolina gave it than 30 million dollars in grants and tax credits.
But Rogers was quick to point out a business will never pick a state just because it offers great incentives.
"If the labor costs or the demographics of the labor in the area are not favorable, I don’t know if there’s any amount of incentives that could make us move to that location," Rogers said.
Every business executive and economic development leader I talked to echoed that message.
"Incentives will not make a bad deal good," said Ronnie Bryant, CEO of the Charlotte Regional Partnership. "Incentives will only make a good deal better."
Ultimately, businesses will pick a new state or expand in one they’re already in because of all the other boxes they want to check off, often starting with the quality of the local workforce.
The Party Line