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Rural areas questioning incentives (NC RAT Gov gets tax breaks for Big Tobacco & Pharmaceuticals)
News & Observer ^ | 12/11/03 | AMY GARDNER, CHRIS SERRES

Posted on 12/11/2003 3:37:47 PM PST by Libloather

Rural areas questioning incentives
Thursday, December 11, 2003 5:58AM EST

Robert Neal, a laid-off textile worker from Cabarrus County, traveled to Raleigh this week looking for good news for his community and others that have lost thousands of manufacturing jobs. He came away disappointed.

In a special session called by Gov. Mike Easley, lawmakers passed a $240 million package that provides tax breaks for R.J. Reynolds Tobacco Co., other cigarette makers and pharmaceutical giant Merck & Co.

Most of the immediate benefits will go to companies doing business in two of the state's largest cities: Winston-Salem and Durham. Legislators did little to directly benefit the rural swaths that have been hit hardest by the economic slump -- a slump that has cost at least 148,000 manufacturing jobs in three years.

"Where are the jobs for us?" asked Neal, 50, as he and other former Pillowtex workers watched the House Finance Committee debate Easley's proposal. "Where's the promise?"

Easley's incentives package passed overwhelmingly in both legislative chambers early Wednesday. Supporters said the measure will bring high-paying jobs to a state that badly needs them -- and will stimulate the entire state's economy.

"There is no bad news here," said Easley budget adviser Dan Gerlach. "It is good news that companies are creating jobs that will pay over $55,000 a year in our state. And we've sent a signal that we're going to do more."

Merck, which could build a vaccine-making plant in northern Durham by 2008, said the jobs -- up to 200 -- would pay between $55,000 and $60,000 a year. The drug company expects to begin construction on the project early next year. A final decision by Merck's board of directors is expected within weeks, company spokesman Patrick Witmer said.

The state will give Merck $24 million for site acquisition and improvements, plus other incentives worth nearly $13 million. But Commerce Department officials estimate the Merck plant will increase the state domestic product by $66 million a year, bringing the state a net benefit in taxes of $20.6 million over 20 years.

Still, the need for jobs in rural North Carolina was a persistent theme through the grueling special session, which didn't end until well after midnight. Durham has an unemployment rate of 4.7 percent. The rate in Forsyth, where RJR plans to add 800 to 1,000 jobs at its Winston-Salem headquarters, is 4.8 percent.

Cabarrus and Catawba, two counties with major manufacturing losses this decade, logged October unemployment rates of 9.6 and 7.9 percent, respectively.

"I think what you hear from rural leaders is a concern over the primary jobs going away in our manufacturing industry," said Billy Ray Hall, president of the Rural Center, a private nonprofit that uses state and private money to promote economic development in rural North Carolina. "And they will not come back."

Hall said that in addition to going after the big fish, economic development leaders must retain existing jobs and attract new ones through small businesses that are more likely to pick rural locations.

But incentives supporters say economic development projects such as the Merck deal often yield far more jobs than projected.

In 1998, the state granted $161 million in tax breaks to Nucor Corp., which promised to invest $300 million in a 300-job steel mill in Hertford County. Since then, the Charlotte-based company has invested $500 million and hired 400 people. Twenty-three other companies, which primarily supply materials to Nucor, have opened in the county, creating an additional 200 jobs.

"If you bring in a big manufacturing company, you create a whole chain reaction of new businesses and new jobs," said Rick Watson, president of North Carolina's Northeast Partnership Inc., a nonprofit corporation that promotes the area.

The Commerce Department hopes for a similar ripple effect with Merck. Using an economic model developed by N.C. State University economist Michael L. Walden, the department estimates that businesses that sell products to Merck and its employees will hire at least 373 people, nearly twice as many jobs as the project itself.

That, in turn, will create a long-term boon to the state treasury, because these businesses and individuals will pay state income and sales taxes.

"This project more than pays for itself," said Edward Feser, the department's executive director of policy, research and strategic planning.

To some, the tax breaks for tobacco companies are more troubling. Reynolds will get $126 million in tax savings over 13 years through an extension and expansion of the cigarette export tax credit. Part of that benefit, $48 million, is tied to RJR's promise to add jobs after finishing its merger with Brown & Williamson Tobacco.

But the rest of the benefit comes with no promise of jobs or investment -- not from Reynolds, or from Philip Morris USA, which will also be eligible for $78 million in savings, or from Lorillard Tobacco Co. of Greensboro, which would save up to $2.6 million.

Richmond-based Philip Morris has no plans to expand in North Carolina. The tax credits "should help us sustain what we already have," said spokeswoman Jamie Drogin. The company employs 2,900 people in the state and buys more leaf from the state's farmers than any other company, she said.

That's not enough for some.

"There should have been performance measures," said Rep. Paul Luebke of Durham, who supports the Merck deal and voted for an early version of the package but changed his vote when the Lorillard provision appeared.

Luebke said the broad support for the incentives -- they passed 76-18 in the House and 32-4 in the Senate -- hides a growing aversion to granting incentives to wealthy corporations.

Luebke said he and others would much rather see a focus on small-business development, and on spending on day care, job training and other programs that help the jobless or working poor.

There may yet be hope for such alternatives to economic development. Some rural groups said being left out this week might give them added leverage in the spring, when the General Assembly is expected to consider a further expansion of the state's economic incentives.

"It's going to be tougher to ignore us," said Bruce Clarke, president of Capital Associated Industries in Raleigh, which represents about 900 Eastern North Carolina employers. "In the future, it's going to be easy to point back to this and say, 'Look, you gave all this money to urban areas, what about us?' "

Staff writer Amy Gardner can be reached at 829-8902 or

TOPICS: Business/Economy; Culture/Society; Extended News; Government; US: North Carolina
KEYWORDS: areas; big; breaks; gov; incentives; nc; pharmaceuticals; questioning; rat; rural; tax; tobacco
Who benefits from the incentives package passed by state lawmakers:

R.J. REYNOLDS: $126 million over 13 years
PHILIP MORRIS: $78 million over 13 years
MERCK: $36.8 million over 5 years
LORILLARD: $2.6 million over 13 years
TOTAL: $243.4 million
(Does not include open-ended tax break for qualifying pharmaceutical and biotech companies, estimated at $2.6 million a year)

How they voted

John Carrington R-Raleigh Yes
Wib Gulley D-Durham NV
Ellie Kinnaird D-Carrboro NV
Jeanne H. Lucas D-Durham NV
Vernon Malone D-Raleigh Yes
Eric Reeves D-Raleigh NV
Fred Smith R-Clayton Yes
Richard Stevens R-Cary NV

Bernard Allen D-Raleigh Yes
Gordon Allen D-Roxboro *Yes
Russell Capps R-Raleigh *No
Jim Crawford D-Oxford Yes
Billy Creech R-Clayton No
Leo Daughtry R-Smithfield *Yes
Rick Eddins R-Raleigh Yes
Sam Ellis R-Raleigh No
Joe Hackney D-Chapel Hill NV
Verla Insko D-Chapel Hill *No
Paul Luebke D-Durham **No
Mickey Michaux D-Durham Yes
Paul Miller D-Durham **No
David Miner R-Cary Yes
Don Munford R-Raleigh Yes
Deborah Ross D-Raleigh No
Paul Stam R-Apex No
Jennifer Weiss D-Cary *No

*Voted on earlier version of bill, did not vote on final passage
**Voted yes on earlier version of bill

1 posted on 12/11/2003 3:37:51 PM PST by Libloather
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