[Date Prev][Date Next][Thread Prev][Thread Next][Date Index][Thread Index]
State & Local Corporate Welfare
CORPORATE WELFARE SURVIVES
by Janice Shields
Coordinator, Corporate Welfare Project
published in Multinational Monitor, May 1996
A groundbreaking Forsyth County, North Carolina Superior Court
decision that could have turned the tide against state and local
corporate welfare for private businesses was recently overturned by
the North Carolina Supreme Court.
Attorney Bill Maready had sued Forsyth County, the City of
Winston-Salem, and the Forsyth County Development Corporation on
behalf of himself, as a citizen and resident of Winston-Salem,
after the city and county, in a five year period, had approved 24
separate economic incentive projects involving the expenditure or
commitment of public funds to private corporations for alleged
economic development programs, totaling in excess of $13 million.
The stated purposes of the grants included on-the-job training,
road construction, land development, utilities connections, site
improvements, financing of land purchases, expansion and relocation
of utilities on site, parking fees, spousal relocation assistance,
moving expenses, parking lot construction, and facility upfits.
The primary source of funding was property taxes.
Maready's brief stated that N.C.G.S. Sec. 158-7.1, which
authorizes local governments to make development incentive grants,
was unconstitutional because it violated the public use requirement
of the state constitution. Article VI of North Carolina
Constitution provides that: "The power of taxation shall be
exercised in a just and equitable manner, for public purposes only,
and shall never be surrendered, suspended or contracted away."
According to case law, a particular undertaking is for a public
purpose if the activity benefits the public generally, as opposed
to special interests or persons.
Maready relied upon a North Carolina Supreme Court decision
which held as unconstitutional a statute creating the North
Carolina Industrial Development Financing Authority; the law had
been created with the ostensible purpose to attract new business
and enhance economic development. According to Maready, "the state
Supreme Court had ruled that `the people should so declare' through
a constitutional amendment if `we are to bait corporations which
refuse to become industrial citizens of North Carolina unless the
state gives them a subsidy'."
Maready further argued that N.C.G.S. Sec. 158-7.1 was
unconstitutional because the statute was "impermissibly vague,
ambiguous, and without reasonably objective standards." Maready
cited as an example a $1 million City and County grant to Pepsi-
Cola. "The grant had been made with the understanding that Pepsi-
Cola would create 1,000 new permanent jobs, 400 of which would be
in place by December 31, 1993. However, the one-page agreement did
not reflect Pepsi-Cola's commitment to the jobs and, as of December
1, 1993, only 140 jobs were in place," Maready recounted. "In
1994, Winston-Salem advised that `all indications are that Pepsi
will never reach the 1,000 new jobs that they were told they would
have within three to five years'," Maready added.
Maready also argued that N.C.G.S. Sec. 158-7.1 violated the
state equal protection clause. "In this case," he stated, "we are
involved with what is most accurately called `corporate welfare' in
that it is for the benefit of those who are the most affluent in
our society. In other words, those who need government welfare
least are the only ones who can qualify for incentive grants."
According to Maready, local governing bodies violated North
Carolina's Open Meetings Law by voting on and deciding grant
matters in closed sessions and the chief or former chief executive
officer of several of the benefited corporations had been the
chairperson or on the executive committee of the Forsyth County
Development Corporation. "Jim Johnston, President of Reynolds
Tobacco, served as Vice-Chair through September 1992 and in 1995
his company received approximately $250,000," Maready cited.
In October 1995, the Superior Court ruled that N.C.G.S. Sec.
158-7.1 was unconstitutional, but in March 1996, the Supreme Court
held that the statute does not violate the state constitution's
public purpose clause and that N.C.G.S. Sec. 158-7.1(c) does not
make preliminary or tentative approval during unauthorized closed
meetings by public bodies unlawful. According to Justice Whichard,
"Economic development has long been recognized as a proper
governmental function" even if private actors benefit from the
expenditures authorized and even though every citizen in the
community may not benefit.
Justices Orr and Lake issued a dissenting opinion, arguing
that "There is simply no evidence to support the conclusion that
simply creating new jobs and increasing the tax base is a public
purpose that justifies the payment of tax dollars to the private
sector." They also stated that "the philosophy that constitutional
interpretation and application are subject to the whims of
`everybody's doing it' cannot be sustained." Further, Justices Orr
and Lake observed that agreements during closed meetings "violated
the spirit of the law and resulted in the abuses the law was
intended to prevent."
Kary L. Moss, Executive Director of the Maurice and Jane Sugar
Law Center for Economic and Social Justice, who had filed an amici
brief for a number of public interest organizations on behalf of
Maready, stated after the decision, "The most troubling feature of
the opinion is the court's dishonest rendition of the facts. The
state justified the $13 million or so in expenditures as promoting
more jobs and an improved tax base. However, the court failed to
challenge the assumption that new jobs and a higher tax base
automatically result in a significant benefit to the public."
Citing the court's expressed fear that "existing economic climate,
whereby courts in some 46 states have upheld the constitutionality
of expenditures, means that `all men know that in our efforts to
attract new industry we are competing with inducements to industry
offered through legislative enactments in other jurisdictions',"
Moss countered, "I am especially troubled that this principle of
fear is acting as the most pronounced force driving public policy
on this issue."
Robert Leak, Jr., president of Winston-Salem Business, Inc.,
the name under which the Forsyth County Development Corporation
does business, praised the Court's ruling. "We are delighted with
the result," he said. "It puts us back into a competitive position
to use incentives to recruit business. We feared that the state
would not be competitive without subsidies," he added. According
to Leak, "The amount of activity, including inquiries, had dropped
50 to 60 percent, which was directly associated with the lawsuit
because of uncertainty."
STATE & LOCAL CORPORATE WELFARE UPDATE: Many of the more than 70 state
and municipal legislators and officials, business executives and legal,
labor and economic experts who met in Washington last week called for a
truce in the proliferation of lucrative tax breaks, loans and grants that
states and cities are using to attract companies and professional sports
teams. Nearly all agreed that the governors and mayors are in the dark
about the long-term effect of tax breaks for businesses, that may create
jobs but also make it harder to finance other public services.
Additionally, state tax incentives which discriminate against companies
that aren't growing or choose to expand elsewhere may be unconstitutional.
[Washington Post, 5-24-96]
To subscribe to this list: send a message to firstname.lastname@example.org
In the message section write:
Subscribe Corporate-Welfare YourFirstName YourLastName
Center for Study of Responsive Law
P.O. Box 19367, Washington, DC 20036
202-387-8030 | Internet: email@example.com