Economic Development Incentives

By Steve Tuttle

Let's say you're in the market for a new car. You've considered sedans, convertibles and sporty models but you settle on getting an SUV. Most automakers sell SUVs, so you begin spending your Saturdays driving from dealer to dealer to learn about models, options and prices. Eventually you narrow your choices to a Ford Explorer, a Chevy Blazer and a Dodge Durango. All three dealers have models in the color you like with the options you want at roughly the same price. Which one will you buy?

This little exercise in free enterprise came to mind as I was reading a research report published recently by the Kenan Institute of Private Enterprise at UNC-Chapel Hill. In the report, CEOs of 118 international firms located in North Carolina were asked to rank the factors that were important to their companies' decision to start doing business here as opposed to some other state. The most important factors they cited were labor quality and availability, transportation, overall quality of living and the general business climate.

The executives ranked the availability of state and local tax credits and other incentives dead last among 11 factors. Therefore, the authors of the study concluded, state and local governments are wasting tax dollars on incentives as a tool for economic development; worse, the report said, doing so means government has less money to spend on the things at the top of the list, such as schools and worker training.

Now let's go back to our car-buying decision and see if we can help you decide which SUV to buy. Naturally, you want the best deal possible, so you go back to the Ford, Chevy and Dodge dealers and ask if there's something extra they can throw in to seal the deal. The Ford dealer offers a free extended warranty, the Chevy dealer offers zero percent financing and the Dodge dealer offers $1,000 cash back. The cash back sounds most attractive, so you buy the Durango.

But before you drive away in your new vehicle, let me ask you some questions for a survey I'm conducting. Tell me what were the most important factors in you choosing the Durango instead of the Explorer or the Blazer? You say you were most influenced by its roominess, its reputation for reliability and its safety rating. The cash-back program probably will be near the bottom of your list.

Does that mean automakers would be smart to end their buyer incentive programs? No. Does it mean that Detroit should stop concentrating on reliability and safety and sell cars just on price? No.

And can we conclude that because incentives, quite correctly so, are less important to industrial prospects than a trained workforce and a high quality of life that we should stop offering them? Most definitely not.

North Carolina has a modest program of tax credits and incentives to spur economic development. It is working very well. And it should continue.