NC House rejects bill on local sales tax, economic incentives

North Carolina Legislative Building in Raleigh

North Carolina Legislative Building in Raleigh

RALEIGH, N.C. — The state House today rejected by a 54-47 vote an attempt to resurrect a controversial local sales tax and economic incentive bill pushed by legislative leaders, the Winston-Salem Journal reports.

House Bill 1224 represented a microcosm of the impassioned debate and internal Republican discord that has kept the General Assembly in session nearly three weeks longer than planned.

The bill was tied to the Senate’s willingness to compromise on financing teaching assistants. It was one of the last major actions to be taken by the House before adjourning until after the November general election.

The bill’s defeat dealt a blow to Gov. Pat McCrory and House Speaker Thom Tillis, R-Mecklenburg, who touted the benefits of the Department of Commerce having cash in hand to help close big projects.

“The Senate wants us to trade $4 million for $150 million to $200 million for economic incentives,” said Rep. Paul Stam, R-Wake, and speaker pro tem. “And we’re not sure Commerce knows where this money is going or how effectively it would be used.”

The bill focused on capping local governments’ ability to set local sales taxes at 2.5 percent. Only Durham, Mecklenburg and Orange counties have a sales tax at or above that rate. Forsyth and Guilford counties are at 2 percent.

The bill also would have given the state’s Commerce secretary about $20 million in a “job catalyst fund” that could have been used to buy or improve land and infrastructure for facility development, or for manufacturing purposes. Secretary Sharon Decker told legislators the fund would be “very, very helpful” in recruiting at least three companies.

The bill would have expanded two other incentive programs, including the Job Development Investment Grant, at a time when several legislators say they want to reduce corporate welfare.

Three of Forsyth’s five representatives voted against the bill (Republicans Julia Howard and Donny Lambeth and Democrat Evelyn Terry), while one voted in favor (Republican Debra Conrad). Democrat Edward Hanes had an excused absence.

Representatives from both parties railed against providing “walk-around” money, since the secretary would have had sole responsibility for its guidelines and how the money would have been dispersed.

Rep. Nelson Dollar, R-Wake, said he voted against the bill because it would have loosened state control over economic incentives instead of tightening them with payment clawback requirements.

“This is not about the person, but about the principle,” Dollar said. “This is against what we have been trying to do for the last 10 years.”

The N.C. chapter of the conservative advocacy group Americans for Prosperity said it was pleased “that there is a bipartisan will to fight against corporate welfare programs in the General Assembly.”

The closeness of the vote likely was a byproduct of another element of the bill, which would have provided state tax benefits worth about $12 million to the Evergreen Packaging paper mill in Haywood County.

The mill, which has about 1,000 employees, must replace — because of federal regulatory requirements — two coal-fired boilers with natural gas-powered units at a total cost of $50 million. Some legislators expressed a “hold-your-nose” aspect to the sales tax and job catalyst fund proposals in voicing their support for Evergreen.

Rep. Michele Presnell, R-Haywood, and sponsor of the bill, said residents of 11 counties work at the Evergreen mill. She said she is afraid the company would close the mill without the state’s help on the equipment costs, a perspective challenged by several legislators who said that Evergreen is too entrenched at the plant.

Several legislators cited pledges made by leaders during the 2013 session who said that cutting the corporate income tax would have a ripple effect of lessening the importance of economic incentives.

Rep. Stephen Ross, R-Alamance, said he voted in favor of the bill because he “doesn’t like North Carolina going into a gunfight without a gun” in terms of incentives needed to close large deals. He said that Alabama has $131 million in a similar fund, Texas $76 million and South Carolina $36 million.

Ross expressed his support for the U.S. Congress getting rid of all incentives, but until it does, “this is our reality.”

Some expressed concerns that given the parameters for qualifying for the catalyst fund, the large projects would continue to be concentrated in Charlotte and the Triangle.

A study released in May by the N.C. Budget & Tax Center found that the bulk of the pledged incentive funds from 2007 to 2013 went to urban areas, particularly Charlotte and the Triangle. Mecklenburg County qualified for 36 percent of all state incentive dollars awarded during the six-year period; Wake County 16.7 percent.

Stam said he supported excluding the catalyst fund from the 20 counties listed as Tier 3 — the most economically advantageous in the state.

Since 2006, state law has required Commerce to annually rank the economic health of all 100 counties. The rankings are based primarily on an assessment of each county’s unemployment rate, median household income, population growth and assessed property valuation per capita. The law calls for ranking the 40 most distressed counties as Tier 1, the next 40 counties as Tier 2 and the 20 most prosperous counties as Tier 3.

Eligibility for the catalyst fund would have required companies in the Tier 3 counties to maintain 1,200 full-time workers typically for a period of eight to 10 years; Tier 2 counties to maintain 800 full-time workers; and Tier 1 counties to maintain and 500 full-time workers.

A company also would have been required to spend $20 million on capital investment in Tier 1 counties, $35 million in Tier 2 counties and $50 million in Tier 3 counties.

There would have been a local match with the catalyst funds: $3 for every $100 from the state in Tier 1 counties, $6 for every $100 in Tier 2 counties and $9 for every $100 in Tier 3 counties.

Rep. Paul Tine, D-Dare, said the catalyst fund parameters would have made it “next to impossible” for Northeast North Carolina to have benefitted.

“We need to take up each of these items in their own bills and let them stand on their own merits,” Tine said.

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