Split On Incentives Reflects General Assembly's Geographic Divide
Governor Pat McCrory has made replenishing the state’s economic incentives fund one of his top, immediate priorities. This week Republican leaders in the Senate introduced their own plan, which differs significantly from the governor’s. It sets up a debate over incentives, but also falls into a larger, intra-party fight that’s as much regional as ideological.
The state’s main economic incentive fund offers companies tax breaks to move here, but has run dry after several major deals the past couple of years. In his State of the State address in February, Governor McCrory told lawmakers he needs it refilled, expanded, and extended past its slated January expiration.
“We need these tools passed in a matter of weeks, not months, because right now we’re attempting to recruit new jobs to North Carolina,” McCrory said.
In particular, state officials say they are deep in talks with several auto manufacturers.
A month after the speech, the House passed an incentives plan along the lines of McCrory’s request.
The Senate banished the bill to a committee with no scheduled meetings. And this week, Senate leader Phil Berger introduced a radically different plan yesterday. It extends the program for two years, but instead of expanding it, drops the state’s entire corporate tax rate from 5 percent to 3 percent.
That sets up a potentially lengthy showdown.
“I’ll express my strong disagreement with that action,” McCrory responded at a meeting with the North Carolina League of Municipalities. “I think it breaks the bank. It breaks a promise last year on tax reform. It doesn’t create a long-term solution and signal to our competitors that North Carolina has a long-term plan. And, I also think it divides North Carolina.”
In one sense, this is just the latest disagreement between House, Senate, and McCrory. The two chambers fought last year about a coal ash law, Medicaid, and even when to adjourn. McCrory sued both House and Senate over appointing commissions that usurp executive power.
“We have to understand that there are different factions within the GOP that really makes up this governing coalition,” says Catawba College political science professor Michael Bitzer.
Most commonly, McCrory and the House have disagreed with the Senate, such as with incentives or last year over teacher pay. That reflects an ideological divide.
“Certainly the Senate is more conservative than the House,” Bitzer says.
The concept of incentives—specifying individual tax breaks for large companies—is controversial on both right and left, but especially for conservatives who term it “corporate welfare.” No one professes to like incentives, but they have less support in the Senate, which shows in the bills. But the fight has another element.
The Senators didn’t agree to an interview, but in a statement accused McCrory of “directing close to 90 percent of the state’s incentive money to its richest three counties, including his own.”
“It’s time for the 97 other counties in this state to be treated with respect,” the statement says.
In a state controlled by one party, the most noticeable split is between urban and rural legislators. Cities like Charlotte snapped back far more quickly from the recession, while rural counties have remained more economically depressed. Several of this year’s major debates already center on this divide.
“We’re seeing it on a range of policy issues from economic development, to transportation, to now this week the discussion of the allocation of the sales tax,” says Bob Morgan, president of the Charlotte Chamber of Commerce.
Rural lawmakers want to shift investment to those areas, including a larger share of sales taxes. Many are in the Senate, Bitzer says.
“With the Senate districts being larger and Senators having a greater area to cover, generally we’re seeing a much more rural orientation in terms of the composition of the Senate Republican caucus,” he says.
The Senate incentive bill limits how much money can go to the economically healthiest counties; it especially singles out Mecklenburg, Wake, and Durham. Morgan and McCory oppose those limits. They argue a rising tide lifts all boats and, for incentives, that the different regions are not competing with each other, but instead against other states.
It’s unclear if lawmakers can reach a compromise, especially in time to lure their carmaker. But this larger fight, between rural and urban Republicans looks here to stay.