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Chiquita merger brings tough questions on incentives

By Eric Frazier
Eric Frazier
Eric Frazier covers economic development. He has been reporting and editing at the Observer for more than 15 years. If you have a story idea or news tip to share, contact him at:

We’ve had a pretty big run of news lately on the hot-button issue of how, when or if public dollars should be spent on subsidies to private business.

City and county leaders seemed caught off guard Monday when Chiquita Brands International announced it was merging with Ireland-based competitor Fyffes. They’re doing so despite the fact that Chiquita is less than two years into a $22 million incentives deal with Charlotte, Mecklenburg County and the state of North Carolina.

The city and county’s portion of the deal explicitly calls for Chiquita to keep the company’s global headquarters in Charlotte for 10 years.

Local folks were rightfully puzzled. What part of “10 years” didn’t the Chiquita executives understand?

Was the banana company trying to pull a fast one? Should local officials demand repayment of the more than $1 million they’ve already shelled out?

And if they do, does that jeopardize the hundreds of good-paying jobs Chiquita has brought from Cincinnati?

City and county officials groped that first day for a response to the merger news.

Mayor Patrick Cannon initially said it likely wouldn’t affect Chiquita’s incentives package. But Mecklenburg Economic Development Director John Allen called it a violation of the agreement, adding that it’s up to the city and county to decide whether to enforce it.

A day later, city and county officials declined to say whether they’ll go after Chiquita. Cannon said the city needs to take a “deeper dive” on the issue and explore the definition of “headquarters.”

The city’s attorney said he needed to study the merged company’s corporate structure to figure out what it will mean for the incentives. And the county’s attorney cautioned elected officials not to tip their hand by staking out public positions.

It was as if our local leaders had thought they were playing a cordial game of spades with their new corporate friends, only to realize Monday that the guys in the expensive suits were playing high-stakes poker.

Clearly, business incentives present a prickly challenge for public officials.

On the one hand, taxpayers are always grilling them about why they’re giving millions in public money to corporations that are already rich – and which sometimes don’t even pay federal taxes, as a recent study found to be the case in some years with Duke Energy and 25 other Fortune 500 companies.

On the other hand, those same taxpayers want the good-paying jobs those corporations provide. And if Charlotte won’t dole out the tax breaks and other subsidies the companies request, some other city will.

“What we have to do is find that balance,” Mecklenburg Commissioner George Dunlap told me, “where we invest, but not to the degree that it hurts the (public’s) situation financially.”

Even bigger deals ahead?

Just this week, Dunlap and hundreds of other business and government leaders gathered at Central Piedmont Community College’s Harris Campus for a summit aimed at helping Charlotte become a global business hub.

They heard leaders of powerful companies ranging from Siemens to Nucor to Norfolk Southern explain what they’re doing in Charlotte, and what they need to help the region compete on the global stage.

They mentioned low taxes, reasonable regulations, a well-trained workforce and solid infrastructure. I heard few, if any, bring up incentives in a week where the issue was making front-page headlines.

The bigger spotlight fell on the need to better align the workforce training and education systems with the business needs of the digital age.

Rep. Craig Horn, a Union County Republican who attended the conference, told me all those things must improve. And yet, in bringing jobs and corporations from around the globe to the region, our local officials will still have to face the incentives question, he said.

“We’re competing with South Carolina and Tennessee and Georgia and Virginia. We’ve got to play in the game,” he said. “We can’t just say we’re not playing.”

Playing to win

Sometimes we win that game, as seemed the case in December when Electrolux announced it was adding 800 good-paying jobs and investing $85 million in new facilities, doubling its U.S. headquarters presence in University Research Park.

And sometimes we lose, as in our pursuit of the estimated 8,000 jobs that will land with Boeing’s planned 777X aircraft plant. It turned out that our offer of $632 million in incentives for a site near Charlotte Douglas International Airport was dwarfed by Washington state’s $8 billion-plus deal to keep the company there.

Gov. Pat McCrory told this week’s CPCC summit that job growth isn’t just about pursuing major corporations.

It’s also about encouraging a research and development culture that attracts smart minds from all over, the types who grow into cutting-edge entrepreneurs with fast-growing startups.

“You could have the next Bill Gates here in Charlotte – with an Indian accent,” he said.

Meanwhile, the delicate deal-making around incentives continues.

On Thursday, I asked Mayor Cannon what he’s hearing from the public. He said people are telling him that regardless of what happens with the headquarters, keep the jobs here.

“At the end of the day,” he said, “that’s what’s important.”

CEO Ed Lonergan says the merger won’t have a major impact on those jobs.

Perhaps not. But ChiquitaFyffes will be the world’s largest banana company, with annual revenue of $4.6 billion. You can expect its shareholders to wield more clout than Mecklenburg taxpayers.

Let’s say that, three years from now, the company sees a chance to reap $40 million over the next decade by shifting its Charlotte positions overseas. Do you think Lonergan would forgo that windfall because, well, it wouldn’t be a very nice thing to do to the fine folks in Charlotte?

Right.

In the shark-eat-shark world of corporate deal-making, each side looks out for its own bottom line. Let’s hope local leaders can protect ours.

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