Here’s why tax breaks for Charlotte firms are rising

The last several weeks of 2018 featured a wave of companies announcing plans to move their corporate headquarters to Charlotte or grow their headcount here, moves made easier by millions of dollars in incentives from local and state governments.

In fact, such announcements were on the rise last year in Charlotte.

Six companies in Mecklenburg County were awarded Job Development Investment Grants in 2018, twice as many as received the performance-based grant here in 2017, according to data from the N.C. Commerce Department. They included: EY (formerly known as Ernst & Young), Dentsply Sirona, Honeywell, LendingTree, AvidXchange and Cognizant.

Incentives are one tool that economic developers and lawmakers say can be used to land major employers who diversify the region’s economy and boost its profile. Yet critics say incentives unfairly benefit corporations that don’t really need the money.

The boom in incentives came as North Carolina economic development groups worked to recruit businesses following the fallout from House Bill 2, the now-repealed law limiting legal protections for LGBTQ individuals. HB2, signed into law in March 2016 and repealed a year later, dissuaded at least a handful of high-profile employers from doing business in North Carolina.

For instance, PayPal scrapped plans for a global operations center that would have employed over 400 people in Charlotte. And real estate research firm CoStar decided not to open a major new facility in Charlotte that would have added over 700 high-paying jobs.

When HB2 was in effect, economic developers put together bids for companies that North Carolina knew it could still compete for, said Chris Chung, CEO of the Economic Development Partnership of North Carolina, a public-private partnership that recruits business to the state.

“We can theorize with great probability that there were deals we were not getting called about,” Chung said. “We’re happy this has been in the rear view mirror for about two years.”

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‘A waste of public funds’

North Carolina had some high-profile misses last year too, when it came to big-name recruitments.

The state offered sizable grants to Amazon for its coveted second headquarters, as well as AllianceBernstein, the New York investment firm. Neither company chose Charlotte, but the size of the proposed deals drew fresh skepticism to the practice of using targeted incentives to lure big companies.

Charlotte and Mecklenburg County would have offered Amazon a combined $270.6 million, on top of the state’s $2 billion incentives package, according to public records obtained last month by the Observer. It would have been the largest incentives package by far that the city, county and state had ever offered.

A recent study on Amazon’s HQ2 selection by George Mason University’s Mercatus Center, a nonprofit free-market think tank, concludes that targeted incentives “are a waste of public funds.”

By examining the maximum potential incentives grant each finalist location could offer, researchers said that Amazon likely made its decision well before putting out its request for proposals in September 2017, and that any subsidies offered would just be “extra icing on the cake.

“Offering economic subsidies to one corporation or industry inevitably requires tradeoffs that force other businesses and taxpayers to pay higher taxes or force local residents to endure lower-quality public services, or both,” researchers wrote.

Mitch Kokai, a senior political analyst with the John Locke Foundation, a conservative Raleigh-based think tank, said that instead of targeted tax incentives, politicians ought to focus on policies and incentives that spur broad-based economic growth, such as investing in education and infrastructure.

When it comes to incentives, Charlotte, he added, is in a unique position, given its geography.

“I would be very surprised if Charlotte got away from the incentives game any time soon,” Kokai said. “Because they’re on the state line, it’s easy for companies based in Charlotte to say, ‘Well heck we could move across the state line to Rock Hill.’ ”

N.C. Commerce Secretary Anthony Copeland, however, said that incentives are just one of the tools that economic developers use to recruit. Two assets that help set Charlotte apart are its “highly sophisticated workforce” and its bustling airport, he added.

“What Charlotte brings is so much more mature than what’s across the border. While some companies may locate there, they’re still dependent on Charlotte,” Copeland said.

Honeywell’s plans

One of the most high-profile local economic development announcements came on Nov. 30, when manufacturing tech giant Honeywell said it plans to move its headquarters to Charlotte from New Jersey. It is in line to receive more than $80 million in city, county and state incentives.

In an email, Honeywell spokesman Eric Krantz cited the city’s proximity to several of the company’s business in the Southeast, as well as its ability to recruit and retain talent, as a reason the Fortune 100 company chose Charlotte.

But it was also driven by incentives.

“Our decision to relocate to Charlotte still depends on the recently passed Job Development Investment Grant legislation,” said Honeywell CEO Darius Adamczyk in November. In early December, state lawmakers approved a bill allowing the N.C. Commerce Department to offer companies up to $16,000 per year in tax breaks for every job created. Currently, the limit is $6,500 per job.

Charlotte Mayor Vi Lyles after an uptown announcement Nov. 30 that Fortune 100 company Honeywell is bringing its headquarters to Charlotte. Diedra Laird

This isn’t the first time that Honeywell was offered tax breaks for growing its business. In 2013, New Jersey awarded it an incentives package worth up to $40 million to keep its headquarters in that state.

Krantz noted that Honeywell has “long-term agreements in place” with Charlotte, Mecklenburg and North Carolina, based on annual employment and capital investment targets.

“Honeywell’s commitment to move senior leadership positions to Charlotte and to make significant investments in our North Carolina business operations demonstrate that we anticipate being here for a long time,” Krantz said.

Should a company that has received incentives renege, it’d have to pay back the money it’s received so far to the local government. That’s what happened in January 2015 when Chiquita Brands International moved its headquarters and 320 jobs from Charlotte.

In an email to colleagues after Honeywell’s announcement, outgoing Mecklenburg County Commissioner Jim Puckett, a longtime critic of incentives, wrote that it was ill-advised for a government to subsidize a corporation that may contribute to the area’s economic inequality.

“There is much to celebrate with the arrival of Honeywell, but I would remind you, the very wealthy salaries will add to the gap between the wealthiest and the poorest,” Puckett wrote.

Two Charlotte companies

Two Charlotte-based companies recently considered expanding elsewhere before announcing massive hiring plans here. They also received millions in incentives.

On Dec. 6, online lender LendingTree, said it will keep its headquarters in Charlotte and add 436 high-paying jobs in exchange for $8.37 million in state incentives. LendingTree had considered more than 20 locations in several states before deciding on its hometown.

On Dec. 18, tech company AvidXchange announced it would add more than 1,200 local jobs, more than doubling its Charlotte workforce, in exchange for nearly $25 million in local and state incentives. The company also had considered several other states that were offering incentives.

Neither LendingTree nor AvidXchange responded to a request for comment.

It makes sense that companies would consider moving or threaten to move to see if a local government would be willing to offer more incentives, said Kokai, the researcher.

“A major problem with the incentives game is there is nothing stopping (businesses) from shopping around every few years,” Kokai said. “I don’t blame the company. They’d be shirking their obligation to shareholders by not going for these incentives.”

As the retail and sports business reporter for the Observer, Katie Peralta covers everything from grocery-store competition in Charlotte to tax breaks for pro sports teams. She is a Chicago native and graduate of the University of Notre Dame.