Lawyer Article

Originally published in the Raleigh News & Observer. Republished with permission. All rights reserved.

During the Cold War, a sincere group of well-intentioned Americans and Europeans became advocates of a policy known as unilateral disarmament.

The basic theory was that if the West gave up its nuclear arms, the Soviets, assuaged by our show of good will, would disarm too. The theory, of course, was never put into practice, and after the fall of the Berlin Wall it became another quaint relic of the Cold War like the "duck-and-cover" drills of the 1950s.

Today, in the minds of many, there's another escalating arms race. Instead of ICBMs, the weapons of choice are governmental subsidies and tax abatements. And instead of NATO and the Soviet Union, the competitors are the various states, counties and even municipalities seeking to attract new businesses in competition with one another.

What's unchanged is the existence of a loud group advocating unilateral disarmament in the incentives war. As in the Cold War, though, unilateral disarmament is a shortsighted and naive public policy.

The standard template for incentives is familiar: a company is seeking to locate or relocate a facility. It could be a manufacturing or distribution facility or even a large retail establishment. In choosing the location, one of the considerations will be the type of incentives offered by the state, county or municipality.

Those incentives can take any number of forms, from a direct monetary subsidy to tax relief or infrastructure improvements such as roads and water lines. In some cases, companies seek help from the state in worker training. In every case, though, there is some initial cost to the governmental entities which they hope will be recouped over time by attracting the new facility. That initial cost serves in the first instance to directly benefit the business receiving the incentives. The benefits to the public at large come later and are indirect.

It's also important to remember that incentives are just one factor that a company considers in a location decision. North Carolina has many comparative advantages in the quest for new business locations. We live in the midst of a burgeoning economy in the Southeastern U.S. The weather is good, our people are friendly and our workers work hard. Our state has a tax and regulatory regime that is considered generally welcoming.

Can there be any doubt that the Research Triangle Park -- conceived as it was with certain incentives to aid relocations -- has improved the quality of life in this region? RTP has made our economy stronger and, in part as a result of that, has increased our property values, brought educated and interesting people to our region and improved the variety and quality of our restaurants (to name just a few of the benefits).

The question, however, is whether our natural attractions are enough, particularly when other states are offering big incentives packages. No amount of incentives will cause a company to locate in an otherwise unsuitable place. Nevertheless, incentives can help tip the balance in close cases.

Should North Carolina unilaterally disarm in the face of competition? Moreover, can North Carolina afford to forgo incentives when we're facing competition not just from other states, but from countries in Europe and Asia that also provide subsidies to local businesses?

Yet unilateral disarmament seems to be the agenda for the opponents of incentives. More important, the opponents now want that disarmament to occur not in the political realm of our elected representatives but instead in the courts through constitutional and legal challenges to incentives.

Decisions on incentives are always made by elected officials such as our state legislators, county commissioners and city council members. Those decisions can be debated, their results can be measured, and, if they don't measure up, those officials will answer to the voters. In other words, incentives and particular incentives packages are a public policy which is subject -- maybe even uniquely subject -- to the checks and balances of the political process.

Rather than engage in that political give-and-take, today's opponents of incentives are resorting to the courts in an effort to put on the brakes. They marshal abstruse constitutional arguments against incentives under the equal protection and commerce clauses. Often they proceed in federal courts which are far removed from the day-to-day realities of the communities seeking to recruit business. Those courts are asked to wade into the minutiae of political decisions made at the local level.

Recently, a federal appeals court in Ohio struck down certain tax credits offered in that state on constitutional grounds. Courts, conceivably, could level the playing field between the states. They cannot, however, regulate competition from incentives offered by Japan, Germany or Canada.

Courts can safely leave challenges to incentives to the political realm. Elected officials are accountable for their decisions and those incentives which constitute bad public policy will never pass, or if they do, their proponents will be held accountable by the voters. The alternative -- a state economic policy superintended by the courts -- is no more viable than unilateral disarmament.

Burley Mitchell, former chief justice of the North Carolina Supreme Court, and Press Millen are members in the Womble Carlyle Raleigh office. They are representing a developer and a county in an action challenging incentives in federal court.