Posted on 02/14/2005 9:23:06 AM PST by TaxRelief
RALEIGH --It was only a matter of time.
Two owners of a Wal-Mart in Wilson have filed suit in federal court to challenge $2 million in local-government incentives for a planned Target store in the county. "This is a very peculiar thing to have the government decide it wants a particular brand of store, and it's willing to pay it $2 million to come to town," said the plaintiffs' attorney.
North Carolina's escalating use of tax subsidies to "close deals" with potential private employers was destined to provoke the state's existing businesses. While there are many different arguments, both legal and economic, against such targeted incentives, among the most persuasive is that "targeting" incentives to some firms inevitably means targeting other firms not for benefits but for costs.
When state or local government gives a subsidy to Company A, it may make Company B better off, too (if it is a supplier or customer to Company A, for example) but it is far more likely to make Company B worse off. Here are some of the potential harms to Company B:
· Company A may use the subsidy to bid against Company B for a piece of the land that both wanted to use for a facility. Even if Company B prevails, its final purchase price might be pushed up because of government intrusion.
· Similarly, Company A may be in competition with Company B for other inputs, such as workers. While the resulting upward pressure on wages might be attractive in some ways, it will raise the cost of doing business for Company B, perhaps so high that Company B can no longer afford to add or retain the personnel.
· Another possibility is that Company A and Company B will be competing for customers. That's one of the claims that the local businessmen are making about the incentives arrangement in Wilson: why should taxpayers assist Target in competing against Wal-Mart or other retailers in the area?
· There may be adverse consequences for Company B in the area of public finance, as well. Taxes on business property are really a means to tax individuals who benefit from local public services. These include the owners and shareholders of the firm, who may see their investment returns grow due to better policing, more street access, or improvements in the education level of the workforce. Beneficiaries also include executives and employees, who consume a variety of local city and county services ranging from police and the courts to schools and parks, as well as customers, whether near or faraway, who use local infrastructure. If subsidies push Company A's effective tax rate lower than Company B's (and sometimes all the way to zero), that doesn't mean that its various constituencies --shareholders, employees, customers, etc. --don't continue to benefit from public services. It just means that they aren't paying as much of the cost anymore, so someone else has to--frequently the shareholders, employees, and customers of Company B.
These are real harms, and actionable ones as far as I'm concerned. With the new federal lawsuit in Wilson, and likely litigation coming soon elsewhere in North Carolina, we'll find out what the judiciary has to say.
Hood is president of the John Locke Foundation and publisher of Carolina Journal.
I found the beginning of the post misleading.
The suit is being filed by the original developers,not OWNERS,of the Walmart location.
Confuses the issue IMHO.
We have a similar situation in Omaha. The developer (Seldin) of a shopping center at 72nd & Ames St. got about 6 million dollars in tax increment financing. I don't really have a problem with that. The land had been sitting with a closed K-Mart building for at least 20 years before that. Better to have it paying taxes on a going business (other than the first few years where the taxes go to pay for the reclaimation of the land) than not paying taxes (actually paying taxes on the land only).
However, when a different developer of a different shopping center up the road a mile asked for the same kind of tax increment financing, the first developer (Seldin) sued the City to stop it. The site is where a manufacturing plant stood for many years before closing and it has contaminated ground. The TIF was to remove the building and clean the soil. I believe the Seldins are still suing.
It never ends,does it?
The first developer got his but,by God,no one else is going to get it.What is the legal reason for Seldin to sue?
Fear of competition certainly wouldn't be a legal reason.
Agreed, hence the clarification in the story title.
Wilson developers sue over incentives
Feb 12, 2005 : 12:29 am ET
RALEIGH, N.C. -- A lawsuit filed this week in federal court by two developers accuses the city and county of Wilson of helping a rival by promising more than $2 million to land a Target store.
David James and Russell Hesmer, who filed the lawsuit, are owners and developers of Wilson's West Village shopping center.
That rival is Heritage Place, a shopping center planned for 90 acres in Wilson County. Under a deal worked out last year, the developers of Heritage Place agreed to pay Target Corp. $2 million to put one of its stores in their center.
The city and county would reimburse Heritage Place the $2 million, plus interest, once Target opened and raised property values.
James and Hesmer said they got no such incentives when they put a Wal-Mart in Wilson a decade ago. They want a permanent injunction prohibiting the city and county from making the payments.
The lawsuit is believed to be the first challenging incentives in North Carolina since the state Supreme Court in 1996 held that local governments could offer cash, tax breaks and other perks to new and expanding businesses.
The lawsuit accuses the city and county of "acting as surrogates for local consumers and adopting the presumed brand preference of some local citizens as official government policy."
It says that Rocky Mount and Goldsboro each have a Target store, and that Wilson's leaders have expressed interest in getting one of their own.
James and Hesmer's attorney, Randall Roden of Raleigh law firm Tharrington Smith, said the money for Heritage Place violates the state and federal constitutions by favoring one type of business over another.
"This is a very peculiar thing to have the government decide it wants a particular brand of store, and it's willing to pay it $2 million to come to town," Roden said.
In approving the $2 million for Heritage Place, the city passed a law in November allowing tax revenue to be spent to attract commercial development, and the county did the same in December.
The law says that to qualify for a cash payment, the development must be on about 99 acres and include at least one national "big box" retail tenant to be approved by the city and county.
City Attorney Jim Cauley said he's confident Wilson is on "sound legal ground," rejecting the claim that rival businesses will be hurt.
"The City Council has made it clear it will provide similar incentives for a similar project," Cauley said.
Allen Thomas, an owner of Heritage Place, said the money will help attract several national retailers, not just Target. He said Core Development of Charlotte is working on deals with other retailers, and construction is likely to begin in June or July.
State and local governments have been using economic incentives more in the past few years. The Dell computer company was promised nearly $280 million in incentives late last year for its plan to build a 1,500-worker plant in the Triad.
The lawsuit "is hard evidence that momentum against incentives is starting to build, and hopefully elected officials are paying attention," said Bob Orr, a former state Supreme Court justice who heads the N.C. Institute for Constitutional Law, a Raleigh nonprofit group opposed to incentives.
(Article from first link)
And they still don't get the fact that the way to attract and retain businesses is for a state to have what are called, in technical terms, LOW TAX RATES.
INCOME.
SALES.
PROPERTY.
PERIOD.
Yes, low tax rates attract business, but that's not what they want to do.
They what to CHOOSE and INVITE certain businesses into town. They want control. It's more about control, than jobs, after all.
I am afraid I don't know all the legal details. It has been reported that they said the previous mayor (about 6-8 years ago) told them that they would not see any competition from the old Vickers site (it would stay zoned industrial) before they built their site. However, they admit that nothing was in writing.
What frosts me is that nobody so far has even asked the former mayor if he said any such thing. You would think that something like that would be worth a phone call. Even if he did, though, he would not have the authority to make something like that stick.
Then they need to be gently reminded that the purpose of taxation is to raise sufficient revenues to fund the minimum amount of government service deemed to be necessary;
it is NOT to modify the behavior of the citizenry.
So it's a re-zoning thing.Even if the mayor had said something like that I hardly think it would hold up in court.
Interesting case. Thanks for the info.
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