Posted on 10/29/2002 9:51:58 AM PST by Constitution Day
Exclusive
Legislator Pushed for Incentives Despite Apparent Conflict
Was economic stimulus bill N.C.’s version of insider trading?
From November, 2002 Carolina Journal
October 28, 2002
By DON CARRINGTON
RALEIGH — Conceived as North Carolina’s answer to recession and unemployment, a new state business incentives program instead bears the birthmarks of questionable ethical conduct.
Helping to deliver the N.C. Economic Stimulus and Job Creation Act was Rep. Pryor Gibson — who is employed by Time Warner. Time Warner is expected to be one of the first beneficiaries of the act when it becomes effective in January.
Even though the Montgomery County Democrat recused himself from voting on the incentives bill, Gibson said he worked hard to get it passed. “I worked my fanny off to try to make sure people understood what the bill would do and what it would do for my district,” Gibson said.
And although he represents a district far from the capital, Gibson works full-time at Time Warner Cable’s Raleigh office. He does not appear to live full-time in Montgomery County. He and his family keep a residence in Raleigh (see related story).
Another company, Ernst & Young, also established a cozy relationship with state officials through the incentives bill. Last year the N.C. Department of Commerce hired the firm to study the use of incentives in Southeastern states. Now, Ernst & Young is advising Time Warner on how to extract incentives from the department, essentially working both ends of the issue.
For the last 10 years the General Assembly has steadily added new types of business recruiting incentives.
The most recent addition was the Economic Stimulus and Job Creation Act. Passed in the waning days of the 2002 short session, the act gives a five-person Economic Investment Committee, controlled by the governor, unprecedented discretionary power in rewarding selected companies with cash grants. The program is called the Job Development Investment Grant Program.
A story in the Charlotte Observer on July 28 reported that Time Warner Cable was planning to create a campus of 1,100 employees in Charlotte. The story said that a deal to move several hundred employees to Charlotte depended upon legislative approval of the incentives program and that Time Warner could reap as much as $55 million in incentives.
On Aug. 2, the Winston-Salem Journal quoted House Speaker Jim Black as saying, “We’re hurting for new jobs in this state. We’re getting behind. We’re losing companies...Look at Time Warner — we can’t do that if we don’t do these incentives.”
Gibson's role
During the debates and discussions in the House Finance and Appropriations committees, Gibson appeared to be planning strategy with the Department of Commerce to help pass the incentives bill.
Reached at his Time Warner office near the Raleigh-Durham Airport, Gibson told CJ, “I do federal and city regulatory work for Time Warner.” He said that his title is manager of regulatory affairs and that he spends a lot of time in Washington, D.C. trying to help members of Congress understand how North Carolina works.
Gibson said he recused himself from voting on the incentives bill for two reasons: “First, I have been an economic developer for 20 years and it could be seen as a possible personal method of getting something for my business. Then the other side of it is that Time Warner is considering coming to North Carolina and because I do work for Time Warner it probably is in the interest of every one that there be no conflict of interest.”
When asked whether he advised Time Warner to apply for incentives, Gibson said, “Not at all. I let them know the bill was coming and I would be recusing myself. I assume they will have accountants or attorneys working on that [applying for the incentives]. I don’t know anything about that, but Time Warner would be exactly the kind of company we should want to take advantage of it if they can.”
Gibson also said he was involved in some other deals. “There is probably a lot bigger fish out there. Ironically, I have been beating down the doors at Commerce today because I know of a new biotech firm that’s trying to come to North Carolina, but unfortunately they are not going to be eligible for the new incentives bill because they will not fit the ‘but for’ criteria — they already decided to come to North Carolina. It is a pretty slick company,” he said.
When asked about the planned new jobs in Charlotte, Gibson said, “Time Warner is looking at more than the 400 jobs. North Carolina is now in the running for a much bigger project.”
Even though Gibson did not vote on the incentives bill, his lobbying for its passage did not appear to meet the guidelines adopted by the legislature in 1996 when it established an ethics policy. The guidelines were published under the direction of Rep. Julia Howard, R-Davie, and Sen. Roy Cooper, D-Nash. Cooper has since become attorney general.
The guidelines state that “General Assembly members should not only avoid conflicts of interest but also the appearance of these conflicts so that the legislative institution and its members are not thereby denigrated.”
The guidelines say that a legislator must resolve whether to actively support or vote on matters “after a self-examination to determine whether an actual conflict of interest exists and, if so, whether it would impair independence of judgment in acting.”
Howard questioned Gibson’s involvement with Time Warner and the incentives bill. “I know Rep. Gibson does not live in his district, I know he works for Time Warner, and I know he lobbied for the incentives bill,” Howard said.
She said he is not the only state politician who apparently has suffered lapses in judgment. “It takes leadership to set an example of the meaning of ethics. My grandmother always told me that if I had to ask if it was right or wrong, I already knew it was wrong. We know from the inside what is right or wrong. The General Assembly’s leadership has violated ethical standards, so then some of the rank and file members ask — why can’t I?”
Investigation of possible violations of the guidelines is conducted by a Legislative Ethics Committee. The committee may investigate cases on its own motion, or in response to a complaint of any individual filed with the committee, the committee shall inquire into any alleged violation.
After conducting an investigation, the committee may decide to have a hearing. It then may dismiss the complaint, refer the matter to the attorney general, issue a censure, require expulsion, or issue a private admonishment.
Role of Ernst & Young
Ernst & Young is an accounting and business consulting corporation that has a workforce of about 110,000 employees and offices in 130 countries. The company performs a broad array of services, including consultation on audit, tax, finance, risk management, and other critical business-performance issues.
Ernst & Young also promotes the availability of a special Incentives Services group. “In the current economic environment, most states and many local governments offer business and tax incentives to attract and encourage development and investment within their jurisdictions. Ernst & Young’s incentives group will provide the technical knowledge to identify, manage and help maximize the incentives,” a company publication says.
In 2001 the N.C. Department of Commerce hired Marty Reid, an Ernst & Young consultant from Atlanta, to do a study of incentive practices in the Southeast. Reid was spotted in Raleigh during the debates on the new incentives bill. Sources told CJ that he was working for Time Warner.
When contacted by telephone, he said, “We did a study for the state a couple years ago and that’s public. Our policy as a firm is that we simply don’t talk to reporters.”
When asked whether he was lobbying or consulting for the Department of Commerce while here in Raleigh, he said, “I will have to get back with you. I really should call Commerce Secretary Fain.”
Reid would not confirm or deny his firm’s relationship with Time Warner. When asked whether he was working for Time Warner, he said, “I am going to have to end this conversation. You are asking about client matters, and I do not appreciate that. In fact, let me get back to the secretary of Commerce. I do not have any comment.”
Even though Reid would not confirm his relationship with Time Warner, Commerce spokesman Tad Boggs did. Boggs told CJ, “We are aware that he has acted as a consultant to Time Warner.”
Time Warner
Although Black, Gov. Mike Easley, and Commerce Secretary Jim Fain warned that Time Warner would not move to Charlotte unless the legislature passed the incentives bill, research and news stories published by CJ and the Charlotte Observer showed that their statements were incorrect.
Time Warner spokesman Mark Harrad told CJ in August that his company had already decided to move 400 jobs to Charlotte. “We did an extensive analysis and selected Charlotte,” he said.
Since the incentives program’s guidelines require the awards committee to certify that a grant was necessary to keep the project in the state, Time Warner would not be eligible for a grant for the jobs that were already planned.
The news stories created a lot of confusion for the proponents of the incentives bill. The bill was pulled from discussion for a day so its proponents could fashion a different statement. Finally, they said the incentives program was needed to help get additional jobs beyond the initial 400.
The same confusion over which jobs should be considered for incentives would likely arise during future discussions of corporate recruitment, some say.
Randy Fraser, Time Warner’s vice president of government affairs for North Carolina, was unavailable for comment on Gibson’s and Ernst & Young’s role in the company’s quest for incentives. A staff member at Fraser’s office said he was traveling.
Commerce runs the program
A key duty of the new committee is to certify that incentives would be necessary to persuade a company to locate or expand in North Carolina. In testimony before a Senate Finance Committee, Fain admitted certifying that the incentive program was necessary in every case would be difficult. “We may make some mistakes,” he said.
Potential new and expanding businesses, at least the largest ones, usually maintain contact with the Department of Commerce. Any information about the significance of incentives would be controlled by Fain.
Although the committee is made up of five appointees, three are political appointees who report directly to the governor — the secretary of commerce, the secretary of revenue, and the director of the Office of Management and Budget.
The other two are appointed by the General Assembly, one each by the House and the Senate. The program’s guidelines state that a decision by three committee members is final. In effect, the governor’s appointees could control any decisions.
In exchange for new jobs, the committee may enter into contracts with selected companies to rebate as much as 75 percent of the state withholding taxes paid by the company’s employees. The program is limited to 15 companies per year with $10 million in initial grants per year, and with the grants continuing for up to 12 years. The committee is limited to $10 million starting in 2003 and an additional $10 million starting in 2004.
While there is no consensus on the total cost of the program, analysts at the John Locke Foundation concluded that with wage growth and a provision granting additional discretionary power to the committee, the program will likely cost at least $300 million.
The committee may begin signing contracts Jan. 1.
Because of the presence of Ernst & Young, many observers expect Time Warner to be one of the first participants.
Carrington is associate publisher of Carolina Journal.
See Related Carolina Journal Exclusive:
Gibson represents Montgomery County, lives in Raleigh
Back to Carolina Journal Online for today
©2002 John Locke Foundation, Inc.
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CD
Please FRmail me if you want to be added to or removed from this North Carolina ping list.
A hour and a half drive is "far" away? Granted,his home may be in the southern part of the county,but it still ain't a major trip.
I am sorry. Have just been a bit overwhelmed at work...
I will do it today.
Regards,
CD
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