Over the last six weeks, we’ve heard and read about Vice-Chairman Arnold’s new incentive policy, which purportedly will offer assistance to small business by rebating their taxes on new and expanded facilities. The proposal seems to have general commissioner support and is looked upon favorably by at least one media editorial staff. It has been hailed as novel and potentially trend setting. Having been Guilford County’s first and only economic development director, having handled over twenty incentive projects since 2002, having written the policy that is currently in place, and being one of only 60 Certified Economic Developers in North Carolina, I am in a unique position to provide input on this proposal.
First, incentives may be granted to companies by local cities and counties under the authorization the state gives to these jurisdictions under NC General Statute 158-7.1. The statute specifies for what purpose and the methodology by which incentive grants may be approved. This law has been challenged twice in court and has passed judicial muster. It is the legal baseline for cities and counties to grant incentives. Among the specific steps is that all incentive consideration must undergo a public hearing with at least ten days advertised notice.
Vice-Chairman Arnold’s proposal does not pass this test of legality. But more alarmingly, the proposal violates the basic tenet of taxation in North Carolina: Except under very precise limitations (like returning tax overpayments), rebating taxes in North Carolinas is illegal. Specifically:
NC General Statute § 105 380. No taxes to be released, refunded, or compromised.
(a) The governing body of a taxing unit is prohibited from releasing, refunding, or compromising all or any portion of the taxes levied against any property within its jurisdiction except as expressly provided in this Subchapter.
But the good news is that there is a remedy.
(c) tax that has been released, refunded, or compromised in violation of this section may be recovered from any member or members of the governing body who voted for the release, refund, or compromise by civil action instituted by any resident of the taxing unit, and when collected, the recovered tax shall be paid to the treasurer of the taxing unit. The costs of bringing the action, including reasonable attorneys’ fees, shall be allowed the plaintiff in the event the tax is recovered.
So the Commissioners who vote to rebate or refund these taxes may get the chance to pay the County back for their largesse.
Jonathan Morgan from the UNC School of Government and former Justice Robert Orr concur that the proposal is not legal. Novel policy? Trying something that hasn’t been tried before? Sure, no one has tried this methodology – because it’s simply illegal About that there’s little question. One or eleven Guilford County commissioners supporting the proposed policy just doesn’t matter and makes it no more legal. Vice-chairman Arnold has been told this many times over the years yet he persists in this Quixotic quest to arbitrarily reduce taxes for developers.
Developers, you might ask? Yes, precisely. Before I go on, please understand that the development community did not put this proposal forward; it is a creature of the creative mind of Steve Arnold. Vice-Chairman Arnold has been a developer for years so he knows exactly who will benefit from his proposal.
This proposed policy has been promoted as a life-giving benefit to mom-and-pop stores and other small businesses that need help in expanding their business footprint or starting a new operation. This absurd depiction of what is likely to happen if this illegal policy is put in place is way out of touch with reality. The fact is that this policy would allow huge tax breaks to developers – including those from outside the region and out-of-state developers and builders – for the next Wal-Mart, or CVS drugstore, or the next strip center hosting a tanning salon, nail painting and another Subway restaurant. The sad truth is that this will almost certainly not help the small business itself. It will provide assistance to the owner/developer/builder (i.e. “taxpayer”) of the property, not the operator, except in that rare circumstance they are one in the same. Local “gentlemen’s club” expanding? Sure. Help the property owner and upfitter of the Alexander Devereaux property on High Point Road? Absolutely. These are the people that will get the bulk of the money from the policy: landowner, developer and builder – not the mom-and-pop storefront printer, florist or day care operator whom the proposal purports to assist. First illegal, now poorly developed and misguided.
Vice chairman Arnold knows that rebating taxes is illegal. Guilford County staff told him that repeatedly when he broached the subject over the years. But in the Commissioner’s zeal to eliminate costs and consequently reduce expense by cutting its experienced staff, they have once again made serious mistakes. It is certainly within the purview of the commissioners to handle budgetary matters in the way they see fit. In Guilford County’s case, scores of positions were eliminated to save money in the name of efficiency. It just seems pertinent that in the case of economic development it was only after staff reductions that Vice-Chairman Arnold pursued this questionable policy. The previous staff kept the commissioners out of this type of trouble, created the most aggressive local high-wage economic development policy in North Carolina – adopted in 2008 by the Board of Commissioners, and saved the County taxpayers $1 million in incentive grant payments from the three projects approved in 2008 alone. Now there is no one minding the store from the staff perspective. Inefficiency has certainly crept in. Not six months from eliminating the economic development staff, the Commissioners are dabbling in illegal and poorly thought through economic development activity. This proposed policy needs to be quickly and thoroughly dismissed.
