Goodyear Incentives: A Bad Deal for Taxpayers

Updated May 4, 2010

History of the incentives scheme
In early 2009, the North Carolina Economic Investment Committee gave final approval for taxpayers to subsidize two companies to the tune of $60 million in corporate welfare dollars. It was the latest action in a year’s worth of intense, behind-closed-doors wheeling & dealing which included two special sessions of the North Carolina General Assembly in 2008, all for the benefit of the behemoth tire manufacturers.

The first session was originally called to attempt to over-ride Gov. Mike Easley’s veto of a 2007 bill which would have awarded $40 million in taxpayer subsidies to Goodyear Tire & Rubber Co., even though the Fayetteville company didn’t ask for the money and hadn’t announced plans to move anywhere. Goodyear ramped up the rhetoric, however, after the governor vetoed the public assistance scheme.

All that free money whetted the appetites of Goodyear executives, who began to insinuate that they might be considering moving or shuttering down the plant without the incentives, even though a plant expansion had already been authorized by the company’s board of directors. Area representatives, including Senate Rules chairman Tony Rand, a Democrat from Cumberland County, argued that special dispensation was critical, even though Goodyear wasn’t planning to add to its workforce. They were simply planning to retain some of the employees they already had, so they weren’t eligible for any of the incentives packages that the state already offers which are designed to attract new jobs. Additionally, Goodyear wouldn’t gain much from tax credits for job retention, since its effective tax rate is so low.

The special Goodyear session set off a feeding frenzy as other manufacturing companies – particularly Bridgestone/Firestone in Wilson – jumped into the fray to claim that they need cash too – thus demonstrating everything that’s wrong with targeted tax incentives.

In the end, Bridgestone/Firestone got themselves added to the deal. Lawmakers allowed the governor’s veto of the original bill to stand, calling an additional and immediate second special session to consider an expansion of the “Job Maintenance & Capital Development Fund” program to include the Wilson tire manufacturer. Worse, since Bridgestone/Firestone has already made a huge capital investment to modernize their Wilson facility, lawmakers made the cash grants retroactive for six years.

In other words, lawmakers originally convened to veto the $40 million Goodyear deal, but instead, they expanded the giveaway program to add Bridgestone/Firestone, bringing the total taxpayer liability to $60 million over the next ten years.

Why the deal is a bad one
Unfair competition and unnecessary corporate welfare aside, accountability, at least from a statutory standpoint, is an element that was sorely lacking in the program. Under the terms of the new law, the Economic Investment Committee, a group made up of three Easley cabinet secretaries including the Secretary of Commerce, is given wide authority to decide the terms of each grant, who gets them, and how much each recipient company will receive, all without legislative approval. Since this particular deal is targeted specifically at two businesses, the fact that the new program creates an avenue for future and retroactive awards indicates that an expansion of the program is all but guaranteed.

That means that the state is no longer just in the incentives business for new job creation, nor are they doing it to retain existing jobs. Lawmakers have now concluded that it is good public policy to use taxpayer dollars to subsidize huge corporations for doing what they are going to do anyway – as well as for what they’ve already done. Trouble is, they’re not paying these big corporate subsidies with their own money – they’re doing it with yours.

The need for the deal
Former NC Supreme Court Justice Bob Orr, who has sued the state over the constitutionality of this and other economic development incentives while heading up the NC Institute for Constitutional Law, made the rounds of the legislative complex during the special sessions, telling reporters that the legislation proves the fallacy of the arguments for incentives. “The original $40 million for Goodyear couldn’t have been critical to the plant’s survival if they would now accept [less as a part of the new deal],” he said.

In any event, Goodyear was already profitable – hardly a company needing government assistance, even if taxpayer subsidies were a good idea. In May of 2006, while Sen. Tony Rand was visiting Goodyear executives in Ohio to talk about the Fayetteville plant, company stock averaged $14.12 per share. By the time the legislature rushed through the initial Goodyear package in July of 2007, that stock had risen to a high of $36.63 a share. At the time of the special session, Goodyear stock was trading at $25.08 per share – a 65-percent increase for Goodyear stockholders who will pocket even more cash from North Carolina taxpayers by virtue of this grant.

The debate
During the House floor debate, House Minority Leader Paul “Skip” Stam, a Wake County Republican, noted that company CEO’s no longer need to work hard and make the right decisions to be profitable, predicting that when they learn of this deal, companies will turn to government assistance en masse as a way to reach profitability instead. “Every CEO in North Carolina is going to wake up tomorrow and decide to hire a lobbyist,” he said.

The grants are payable to the companies via cash annually for ten years. In the House, Rep. Paul Leubke, a Durham County Democrat, knows that neither Goodyear nor Bridgestone/Firestone – both unionized operations – is likely to outlast that time period in today’s global economy, so he offered an amendment requiring that if employment at either plant drops below 80-percent of the employment level determined by the Economic Investment Committee as per the bill, the company must re-pay all grant money that it has received from the state over the years. Inexplicably, Leubke’s amendment failed on a 42-63 vote.

Supporters of the measure patted themselves on the back during the debate because the bill calls for a future “study” of the incentives issue. “I’ve got news for you,” said Rep. Jennifer Weiss, a Wake County Democrat who directed her comments to members with children. “Once you give the first child a car and a cell phone, you don’t then tell the second and third child that you’re going to ‘study the issue’.”

Over in the Senate, Minority Leader Phil Berger, a Rockingham Republican, noted that it would be a smarter use of tax dollars to lower the cost of business taxation in North Carolina, thereby creating a better business climate for all businesses. But his attempt to amend the bill to lower the corporate tax rate, currently the highest in the southeast, was ruled “not germane” by Lt. Gov. Beverly Perdue, who presides over the chamber.

More on the backstory
Wake County Rep. Marilyn Avila, a Republican who spent a good deal of preparation time studying Goodyear’s background during the week leading up to the special sessions, found the company fraught with poor planning and less-than-insightful business decisions. With the proliferation of corporate welfare subsidies, have we created a system in which lawmakers who are elected to make decisions about critical public services, now forced to spend their time researching the background for every company that comes forward with palms outstretched? Will other elected leaders take the time to perform that research?

Should lawmakers even be placed in such a position? After all, every company has a story.

The veto
The new deal does not appear to address any of the concerns which caused Gov. Mike Easley to veto the first legislation on August 30, 2007. In his veto message, the governor wrote that the original Goodyear bill set a dangerous precedent for North Carolina economic development policy. The new bill did nothing to change that, since it merely expanded the subsidy to another tire plant. Easley went on to say that the Goodyear subsidies are not fair to taxpayers; leaving one to wonder about the fairness of the new deal. The original bill called for the state to give cash to an existing company with no regard to how much the company pays to the state in taxes, and the same holds true for the new bill. Finally, Easley stated that the state has never given a corporate welfare subsidy to a company while allowing it to lay off hundreds of workers. Again, the new bill still allows the layoffs – and Goodyear has exercised that right since the legislation was enacted.

Based on his own veto criteria, it’s a complete mystery that Gov. Easley failed to reject the special legislation.

Where were the voters?
Taxpayers who might have wanted to talk to their lawmakers about whether or not their tax dollars should be spent on this program - as opposed to addressing actual public service needs - were left in the dark during this process. The entire bill was introduced and passed in the same day, and no public comment was permitted. Even lawmakers who were “outside the loop” did not see the bill language until it was time for a brief Appropriations Committee vote, during which debate was cut off after only 45 minutes so the bill could be rushed through the two House floor votes. 

In fact, the bill was not posted online (in the public domain) until the deal was over and done with. So much for your “representative” government, and the sunshine promised by House Speaker Joe Hackney during the 2007 session.

The reality
During this same period, county commissioners over in Guilford County reacted to a similar corporate ploy with cooler heads, rejecting a request by RF Micro Devices for $1.03 million in incentives to expand their existing plant in Greensboro because the commissioners believed that RF Micro would build in the area anyway. Taxpayers, however, weren’t off the hook. RF Micro had a bit more luck when they hit up the Greensboro City Council – to the tune of $4.3 million – and the company then approached the state for more taxpayer subsidies, insinuating that without them, they would consider a move to China, the UK, or even High Point or Winston-Salem.

RF Micro has repeatedly fed at the taxpayers’ trough already. Who could blame them for asking again?

What does this mean for the future?
If the legislature continues to bow to this sort of corporate extortion, costly special sessions that result in huge awards for targeted “winners” in the ‘Economic War Between the States’ will become the norm as businesses look toward the future in North Carolina. The deal exacerbates the climate of corporate entitlement that has flourished under the Easley administration, as companies have learned that all they have to do is ask and politicians will pay.

Many lawmakers say that other states are engaging in this sort of policymaking, so North Carolina must do so too in order to remain competitive. Given that experience has demonstrated that companies make the decision to come (or to stay) in North Carolina for a variety of other reasons entirely, the fact that other states are making bad public policy seems a poor excuse for North Carolina to follow suit. Not only are critical public services and relief for taxpayers being overlooked in favor of the corporate greed grab, billions of dollars in future public debt are piling up because most subsidies deals involve long-term contracts. While the economy shifts downward and the state is not flush with excess revenues, taxpayers will be forced to fork over the cash to meet those future obligations.

The time has come for lawmakers to reject targeted tax subsidies, which favor a select few behemoth corporations at the expense of hundreds of thousands of smaller businesses whose jobs apparently aren’t as important to the administration. Instead, lawmakers should lower the cost of doing business for all businesses equally, thereby creating a more positive climate in which all businesses may thrive.

The vote
So how did your representatives vote? Here’s the official tally, with party denoted by the red or blue highlight:

HOUSE 3rd Reading: Total Votes: 105 Ayes: 61; Noes: 44; Not Voting: 5; Excused Absence 10
Ayes: Representative(s): Adams; Alexander; Allen; Bell; Blue; Bordsen; Braxton; Brisson; Brubaker; Bryant; Church; Coates; Coleman; Cotham; Crawford; Cunningham; Daughtridge; Dickson; Earle; England; Faison; Farmer-Butterfield; Fisher; Gibson; Glazier; Goforth; Goodwin; Hall; Harrell, J.; Harrell, T.; Hill; Hurley; Insko; Jeffus; Jones; Love; Lucas; Martin; McAllister; McLawhorn; Michaux; Mobley; Owens; Parmon; Pate; Pierce; Rapp; Ross; Saunders; Spear; Sutton; Tarleton; Tolson; Underhill; Wainwright; Warren, E.; Warren, R.; Wilkins; Williams; Wray; Yongue
Noes: Representative(s): Allred; Avila; Blackwood; Blust; Boylan; Brown; Clary; Cleveland; Current; Daughtry; Dollar; Folwell; Frye; Furr; Gillespie; Grady; Gulley; Harrison; Hilton; Holloway; Howard; Johnson; Justice; Justus; Kiser; Langdon; Lewis; Luebke; McComas; McElraft; McGee; Moore; Neumann; Samuelson; Setzer; Stam; Steen; Stiller; Thomas; Tillis; Walend; Weiss; West; Wiley
Not Voting: Representative(s): Barnhart; Cole; Hackney (SPEAKER); Starnes; Womble
Excused Absence: Representative(s): Carney; Dockham; Haire; Holliman; Holmes; Killian; Ray; Tucker; Walker; Wright

SENATE 2nd Reading Vote: Total Votes: 41 Ayes: 25; Noes: 16; Not Voting: 3; Excused Absence: 6
Ayes: Senator(s): Albertson; Atwater; Berger, D.; Boseman; Clodfelter; Cowell; Dalton; Dannelly; Foriest; Garrou; Goss; Hagan; Hoyle; Jones; Kerr; Kinnaird; Malone; Nesbitt; Purcell; Rand; Shaw; Snow; Soles; Swindell; Weinstein
Noes: Senator(s): Allran; Apodaca; Berger, P.; Bingham; Blake; Brock; Brown; Brunstetter; East; Hartsell; Hunt; Pittenger; Preston; Smith; Stevens; Tillman
Not Voting: Senator(s): Basnight; McKissick; Queen
Excused Absence: Senator(s): Dorsett; Forrester; Goodall; Graham; Jacumin; Jenkins
Paired Votes: Senator(s): McKissick (Y) <-> Goodall (N); Queen (Y) <-> Jacumin (N)
SENATE 3rd Reading Vote – Voice Vote Only