The Palmetto Insider

The blog of the South Carolina Policy Council

Without Incentives, Would Johnson & Wales Still Be Here?

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Yesterday, the Policy Council released a study questioning whether retail incentives are constitutional. To be constitutional, incentives must have a public benefit, but retail incentives have been shown to generate no net new jobs. No jobs – no, or little, public benefit.

That piece highlighted one lawsuit in North Carolina over incentives given to Google. Another NC incentive challenged in court regards a $10 million subsidy given to the private, nonprofit business/culinary school Johnson & Wales. The case hits close to home because Johnson & Wales left Charleston in 2003 to go to Charlotte.

The lawsuit contended that the Johnson & Wales incentive is not constitutional because it was an “exclusive or separate emolument or privilege.”

An N.C. court dismissed the lawsuit last month, ruling that the incentive served a legitimate public purpose for “education and economic development.”

Now, here’s the question. Yesterday we heard from Boeing that they would have expanded in North Charleston without a multimillion incentives package; that their union troubles is what prompted them to come to South Carolina. What about Johnson & Wales?

Was the $10 million offered to them by North Carolina the tipping point? Or were they considering a move to Charlotte anyway?We may never know. But we should.

That’s why a Policy Council report on economic incentives argues that applications for economic incentives should explain why a taxpayer-funded subsidy or tax exemption is needed, with special attention as to why the project has failed to attract sufficient private investment.

Also necessary is independent analysis as to why the incentive is needed and what impact it will have on competing businesses and regional employment. Such reforms are part of new transparency legislation introduced last month.

It’s worth reminding ourselves that unless we know the real public benefits of economic incentives, such policies risk degenerating into a race to the bottom among the states.  For every Boeing coming to South Carolina, there’s a Johnson & Wales leaving. Who is benefitting? The players, definitely. The taxpayers funding the game, not so much.

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Written by Geoff Pallay

March 4, 2010 at 12:00 pm

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