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October 2000
is north carolina losing the race?
By John Paul Galles

     Whenever an economy slows, businesses are more aggressive about pursuing avenues for reducing their costs. We all know that that Alan Greenspan and the Federal Reserve have been boosting interest rates to raise the costs of borrowing money in an attempt to slow down our surging economy. Evidence from labor statistics, purchasing managers and key economic indexes suggest that the economy is beginning to slow. Bank of America, First Union, Wachovia, Centura and other area banks have announced layoffs of thousands of workers throughout their operating footprints.
     Recent stories from the The Charlotte Observer and The Business Journal report that Celanese Acetate and United Stationers, Inc. are considering moving a global headquarters and a major distribution center from Mecklenburg County, NC to York County, SC. These moves of approximately 400 people and investments totaling $40 million across the state line are substantial reminders that different state tax structures and incentives are important factors in the location and relocation of corporate entities.
     While Microsoft decided to keep its regional support center in Charlotte, York County has in the last few years attracted headquarters for United American Video near Fort Mill, Willamette Industries in Kingsley Park and Muzak at Lakemont Park. Ironically, Celanese Corp.'s first location in Charlotte was the original SouthPark structure, built across from a dairy farm in what was then rural Mecklenburg County. It helped launch the development boom in southeast Charlotte in the 1950s that continues even today.
    In the past year, I have heard increasingly irritated comments about North Carolina (NC) taxes and more active interest in relocating to South Carolina (SC). Adding insult to injury, paying higher taxes in NC doesn't seem to deliver new and improved highways and railways quickly enough to keep up with the expanding population. 
     Having lived in Indiana and Michigan for many years, I watched those two states bicker over business costs including income, property and sales taxes, as well as unemployment and worker's compensation costs. Michigan had generally higher taxes and so lost businesses relocating to save money across the Indiana border. I have flown along the border and the visual impact of development along the state line confirms that people and businesses chose to live and operate in Indiana with firms and homes built right up to the state line. There was a noticeable absence of homes and firms on the Michigan side of the state line. In response to Indiana advertisements attracting Michigan businesses, Michigan touted its schools and higher quality of life as a result of its "investment" in Michigan citizens and businesses.

I suspect that some of the same comparisons could be made between NC and SC.  Per capita tax rate in SC was $1482 versus $1837 in NC, according to the Bureau of Economic Analysis in the US Department of Commerce for 1996. It is quite apparent that SC is making a substantial investment to attract businesses to its side of the state line.  All you need to do is drive south on I-77 and see the widened road surfaces to accommodate increased traffic toward SC and away from Charlotte. Convenient access to the Charlotte Douglas airport and quick access to I-85 make York County an attractive location with lower business costs. Government officials and residents of NC will have to work harder to promote the quality of life and the benefits of living in NC and
to make these more evident.

While it is unfortunate for NC that businesses will selectively move across the state line for lower taxes and incentives, it is also quite smart of SC to pursue NC businesses at this time. The good news is that while SC will grow and expand its tax base, there is greater motivation for NC to expand its commitment to infrastructure and provide a higher return to NC taxpayers for their "investments" in quality of life. Businesses are making the adjustments that they must make to operate successfully for their investors and stockholders. It is important that NC work to meet the needs of its taxpayers just as aggressively.

John Paul Galles is the publisher of Greater Charlotte Biz.
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