Professor Sherry Jarrell skeptical about Caterpillar incentive

7.12.2010 Article, Faculty News, General

Should Forsyth County Shower Caterpillar With Taxpayer $$?
Originally Posted on Monday, July 12, 2010 | By Julia Bagg
Reposted from WFMY News 2

Some county leaders want to lure Caterpillar with about $3.75 million dollars up front.

County Commission Chairman David Plyler told WFMY News 2 that nothing is official, but between Winston-Salem, the county and the state, a total incentive package could reach $50 million dollars.

However, one local economist warns incentives are a waste of money. "It destroys wealth," said Wake Forest University Economist Sherry Jarrell. "We're better off without it.

Jarrell said she's suspicious of companies who rely on incentive money in choosing a location. "If they're not healthy enough and strong enough to come here on their own merits, without this gift, I'd worry about their financial viability."

Caterpillar reported a $259 million profit in 2009. That's a 33% decrease from 2008. But this year, its first quarter profits went up about $2 million compared to the first quarter of 2009.

Company spokesman Jim Dugan declined to comment on the sustainability of Caterpillar.

He said the company plans to choose a site by August. The other competing cities are Spartanburg, South Carolina and Montgomery, Alabama.

Plyler says he doesn't like the incentives game, but the Triad must play it in order to compete with those places.

"If you do not offer incentives, companies simply won't even come here," he said. "They won't consider you. Why would they? Because they can get incentives anywhere in the United States they want to go."

Jarrell laments the Triad comes out losing no matter what. Even if a company takes the deal and comes to Forsyth County, she said the venture is a risk.

Even if the company pays the money back, inflation and government bureaucracy inevitably make the return amount less than the initial payout, she said.

Plus, requiring companies to meet government guidelines for job creation and investment expenditure can handicap a company Jarrell said, making the company less flexible in reacting to a changing market.

Jarrell said that's what went wrong with Dell, which accepted more than $15.5 million in incentive money, then announced its closure in fewer than five years.

"If the government makes the decision to cherry pick a particular company that's demanding tax breaks, it's like the natural evolution of business development is disrupted," Jarrell said.