By Warren Smith

Beaufort County’s Economic Development Department offers incentive grants of cash, real estate and infrastructure to both local businesses and businesses willing to relocate to Beaufort County. The hope is that these incentives will generate increased business activity, higher employment and better wages. Actually, market forces would better achieve all of these goals with no cost to taxpayers.

Investors compare the expected rates of return that are offered by the various companies within a specific industry. Businesses providing the higher returns are easily able to attract financing from both shareholders and lenders. This financing provides for efficient expansion of plant, equipment and payroll as profitable, competitive businesses expand their production of goods and services to met increasing customer demand.

However, if a company is less profitable or facing falling demand for its products it can still attract investment capital by using political favoritism to acquire tax funded grants and concessions. For example, imagine an industry where the average rate of return is 10 percent on invested capital. The planners of a $1,000,000 project that is only expected to earn $50,000 could invest $500,000 of their own money and use $500,000 in non-recourse grants and incentives provided by taxpayers and then achieve the industry average return of 10 percent.

Since taxpayer-funded grants are interest free and not subject to repayment, the recipient receives an unfair advantage over better-managed competitors, while all of the company’s profits are directed to an artificially restricted group of beneficiaries without any money returning to the taxpayers whose investment made the project feasible in the first place. Further, as the company will pay no more than the prevailing rate for materials and utilities, neither will it pay higher wages than the going rate for employees of comparable skill and experience. Therefore, wages will not be higher than otherwise. Crony business owners keep all the benefits, and taxpayers foot the bill.

When encouraging out-of-county firms to relocate to Beaufort County, we will need to pay both the expenses of moving an on-going concern plus an added incentive to make their hassle worthwhile. The business’s home county will need to out bid only our added incentive. This asymmetric cost means that we can only attract firms who are not considered worthwhile keeping by their current county’s taxpayers.

In the event that several counties are competing as the location of a new facility, there will be a psychology that heightens the perceptions of just how valuable it will be to acquire the enterprise. This enthusiasm increases the likelihood that the county winning the competition will overpay for the privilege. Our own county’s commissioners history of misjudging the chances of success with even local projects gives little hope that they will be better judges of less familiar ventures.

Beaufort County’s economic development clique has been remarkably consistent in its misspending of $10,000,000 on useless salaries, crony grants, ethanol fiascos, hundreds of idle acres in industrial parks, liquidated real estate speculations and under-used sewer claw-backs.

It won’t get any better. End it now.

Warren Smith is a Beaufort County taxpayer.