The Merck deal raises questions about where the state is going with incentives.

• Author: Speizer, Irwin
• Position: Gelt Trip - Cover Story

Night has fallen--it's past 6--on the one-day special session that Gov. Mike Easley called last December for the General Assembly to consider his latest economic-incentives package. On the floor for debate: the Job Growth and Infrastructure Act, which includes millions of dollars to induce Merck & Co. to build a vaccine plant in Durham County. The bill is moving routinely toward passage when Don Carrington passes a note to a lawmaker: "Ask who owns the land." Rep. George M. Holmes, a Republican from Hamptonville, puts the question to Commerce Secretary Jim Fain. "Terry Sanford Jr.," Fain replies.

"The room hushed," recalls Carrington, vice president of the Raleigh-based John Locke Foundation, a conservative think tank and government watchdog. "And then it started humming."

Sanford is son of the late Democratic governor, U.S. senator, two-time presidential candidate and longtime president of Duke University. Though his dad died six years ago, the name still connotes political power potent enough to set off alarms over a deal like Merck's. The state Republican Party claims Sanford used his connections to steer the project to land he was buying.

"This has nothing to do with me in the middle of the night talking to some political buddy--because I ain't got one," Sanford says. "My father was one of the greatest Democrats in the state of North Carolina, but I'm a recluse. I farm, I ranch, I buy and sell land. I have not had one conversation with the governor of North Carolina since he was elected. I have not had one conversation with any state official."

Sanford lives and raises cattle on a 600-acre farm across the street from the site of the proposed plant. It's in Treyburn Corporate Park, beside the exclusive country-club community that he has been part of, either as an owner or representative of the developers, since its beginning. He was negotiating to buy about 900 acres--the remaining undeveloped industrial property, including the 256 acres Merck wants--while the drug maker was deciding where it would build. Among the things the state is willing to do to get the $300 million plant is to reimburse Merck $24 million for buying and preparing the tract for building.

Despite the whiff of political scandal--or at least partisan efforts to raise one--the bill passed handily. While tailored to Merck's needs, it created a land-purchase incentive program under which the state can make similar cash awards to other companies. That's one of the things that concern critics, who say officials seem to be making it up as they go along. Even the basic reason for the state's early incentives--to bring business where it's needed most--seems to have gotten lost in the shuffle.

"That is probably one of the most elite areas of the state," Rep. Leo Daughtry says of Treyburn. "To spend taxpayer money there doesn't make any sense, even to the most weak-minded of us." But the Smithfield Republican voted for the Merck incentives. "I don't know why I did it," he says sheepishly. "I guess it was the jobs."

The jobs. That's why the state started offering incentives and why they have evolved--from tax credits, which couldn't be realized until the business was up and running, to payments based on actual employment, to forking over cash before a plant is even built.

Industry hunters call them investments in the future. At the very least, they say, the state must have them to stay competitive. Critics call them corporate welfare or, worse, a way for companies to shake down taxpayers. But in the midst of an economic downturn that has cost North Carolina thousands of jobs, political support for incentives is over-whelming. Introduced Dec. 9, the Merck bill cleared both chambers by 12:59 a.m. Dec. 10. It passed 76-18 in the House and 32-4 in the Senate, with strong Republican backing, even though the state party opposes incentives in its platform: "It is unfair to recruit out-of-state business with tax incentives when North Carolina-owned businesses must bear the burden of full taxation."

This shows how much recruiting has changed since the early 1990s, when the state prided itself on being able to attract industry without multimillion-dollar give-aways. North Carolina's favorable business climate, business-friendly community-college system, stable work force and other attributes were seen as clear advantages. But as the competition heated up, bidding wars broke out between states. After...