“My corporate tax rate is lower than Nikki’s now.”
Nikki is Nikki Haley, the Governor of South Carolina. The other man at the table is Mr. Penner, who is enjoying some southern hospitality as Mr. McCrory’s guest for Sunday brunch at the exclusive Myers Park Country Club in Charlotte, the city Mr. McCrory led for 14 years as mayor.
Mr. Penner is a day away from receiving a substantial promise from Mr. McCrory’s government. If Mr. Penner comes through on his promise to create 200 jobs in struggling Burke County by 2018, Richelieu will receive annual grants worth as much as $2.9-million over 12 years.
The competition among states – especially the southern states – is legendary. Ms. Haley’s name has come up at the brunch table because Mr. Penner had mentioned her prowess as a saleswoman. She had pitched Mr. Penner on the merits of South Carolina during a trade mission to Montreal. It’s clear he gave the idea of making socks in the Palmetto State some serious thought.
Canada’s provinces don’t exhibit the same level of hustle. “It could be happening and I don’t know about it, but I don’t see it,” says Mr. Penner, who called the competitive courting of state governments “mind-boggling.”
Southern governors are famous for their hospitality. Mr. Penner already has committed to North Carolina, but the Governor wanted to flatter his latest catch by inviting him to a personal meeting anyway. (Mr. McCrory had intended for the meeting to take place at the even swankier Pinehurst Resort on the final day of the U.S. Open golf championship, but he decided to return to Charlotte so he could get a bum knee looked at Monday morning.)
Governors are also famous for their use of grants and tax breaks to secure business. Mr. McCrory this year has committed to pay grants worth $23.1-million. The return on that investment: pledges to create 2,544 jobs, or about $9,000 a job. Canadian provinces play that game too, of course, but the payoff isn’t always clear. Ontario this year has pledged more than $151-million (Canadian) to generate promises of 2,724 new positions, or $55,594.94 per job.
Still it’s unclear how crucial incentives are in attracting business.
Steve Mai, the chief executive of Cambridge, Ont.-based Eclipse Automation Inc., a custom maker of factory equipment, announced this spring that he plans to open a facility in Charlotte. The choice of location disqualified Eclipse from consideration for a grant because North Carolina only subsidizes companies that invest in poorer regions. Mr. Mai didn’t care. He said it was more important to him to be close to a skilled work force and a good airport.
Making specialized manufacturing equipment is a different business than stitching mass-market hosiery. Mr. Penner says grants and other subsidies only are sweeteners. The reason he’s building a plant in North Carolina is that he ran the numbers and was confident he could make a profit with or without help from state and local governments.
Still, the promise of hundreds of thousands of dollars from the government makes the bankers happy, a point Mr. Penner makes to Mr. McCrory, who argues that North Carolina’s strongest selling points are its low tax rates, a skilled work force, thriving cities and the only airport in the southeast other than Atlanta that offers direct flights overseas.
“I knew I had to get as much cushion as possible with the subsidies, that would help us, but it does not move the needle,” Mr. Penner tells the Governor.
“I would be wary of a company that was solely making a decision on that,” Mr. McCrory says. “The company must be insecure in its economics.”
“Subsidies should be second or third,” Mr. Penner says.
“It’s usually the fourth or fifth option,” Mr. McCrory says.
A Made-in-the-USA attitude
Mr. Penner insists Canada is as good a place to do business as the United States. So does Eclipse Automation’s Mr. Mai, who also is adding workers in Cambridge, as well as in North Carolina and at a new sales office in Silicon Valley.