NCSU's Conference Center Plans Bedeviled

Private Interests' Expectation of Incentives Bedevils NCSU's Conference Center Plans.

Before the Council of State was to vote on North Carolina State University's proposed hotel and conference center in January, university officials asked and received a delay in the vote.

The vote, on whether to approve the project's lease of state-owned land, is the final hurdle the project faces. Some reports suggested the vote in the 10-member body would be close and possibly against the project. Chancellor Marye Anne Fox told the media that she requested the delay not because university officials were counting votes, but because they had not done enough to answer council members' questions, especially over the issue of private financing of the project.

Public v. private

The issue of private financing of the project has been one of the key controversies over it. The other is the issue of a public entity (the university) competing against private industry (other hotels and conference centers).

The two issues are linked, but in some ways, except worst-case scenario, the controversies over them seem at odds. The lack of private financing appears to suggest that the project might not be successful; after all, if private investors thought it would be successful (profitable), then they would surely get involved. The competing-against-private-industry issue appears to suggest the project would be successful. Critics reconcile this apparent difference by arguing the project would likely not be successful, but because it will be public, public funds will be used to ensure it doesn't fail — meaning it would be even more unfair competition for private hotels.

As would be expected, other hotel and conference centers in the state oppose the plan, and they have mounted strong opposition. N.C. State's request to delay the Council of State vote is just the latest sign of their success. Another is by how much the project has been downsized since its original conception. The original plans called for 300 to 325 guest rooms and 125,000 square feet of conference space; as it stands now, the center would have 250 guest rooms and offer 24,000 square feet of conference space.

There still remains the question of with whom, exactly, would the hotel and conference center compete. With daily room rates projected at about $140, it's unlikely the hotel would draw away from the many low-rate hotels in the area. The primary purpose of the facility, N.C. State officials say, is its conference opportunities, and they argue their prime competitors would be other academic centers, especially along the East Coast. Furthermore, they argue, the location of the center, tucked within the Centennial Campus away from major thoroughfares, would tend to dissuade corporate business conferences that aren't affiliated with the university, who would be more likely to prefer competing sites along major corridors.

Thus, they argue, the center would tend to serve the needs of unmet demand, including those of the university's burgeoning graduate programs, rather than take large proportions of the existing demand in Raleigh and the Triangle. N.C State officials say internal studies project the worst-case scenario for the latter event would be the Centennial Campus project capturing 4.4 percent of existing business.

Under pressure from the hotel lobby, N.C. State recently hired their choice of consultants, HVS International of Boulder, Colo., to study the project. HVS identified seven regional competitors with the N.C. State project: Embassy Suites Cary, Embassy Suites Crabtree, Hilton North Raleigh, the Holiday Inn (RTP), Marriott Crabtree, Sheraton Downtown, and the Sheraton Imperial. In addition, HVS identified three regional competitors: the Washington Duke Inn, The Carolina Inn, and the R. David Thomas Center. Nevertheless, HVS study projects that the N.C. State center would "attract regional conference business that is currently using other conference facilities in the eastern United States" and "attract corporate business that is not currently meeting in Raleigh."

Still, there remains that nagging question of, if all of this is true, why aren't there private backers for the project?

A culture of incentives

The untold story behind the project's private backing — or lack thereof — clouds the issue considerably. It's not that the hotel and conference center project isn't attractive to industry. It's that the industry's attraction to the project takes a form that isn't attractive to the university.

As university officials explain, there's a public misconception that private developers backed out of the plan. The developers wanted substantial use guarantees from the university. N.C. State, however, wanted to retain control of the facility, as officials there see its primary purpose is to serve the interests of the university and the several dozen companies affiliated with the Centennial Campus. So the university decided against private ownership of the facility.

N.C. State could arguably maintain control over the facility even if it were privately owned if university officials could choose not to do business with it if they disagreed with how the facility was being managed. All private interests willing to own the project, however, have pressed the university to guarantee them a specific level of business — effectively removing this veto or lever of control from the university.

University officials are thus faced with the choice of controlling the project entirely and weathering all the public-relations storms that go with it, or allowing private interests not only to own the project but also to preempt the university's right to refuse doing business with it if its owners directed it away from its founding purposes. And private firms are so positioned that, while individually they seek massive concessions from the university in owning and operating the facility, collectively they hammer the university for not going with private ownership and operation.

This turn of events is made possible by a culture of incentives. The February 2001 CAROLINA JOURNAL cover story, by Don Carrington, delved in depth into North Carolina's 16-year foray into the "intervention model" of state economic development, "based on the idea that government can and should help direct economic growth to certain sectors of the state and of the economy." As Carrington reported, "Business ‘incentives' — tax breaks designed to lure companies to a state or encourage them to stay there — have become the cornerstone of intervention policy models."

Carrington traced the growth of this culture to the General Assembly's creation in 1986 of a $7,000-per-job tax credit for "creating jobs in distressed counties." Along similar lines were the 1990 launching of the Global TransPark in Kinston; the creation under the Hunt administration beginning in 1993 of tax breaks, preferences based on location, cash assistance, and special multimillion-dollar deals to individual companies; the passage of the William S. Lee Quality Jobs and Expansion Act; and the use of the Golden LEAF Foundation, created to handle proceeds from the national tobacco settlement, to make awards for "economic development."

Part of what's behind this sea change in governing is simple hubris among legislators in subscribing to the fallacious notion that government drives economic growth. Part of it is vote-grubbing via the generation of Sen.-So&So-brought-more-jobs-home headlines. And part is the knowledge that the other states are doing it, too, combined with the unsubstantiated fear that not doing it in North Carolina will mean companies will go elsewhere.

Whatever the cause, the result is that companies negotiating with government entities have built-in expectations for concessions from them. Those extra-market expectations have resulted in such things as the very recent spectacle of federal, state, and local g

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