Awarding “Blanket” Incentives to All Qualified Applicants

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Tyler Mulligan

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Up to this point, I have written about the “unwritten requirement” of a public hearing for cash economic development incentives, and about drafting a notice for the public hearing. What if a governing board approves a blanket incentive policy to provide a grant by formula to all qualifying applicants? For such policies, the board often intends for its involvement to end with adoption of a policy directing staff to make an award to every applicant meeting a set of criteria. Should a hearing be held prior to awarding each incentive under such a “blanket” policy?

In short, the answer is yes, particularly if a local government seeks a presumption of public benefit for the incentive being awarded. We cannot be certain how a court would apply the law to such “blanket” incentive policies, but there are several concerns worth mentioning.

First, in the absence of a public hearing and final board approval, it is not clear whether awards based on applying a set of criteria are subject to sufficiently “strict procedural requirements” to be entitled to a presumption of public benefit. Sure, the board weighed the public benefit of the “blanket” policy at the time of initial approval, but approval of a “blanket” policy is necessarily a step removed from calculating the public benefit of a cash grant in a particular instance.

Second, and related to the first point, blanket incentives might occasionally be provided to businesses which some citizens would consider dangerous, harmful, or generally not in the economic development interests of the community. If no hearing is held prior to approval, then such incentives might later be vulnerable to the claim that the public benefit was not properly weighed against the cost of incentives.

Third, depending on the criteria being applied, a “blanket” incentive awarded to all qualified applicants may look a lot like an attempt to classify property for taxation—an impermissible action for local governments, and one that a court may therefore view as a prohibited tax rebate or refund rather than a valid incentive.

Finally, some “blanket” incentive policies run the risk of providing an incentive after a location decision has already been made by a business. If the decision has already been made, then what is the public benefit obtained in consideration for the incentive? Possibly none at all. The North Carolina Constitution, Article I, Section 32, states that no person “is entitled to exclusive or separate emoluments or privileges from the community but in consideration of public services.” Blanket incentive policies, which attempt to gain efficiency by avoiding incentive negotiations, may have difficulty demonstrating compliance with the constitutional “but for” requirement—in other words, the incentive might amount to no more than an unconstitutional giveaway.

All that said, there may be some cases in which a local government might feel comfortable proceeding with a “blanket” incentive, even if it means foregoing the presumption of public benefit offered by adherence to “strict procedural requirements.” We cannot be sure where the line is, but surely we can imagine some reasonably safe “blanket” incentives, such as those that are relatively small and provide obvious public benefit. Examples might include a matching grant program for façade improvements on a declining downtown thoroughfare, or blanket grants to all businesses agreeing to locate in a distressed redevelopment area or community development area. In cases involving relatively small grants, such as reimbursement for utility hookups for new businesses, some local governments may believe that the risk of legal challenge to such incentives is miniscule, and that administrative efficiencies gained by a “blanket” policy without public hearings are worth the risk of foregoing the presumption of public benefit.

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