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NC appeals court considers Johnson & Wales lawsuit

RALEIGH — The North Carolina Court of Appeals heard arguments Monday in a lawsuit claiming legislators violated the state constitution by giving a private school millions of dollars to move to Charlotte.

A three-judge appeals court panel will consider whether $7.5 million that state legislators gave Johnson & Wales University in Charlotte served a public good or just helped the private institution.

Attorneys for the university and state government said the taxpayer money that legislators doled out served legitimate public interests of education and economic development.

“The grants in this case all served a public purpose by stimulating the economy … and training people the General Assembly hoped would attract new industry in these changing economic times,” said Reed Hollander, an attorney representing the culinary and hospitality school.

The hearing came at a time when state and local governments have increasingly leaned on incentives, ranging from tax breaks and reimbursed tax payments to cut-price land, to lure companies promising to open North Carolina operations and hire workers.

Software developer Red Hat announced Monday it would keep its headquarters in Wake County and expand with a forecast 540 jobs in the coming decade in return for up to $18 million in state help. The state incentives usually are matched by local governments.

Today, a conservative think tank dedicated to opposing state incentives for corporations was expected to argue that taxpayers should be able to challenge tax breaks created to lure Google to Caldwell County in 2007.

An attorney for the think tank, the North Carolina Institute for Constitutional Law, argued Monday that taxpayer money followed a promise by top legislative leaders to pay Johnson & Wales $10 million if it consolidated campuses in Charleston, S.C., and Norfolk, Va., to Charlotte.

The state constitution prohibits awarding special benefits to people or companies lawmakers pick out, attorney Jeanette Doran said.

But Judge Robert Hunter noted that even if political power-brokers made promises, the General Assembly still had to vote over several successive years to approve the spending.

Lawmakers gave Johnson & Wales more than $7.5 million to get the school’s Charlotte campus off the ground and buy educational equipment.

Opponents have tried without success since the use of business incentives mushroomed in the mid-1990s to attack them in court as unconstitutionally favoring some companies at the expense of others.

The state’s incentives programs have paid out hundreds of millions of dollars since the mid-1990s to about 1 percent of the state’s more than 500,000 businesses, an analysis of the programs determined last year.

Two programs which give the governor or his aides discretion about which companies to lure have paid $115 million in less than a decade.

A series of tax breaks businesses can claim without public fanfare doled out more than $110 million in 2009 alone, according to state revenue department reports.

Today the Institute for Constitutional Law was slated to argue to the state Supreme Court that taxpayers should have the right to challenge Google’s tax breaks. The legislature approved exemptions from the state’s retail sales and use tax, worth an estimated $90 million over 30 years, in exchange for Google building an Internet data center in Lenoir, creating up to 210 jobs.

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