False profits

CHARLOTTE, N.C.—When the North Carolina legislature passed a law designed in part to protect the right of private businesses to maintain a policy of sex-segregated bathrooms, the corporate backlash was apoplectic.

PayPal CEO Dan Schulman axed plans on April 5 to open a new operations center in Charlotte, saying the law discriminated against transgender and gay residents. Deutsche Bank froze plans to add 250 jobs to its technology subsidiary in Cary, N.C.

And executives with Lionsgate—producer of The Hunger Games franchise—said they wouldn’t film a new television series in North Carolina. Executives called the state law “deplorable and discriminatory,” and warned, “We will be hard pressed to continue our relationship with North Carolina if this regressive law stays on the books.”

The unmentioned reality: It’s unclear how long Lionsgate planned to continue the relationship anyway, since the state had rejected the film company’s application for tax incentives to film the series, called Crushed, in Charlotte. The government in British Columbia looks poised to offer such a honey pot, and the industry magazine Variety reported, “The decision to shoot Crushed in Vancouver is driven by the likely financial incentives.”

Meanwhile, Lionsgate’s relationship with North Carolina isn’t completely over. The company said it would finish filming a reboot of Dirty Dancing in the state, noting production already had begun.

Another possible motivation: In February, the state’s Department of Commerce awarded Lionsgate a $4 million grant to film the project in North Carolina.

Lionsgate isn’t alone. Many of the corporations lambasting North Carolina and other states for passing laws regarding bathroom protections or religious freedom accept millions of dollars from the states’ coffers.

That means companies lose little when they know other states offer similar deals, but it also leaves some economists wondering: Despite the hysteria, how much do states really have to lose?

THE CONTROVERSY OVER North Carolina’s HB2 legislation—also known as “the bathroom bill”—erupted in March, but it began two years ago in the city of Charlotte.

That’s when a coalition of gay rights groups began pushing a city law aimed at changing Charlotte’s nondiscrimination policy. The ordinance also included a mandate: Businesses open to the public must allow patrons to use the bathroom corresponding to their perceived gender identity.

The ordinance’s proponents said they wanted to protect transgender citizens. For example, they said, a man identifying as a woman should be able to use the women’s restroom, even if it makes other customers uncomfortable.

The ordinance was contentious, and the majority-Democratic City Council rejected it last spring after an attempt to pass an ordinance without the bathroom provision failed. But in November, Charlotte’s newly elected Democratic Mayor Jennifer Roberts pushed the ordinance again. On Feb. 26, the City Council passed it.

The revised Charlotte ordinance mandated businesses serving the public allow patrons to use the bathroom of the gender of their choice. It included locker rooms of gyms and other public facilities with changing areas.

The North Carolina legislature balked.

On March 23, the Republican majority passed the HB2 law. In government buildings and schools, people must use the restroom corresponding with their biological sex.

For private businesses, the law doesn’t prohibit a business owner from allowing transgender customers to use either bathroom. But it does say the law can’t compel a private business owner to make such a policy. (On April 19, Target said it welcomed transgender customers and employees to use the restroom or fitting room “that corresponds with their gender identity.” See “Target on target” in this issue)

Republican Gov. Pat McCrory called HB2 a commonsense law designed to protect public safety and privacy. Gay advocacy groups called the bathroom provision and other components of the bill discriminatory and bigoted.

Within days, groups on both sides marched in the capital city of Raleigh. Hundreds of protesters gathered outside the governor’s mansion on a Saturday afternoon, and sang, “Let us pee”—to the tune of the Beatles song “Let It Be.”

That same weekend, the corporate backlash began.

PayPal, an online payment service, had plans to come to Charlotte before the city passed its bathroom ordinance. But when the North Carolina legislature passed HB2 in March, PayPal CEO Dan Schulman bolted.

Schulman said HB2 “violates the values and principles” of PayPal, and he halted plans to open an operations center in Charlotte with up to 400 jobs.

The CEO co-signed a letter with some 120 executives from other massive corporations, condemning HB2. The letter’s origin: the Human Rights Campaign—the largest gay advocacy group in the nation.

But as Schulman takes his new center elsewhere, he leaves something behind: nearly $2.9 million in tax incentives North Carolina and local governments had promised the company to locate here.

PayPal shopped for government incentives in at least two other states before choosing North Carolina, according to minutes from a Mecklenburg County commissioners’ meeting: Florida offered the company $1.2 million, and Arizona offered $4.4 million.

State governments often offer tax and other incentives to lure or keep large companies. Sometimes it’s a break on corporate taxes. Other times it’s a direct subsidy based on how much a company spends in a state or how many people it employs.

But the incentives rarely pay off for the state, according to Roy Cordato of the Raleigh-based John Locke Foundation. Instead, he says, corporate incentives create an unfair playing field for other businesses, as multibillion-dollar corporations demand tax incentives smaller companies don’t get.

‘If the only reason they want to come here is to get our tax money, let them go collect welfare somewhere else.’ —Roy Cordato

In North Carolina, where unemployment hovers at 5 percent, Cordato says the notion that companies like PayPal “create jobs” is a myth “unless you’re going to assume all these people were going to be unemployed, which is not the case.”

Instead, companies like PayPal often recruit qualified employees away from other local businesses—perhaps from companies with no government incentives at all. Plus, the incentives divert resources away from essential services, like schools, roads, and police, even as some governments face budget shortfalls.

Lawmakers argue the incentives pay for themselves, as the companies bring jobs and generate revenue. But evidence that state governments recoup those millions is scant, according to some economists.

Michael Mazerov of the Center on Budget and Policy Priorities told Boise State Public Radio an “overwhelming amount of research” suggests the economic activity “never generates enough activity for a credit to pay for itself.”

Some states have recognized subsidies for film companies often don’t pay off. North Carolina started curtailing its film incentives two years ago. Other states have also scaled back, and Iowa axed its program in 2009 after an audit found widespread abuse.

Still, the allure is strong. In Georgia, another state that doles out tax incentives for the film industry, Disney and its subsidiary movie studio Marvel threatened to boycott the state if Gov. Nathan Deal signed a religious liberty bill in March.

Lawmakers already had substantially watered down the bill aimed at protecting Georgia business owners who don’t want to participate in gay weddings, but corporations still protested, and the Republican governor vetoed the bill in April.

When it comes to corporate incentives for companies like PayPal, Cordato says, he’d prefer states to lower tax rates for all businesses and create a fair playing field: “If the only reason they want to come here is to get our tax money, let them go collect welfare somewhere else.”

MAJOR CORPORATIONS don’t usually call their tax incentives welfare, but they do take millions of dollars from states each year.

While PayPal is abandoning its North Carolina project before it begins, the state has awarded incentives to several other corporations protesting the HB2 law, including Deutsche Bank, Apple, and the North Carolina–based Lowe’s.

American Airlines—which operates its second-largest hub in Charlotte—condemned the law, but it takes a huge financial break by paying no jet fuel tax in North Carolina.

Deutsche Bank announced it wouldn’t add 250 jobs to its location in Cary, N.C., after the HB2 law. But North Carolina has awarded the company millions of dollars in tax incentives. In 2009, the state granted a potential $10.5 million in incentives when the company agreed to open a location in Cary. In 2013, it awarded the bank another $5.5 million. Last year, the state offered the company $3.3 million to add another 250 jobs.

A Deutsche Bank spokesman wouldn’t comment on the company’s objections to the HB2 law or whether they would continue accepting incentives from the state they’re protesting.

The spokesman also wouldn’t comment on what some critics call hypocrisy: The bank has condemned North Carolina but conducts business in a handful of Middle Eastern nations where homosexuality is punishable by death. Apple also operates in some of those same countries.

PayPal does business in such countries as well, and Schulman pulled the plug on the North Carolina project less than two weeks after visiting Cuba with President Barack Obama to explore expanding PayPal services into the communist nation with an abysmal human rights record.

Last year, the U.S. government fined PayPal $7.7 million after it reported it had violated U.S. sanctions by conducting transactions in Cuba, Sudan, and Iran.

PayPal and other corporations also haven’t said they plan to stop collecting revenue from North Carolina customers who use their products. One exception: An online pornography hub announced it would block users in North Carolina. Mike Kulich of the porn site XHamster.com told The Huffington Post: “We will not stand by and pump revenue into a system that promotes this type of garbage.”

GLANCE AT THE LIST of companies for and against HB2, and a clear dynamic emerges: Large corporations oppose the bill, and a shorter list of small businesses support it.

This is no fluke: For years, groups like the Human Rights Campaign have pressured large companies to adopt pro-gay policies. The organization issues an annual “equality index,” judging corporations’ LGBT friendliness, including whether companies offer health benefits for services related to transgender employees changing their bodies.

In early March, a bill similar to HB2 reached the governor’s desk in South Dakota. The bill would have protected sex-specific bathroom use in public schools, but also required schools to provide single-occupancy facilities for transgender students.

Despite the accommodation, HRC warned, “History will not treat kindly those who support this discriminatory measure.” Republican South Dakota Gov. Dennis Daugaard vetoed the bill.

It’s part of HRC’s stated agenda: They condone companies offering a single-stall bathroom while a transgender employee is “transitioning,” but then insist the company allow the employee to use the restroom of his or her perceived gender.

In Aurora, Ill., managers of a Hobby Lobby store asked an employee not to use the women’s restroom after he said he transitioned to a female. Meggan Sommerville, a 17-year employee of the company, complained in 2011, and the store built a single-stall bathroom.

Sommerville still objected, and filed a complaint with the Illinois Department of Human Rights. A judge found the store discriminated against the employee, but the legal proceedings are ongoing. Meanwhile, Sommerville told Newsweek that quitting the job wasn’t a desirable option: “I like what I do.”

IT’S UNCLEAR how corporate protests and musician boycotts will affect states like North Carolina and Mississippi—which also faces corporate backlash after passing a religious liberty bill in March.

Houston residents voted in favor of a policy similar to the North Carolina law last year, but the city seems to be thriving. The NCAA held the Final Four in Houston, and Texas Monthly reported the city suffered no consequences from its bathroom bill: “nothing, nada, zilch.”

The backlash against North Carolina may last longer, particularly in an election year in a swing state with a governor up for reelection. And the Obama administration has said schools should allow transgender students to use the bathroom of their choice, so the controversy will continue.

In an editorial in The Federalist, Ryan Anderson of the Heritage Foundation says voters—including many Christians affected by these laws—must remain vigilant in a quickly moving landscape of state-by-state litigation.

He calls such religious freedom laws “the aftermath of the Supreme Court’s redefinition of marriage,” and notes in the case of Georgia: “If all of the major corporations are already in favor of gay marriage, then this religious freedom law poses no threat. It merely protects the rights of those who disagree.”

Listen to Jamie Dean discuss her article on The World and Everything in It.