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Wallace and Cater Acts

John Mohr, Auburn University
The Wallace Act and the Cater Act (commonly referred to jointly as the Wallace-Cater Act) are two laws passed by the Alabama State Legislature intended to promote industrial development within the state. Passed in 1949 and 1951, respectively, these laws authorized nonprofit public corporations and municipalities to issue tax-exempt bonds for the purpose of developing local industrial sites. Still in effect today, the income derived from these bond sales is used to purchase land, pay for infrastructure improvements, and construct facilities necessary for industry. Costs of these infrastructure improvements are repaid through rents from industries using the facilities. These laws have been responsible for increasing industry in Alabama in the post-World War II period, but the use of industrial bonding and incentives has been the subject of criticism since their inception.
The Wallace and Cater Acts resulted from a broad desire among influential Alabamians (including Ed Reid, executive director of the Alabama League of Municipalities and a major supporter of the acts) to diversify the state's economy in the years after the massive job losses of the Great Depression. The success of New Deal programs such as the Works Progress Administration and the growth of defense spending during World War II prompted southern politicians and business leaders to be more receptive to using government power to improve the economic outlook of their communities. Alabama businessmen, local politicians, and legislators were inspired by Mississippi's Balance Agriculture With Industry (BAWI) program, established under the 1936 Mississippi Industrial Act. This act provided state incentives to manufacturing companies to locate in Mississippi, stimulating investment by manufacturers and leading to the establishment of new factories and industrial plants. It directly inspired both the Wallace and Cater Acts.
The Cater Act, officially known as Alabama Act Number 648, was sponsored by Sen. Silas D. Cater of Montgomery County and signed into law in 1949. The Act received major support from the Alabama League of Municipalities, a powerful interest group representing urban commercial interests across the state. The law allowed municipalities to set up nonprofit public corporations (known as industrial development boards), with boards of directors composed of prominent local citizens appointed by the municipality. These corporations would seek to stimulate industrial development through the issuance of tax-free bonds. The funds from these bond sales could be used to engage in any project deemed necessary to attract companies, such as buying land, constructing roads, and even building factories. The public corporations were forbidden, however, from operating industries themselves and from using tax money to engage in improvements. Municipalities were not required to enter into a contract with a company before beginning improvements. This meant that municipalities could build facilities first and then use them to lure industries to the community.
The Wallace Act, known formally as Alabama Act Number 756, was sponsored by future governor George C. Wallace, then a representative of Barbour County, and signed into law in 1951. In purpose and intent, the Wallace Act was quite similar to the Cater Act, but it allowed municipalities to directly engage in selling municipal bonds to stimulate industrial development, instead of relying on industrial development boards. Municipalities were still forbidden from using tax money to incentivize industries, and bonds could only be repaid with revenues derived from rents paid by private companies on property developed with bond revenue. Municipalities were also required to obtain an agreement with any interested company before issuing any bonds to pay for infrastructure. In later years, especially during his many campaigns for the governorship, Wallace and his supporters would point to the Wallace Act as his seminal legislative achievement. Wallace argued that the Wallace and Cater Acts had brought substantial new industries to Alabama and many jobs. This included a Uniroyal tire plant in Opelika, Lee County, and numerous garment, food processing, and manufacturing plants.
Despite their economic benefits, the Wallace and Cater Acts have faced much criticism since their passage that continues up to the present day. In the initial debates on these laws, politically conservative legislators criticized both Acts as "socialistic" in nature. They considered the creation of public corporations and the bond sales to be inappropriate government interference in the marketplace. Many traditional agricultural interests, such as Black Belt planters and lumber companies, resisted attempts to diversify the state's economy. These interests resented having to compete with new industries for labor. Improvements in labor efficiency on Alabama farms from the 1930s onward through mechanization blunted this line of criticism, however. Some businessmen argued that the incentives offered by the Acts provided an unfair competitive advantage to new industries. In Birmingham, Jefferson County, a coalition of conservative politicians and representatives of the city's established coal and steel industries successfully resisted the use of municipal bonding to attract new industries through the mid-1960s. Other critics pointed out that the Acts had a distorting effect on local tax revenue. The exemptions granted to new companies meant that new industries often contributed little to the local tax base, hampering local efforts to provide services such as education and medical care. Indeed, Alabama's per-capita spending on education continues to be well below the national average, despite the arrival of many new factories and plants. The issuance of special tax exemptions on top of those provided by the Wallace and Cater Acts have compounded this problem.
Many of the companies induced by the incentives to locate in Alabama were low-wage, low-skill industries, such as pulp and paper mills and chicken-processing plants, that did not offer many opportunities for advancement. Most of these industries remained non-unionized and paid wages considerably below the national average. They were also vulnerable to foreign competition. In the 1970s and 1980s, many industries recruited with incentives under the Wallace and Cater Acts closed or relocated to lower-wage areas overseas. This was especially true of industries that were labor-intensive, such as garment factories and textile plants.
Despite these setbacks, the use of bonds and tax abatements to attract new industries continues to be an influential economic tool in Alabama. In the 1990s and 2000s, the Alabama Senate and House of Representatives passed more laws allowing the state and municipalities to issue tax abatements to attract new industries, including the auto industry, aircraft, and steel manufacturing. Mercedes, Hyundai, Honda, and Toyota all built new facilities in the state after being offered incentives worth many millions of dollars. These factories have added thousands of jobs and many billions of dollars in investment and indirect revenue to the state economy. Increased receipts from sales taxes and payroll taxes have helped to raise state revenues, but it is difficult to know if these new industries are truly "paying back" the cost to recruit them.

Additional Resources

Frederick, Jeff. Stand Up For Alabama: Governor George Wallace. Tuscaloosa: University of Alabama Press, 2007.

Cobb, James C. The Selling of the South: The Southern Crusade For Industrial Development, 1936-1990. 2nd ed. Chicago: University of Illinois Press, 1993.

Carter, Dan. The Politics of Rage: George Wallace, The Origins of the New Conservatism, and the Transformation of American Politics. Baton Rouge: Louisiana State University Press, 1995.
Published:  January 15, 2016   |   Last updated:  July 29, 2016