NC Budget and Tax Center

North Carolina remains a national leader in accountability for tax incentives, but more work remains

Earlier today, the Pew Center on the States released a report comparing the ways in which different states evaluate the costs, benefits, and effectiveness of their economic development incentive efforts—those programs that provide tax or cash grants to private companies in exchange for promises to create jobs and spur investment.  Given tight budgets and struggling labor markets across the country, policy makers are faced with the challenge of ensuring that these programs actually yield their intended results.

As the report lays out, however, far too many states provide inadequate or nonexistent strategies for evaluating the results of their incentive programs.  As a result, policy makers in these states have little or no way to assess whether the $11 billion states spent on these incentives every year really live up to their promised levels of job creation and economic growth.

Fortunately, North Carolina is not one of these negligent states.  Similar to other recent studies, the Pew report finds that North Carolina is a national leader in evaluating the fiscal and economic impacts of the state’s discretionary incentives programs (including JDIG, OneNC, and JMAC), both before and after individual incentives are offered to prospective companies, and on a more comprehensive basis that looks at the annual combined effects of all the programs taken together.

According to the report, the only area in which the state falls short is the area of integrating these evaluations into the formal policy making process such that legislators use them when determining the scope and scale of incentives that the state should offer—evidence based policy-making, in other words.  The report suggests that while the N.C. Department of Commerce’s reporting and evaluation strategies are first-rate, the state still lacks a viable mechanism for translating these evaluations into actual legislative policy on an ongoing basis.

Although the report doesn’t mention it specifically, the ad hoc nature of the General Assembly’s oversight of economic development and incentive programs in past sessions may well contribute to this problem—a number of non-standing committees were authorized to assist in evaluating these programs, but they apparently rarely or never met in the years since 2007.

Beginning in the recently concluded long-session, however, the Joint Legislative Committee on Economic Development & Global Engagement Oversight has played this role by conducting a comprehensive assessment of the state’s entire economic development system, with the explicit intention of shaping future policy based on this evaluation.

Over the long term, the legislature should build on this work and consider a permanent committee to make this kind of evidence-based policy recommendations on a regular, ongoing basis, so that successive legislatures don’t re-invent the wheel every few sessions and maintain a consistent and effective oversight role for economic development incentives.

Good policy requires good evidence, and our state’s incentive programs should be as evidence-based as possible in order to fulfill their stated goals.

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