Commentary

New jobs bill takes wrong turn on incentives

North Carolina needs serious policy solutions that create real jobs, but if the new economic development legislation unveiled yesterday is the route the state is going, it looks like jobless workers are going to be kept waiting awhile.

After weeks of closed-door negotiations, the House unveiled the NC Competes Act (HB 117), legislation which included a provision doubling the amount of money the state could spend on the state’s primary business incentive program, the Job Development Investment Grant and renaming it the Job Growth Reimbursement Opportunities People Program. This program provides public dollars to “incentivize” private sector firms to create jobs and increase capital investment.

Unfortunately, the program has not always delivered on its promises, and until it is fixed, it is unlikely that spending more money on it will improve its effectiveness in creating jobs.

According to a new report we released last week, 60 percent of all firms receiving incentive awards from the JDIG program since its inception in 2002 have failed to live up to their promises of job creation, investment, or wages. These projects have forced the Department of Commerce to terminate those grants and even occasionally take back funds that had already been given these non-performing firms. This has happened 62 times out of 102 total projects from 2002 to 2013.

And the program’s results were even more troubling in rural North Carolina. Since 2002, only 9 percent of all JDIG dollars has gone to rural counties, while more than 90 percent has gone to urban counties. Meanwhile, even those dollars haven’t translated into the reality of more jobs in rural North Carolina—more than 77 percent of JDIG projects in rural counties have been terminated, compared to just 56 percent of urban county projects.

Terminated JDIG projects should be considered a problem because they are failing to fulfill the primary purpose of the program—creating enough jobs. While it’s true that some of these terminated projects have succeeded in creating a small number of new jobs, it’s hard to characterize falling short as great success. Between 2007 and 2013, for example, these terminated projects delivered just two new jobs for every 10 that were promised —a job creation rate of 18 percent. This is no cause for celebration. Moreover, the fact that these companies created jobs without receiving any money raises the question of why the state gives incentives at all, since companies are creating jobs without receiving the money they supposedly needed in the first place.

When an economic development program does not deliver its promised benefits 60 percent of the time, it’s time to review it and try to make it more effective, rather than try to expand it. Even though the program’s strong accountability standards keep state dollars from being wasted on projects that don’t deliver, the state needs a program that will deliver on jobs. And JDIG is not as effective at delivering on jobs and private investment as it needs to be.

So given the troubling number of terminated projects, legislators should seek to improve the effectiveness of the JDIG program before spending more money on projects that are not delivering their promised jobs and investment.

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