Following sharp questioning of Commerce Secretary Skvarla in a Senate Finance Committee hearing Tuesday, it was readily apparent that the Senate would take a different tack on economic development than the House, which passed its own much-criticized package last month. In a surprise press conference yesterday afternoon announcing their own “jobs package” , however, Senate leaders made it abundantly clear that “different” didn’t mean “better” when it comes to growing an economy that benefits everyone in the state. While the bill does take a few positive steps forward on improving our state’s incentive programs, on balance, the bad outweighs the good and does not represent the most effective approach to economic development.
Most importantly, the proposal doubles down on tax cuts and company-specific tax incentives, instead of policies that benefit companies by adding economic value to communities. We’ve known for decades that North Carolina’s competitive edge in the global economy rests on providing companies with the skilled workforce and infrastructure they need boost to their productivity and ensure long-term profitability.
Unfortunately, the proposed changes to the Job Development Investment Grant (JDIG) program ignore these time-tested strategies for robust economic development in favor of budget-busting tax cuts and corporate incentives that have proved more expensive and less effective than advertised. In fact, 60 percent of JDIG projects have failed to live up to their promises of job creation or investment since the program began in 2002, and JDIG is out of money because the state spent more than half the available funds on a single project in Charlotte.
At a time when North Carolina needs to create at least 400,000 new jobs just to meet the needs of growing population, now is not the time to double down on ineffective economic development.
The Senate legislation makes some modest efforts to address the shocking imbalance in incentive-granting that gave more than 60% of incentive dollars to just three urban counties (Durham, Mecklenburg, and Wake) by reducing the amount of corporate income tax that JDIG recipients would have to pay if locating facilities in a rural or Tier 1 county. Under the proposal, JDIG recipients in Tier 1 counties would have 80% of their corporate income taxes rebated, Tier 2 recipients would have 70% rebated, and Tier 3 counties—the wealthiest urban counties in the state would have just 60% rebated. Additionally, the proposal places caps on the total amount of JDIG dollars that can flow to these major market communities—a small step in the right direction.
But the problem is that this small step just isn’t enough to boost economic development in rural, distressed communities.
While this proposal follows our long-standing recommendation to spend fewer incentive dollars in urban counties, the lack of additional infrastructure development and training spending will likely ensure that companies will continue to bypass rural counties in favor of urban counties, since these booming metro areas have the infrastructure, supply chains and skilled workers companies need but too many rural areas lack. Giving companies more cash, however, can’t overcome their much more expensive and capital intensive needs for roads, bridges, water/sewer lines, and a trained workforce.
Similarly, the proposal allows JDIG grants to support lower-wage job creation in rural counties than in urban counties as an inducement to locate in rural areas, a provision that very likely will reinforce wage disparities across the state. In terms of specifics, the bill permits granting JDIG awards to companies creating jobs at 100% of the average county wage for Tier 1 counties, 110% for Tier 2 counties, and 115% for Tier 3 counties. While putting minimum wage thresholds for JDIG-funded jobs in statute is a good way to make sure state dollars only support quality job creation, the specific wage threshold percentages included in the bill—especially the 100% requirement for Tier 1 counties—creates a perverse disincentive for companies in those communities to pay better wages that over time can help bring rural wages in line with the rest of North Carolina.
An additional area of concern is the proposed mega-subsidy for a potential auto manufacturer. While auto plants represent economically transformative opportunities due to the job-rich suppliers that also tend to locate near these facilities, the Senate’s proposal gives away far too much—the proposal ensures that a recipient company would pay zero corporate income taxes for as much as 20 years. No company—no matter how important economically—should get a free ride from contributing to state coffers while every other business in North Carolina must continue to pay.
North Carolina needs an economy that works for everyone, and the Senate bill on balance misses a great opportunity to promote real economic development solutions that can bring about this more prosperous reality.