Commentary

Powerful new report: State tax cuts aren’t what produces job growth

The wonks at the Center on Budget and Policy Priorities are out with a new report that, once again, derides the central premise  of the “economic development” strategy being pursued by Governor Pat McCrory and the General Assembly.

Here’s the opening to “State Job Creation Strategies Often Off Base”:

To create jobs and build strong economies, states should focus on producing more home-grown entrepreneurs and on helping startups and young, fast-growing firms already located in the state to survive and to grow ? not on cutting taxes and trying to lure businesses from other states.  That’s the conclusion from a new analysis of data about which businesses create jobs and where they create them.

The data show that:

  • The vast majority of jobs are created by businesses that start up or are already present in a state — not by the relocation or branching into a state by out-of-state firms. Jobs that move into one state from another typically represent only 1 to 4 percent of total job creation each year, depending on the state.  Jobs created by out-of-state businesses expanding into a state through the opening of new branches represent less than one-sixth of total job creation.  In other words, “home-grown” jobs contribute more than 80 percent of total job creation in every state.
  • During periods of healthy economic growth, startups and young, fast-growing companies are responsible for most new jobs.  During the Internet-driven boom of the late 1990s and early 2000s, for example, startup firms (those less than one year old) and high-growth firms — which are likely to be young — accounted for about 70 percent of all new jobs in the U.S. economy.  Firms older than one year actually lost jobs on average; any new jobs they created were more than offset by jobs they eliminated through downsizing or closure.  In short, startups and young, fast-growing firms are the fundamental drivers of job creation when the U.S. economy is performing well.

State economic development policies that ignore these fundamental realities about job creation are bound to fail.  A good example is the deep income tax cuts many states have enacted or are proposing.  Such tax cuts are largely irrelevant to owners of young, fast-growing firms because they generally have little taxable income.  And, tax cuts take money away from schools, universities, and other public investments essential to producing the talented workforce that entrepreneurs require.  Many policymakers also continue to focus their efforts heavily on tax breaks aimed at luring companies from other states — even though startups and young, fast-growing firms already in the state are much more important sources of job creation.”

If only our state policymakers would pay attention and abandon their archaic and failed , tax cuts uber alles approach to the economy, North Carolina might really be making some hay. Unfortunately, that clearly is not the case.

Click here to read the entire report.

News

Company gets economic development dollars, as it moves jobs from one NC city to another

Earlier this week, the McCrory administration announced what seemed to be a big win for the state – Corning Optical Communications is moving its headquarters to Charlotte, bringing 650 people to work in the area.

The fiber optic cable manufacturing company ‘s new headquarters will have space for 150 new workers, a designation that makes the company eligible for $2.35 million over the next 12 years from the state’s Job Development Investment Grant (JDIG) program.

Gov. Pat McCrory and John Skvarla, McCrory’s commerce secretary, trumpeted the move in a press release sent out earlier this week.

“Today’s announcement builds on the solid foundation this innovative company has in our state, and I am proud we emerged as the top choice for this important headquarters and the new jobs that come with it,” McCrory said, in a written statement released by his office Tuesday.

But not mentioned in the press release from the McCrory administration is that 500 of the 650 jobs are coming to Charlotte from an hour away – in Hickory.

“We’re very disappointed,” said Rudy Wright, the Hickory mayor, about the loss of several hundred high-paying jobs from his community of 40,000 in the foothills of the Blue Ridge Mountains.

Wright said his city had tried to keep the jobs in Catawba County, putting together what he described as a “tremendous offer.” He heard the company was also considering moving to South Carolina, and found out this week the jobs would soon be leaving Hickory.

Wright declined to specify what Hickory’s offer was, saying that publicizing that information would put the city at a disadvantage when negotiating future economic development deals. Corning will still maintain a manufacturing plant in Hickory, where more than 1,000 people are employed.

But the move of so many to a new headquarters will be tough for Hickory.

“Those highly paid people are consumers of goods and services, they’re residents, they use our schools, they bring brain power to our city,” Wright said. “This is a very important group to us.”

The move by Corning to Charlotte to Hickory highlights one of the bigger issues the state faces in its economic recovery. The state’s bustling urban centers, based in Charlotte and Raleigh, have steadily rebounded from the Recession while those in other metro or rural areas of the state have struggled to attract new employers.

Wright said he hopes to see those jobs replaced soon, and is focused on looking forward instead of getting upset about the company’s selection of Charlotte over Hickory.

“We accept the hand that is dealt,” he said.

Commentary

Senate “Competes” bill goes from bad to worse

As the ongoing budget stalemate continues in the General Assembly, the Senate offered up this morning its latest version of the “NC Competes” bill, the mis-named economic development package that will likely do very little to make North Carolina genuinely competitive for private investment and job creation in the global economy. Like previous renditions of the package, today’s proposal just doubles down on tax cuts and corporate subsidy programs that have proven time and again to be ineffective at meaningfully growing our state’s economy. But it largely goes from bad to worse in terms of the state’s discretionary incentive programs.

In general, economic development incentives are not the most effective tool to promote meaningful job creation or widely shared economic prosperity. They tend to influence only a small number of firm location decisions and frequently end up going to the urban, wealthier areas that need incentive dollars the least in order to attract investment. And in North Carolina, the Job Development Investment Grant program—the state’s flagship incentive program—has failed to live up to its promises of job creation and investment in 60 percent of its projects.

The truth is that incentives just don’t play a major role in making our state competitive for business investment. While JDIG may play a role in luring a small number of businesses to the state, the program only accounts for a vanishingly small amount of the total number of businesses, jobs, and investment that come to North Carolina. Since the end of the recession, 95% of the jobs created, 92% of the growth in the number of businesses in the state, and 99% of the state’s GDP growth have occurred *without* investment from JDIG.

So it’s unfortunate that the Senate doubles down on this ineffective approach. Here are few of the most problematic provisions:

Read more

News

Ex-head of NC’s public-private economic development group got $30K bonus to stay, left three months later

This post has been updated with reaction from SEANC, the State Employees Association of North Carolina.

The former head of North Carolina’s public-private economic development group received a $30,000 “stay” bonus in January, an enticement that only kept him at the new endeavor for three months.

Richard Lindenmuth

Richard Lindenmuth

Richard Lindenmuth, a Raleigh business executive, was selected in January 2014 to get the largely publicly-funded Economic Development Partnership of North Carolina off the ground. He had specialized in helping troubled companies but had no prior economic development experience.

The public-private partnership, which received $17.5 million in state funding last year, has been a central piece of Gov. Pat McCrory’s economic development strategy, after state lawmakers granted the McCrory administration’s request to move Commerce’s job recruitment, tourism and marketing arms out of state government. The privatization of the state’s job recruitment strategies, which proponents say allow for more aggressive and effective job recruitment, has encountered accountability issues in some states that have taken similar approaches.

Here in North Carolina, Lindenmuth was in the interim chief executive officer role for the partnership until December 2014, when McCrory administration officials announced that an experienced economic developer from Missouri, Christopher Chung, would take over the organization.

Lindenmuth would be staying on a consultant, McCrory administration officials said at the time.

Records (scroll down to view) recently obtained by N.C. Policy Watch through a public records request show that the public-private partnership also opted to pay Lindenmuth a $30,000 “stay” bonus to continue as a contractor while also receiving the same pay he got as an interim director – $10,000 a month, or $120,000 a year.

 

The stay bonus didn’t manage to keep Lindenmuth at the organization for very long.

He submitted a resignation that was effective as of March 31, less than three months after he received the $30,000 stay bonus, according to Mary Wilson, a spokeswoman for the agency.

When asked for the date when Lindenmuth submitted his resignation for the contract position, Wilson responded on Thursday that the public-private partnership had no comment.

N.C. Policy Watch requested a copy of his resignation letter, which was not immediately released.

In all, Lindenmuth received $71,770 for his three months of consulting work in 2015 – the $30,000 stay bonus, $35,538 in regular pay and $6,231 for accrued time off.

Lindenmuth declined to comment for this article, and hung up on an N.C. Policy Watch reporter who reached him by telephone this week.

Read more

Commentary

Taking back the narrative: The power of storytelling and home-grown solutions

Glowing computer screens, florescent lights, spreadsheets, graphs and charts. That’s how many of us spend our day. In the age of instant information, we rely on numbers and statistics and reports to paint pictures of the world that lies beyond the view of our office window. And we’ve gotten good at it. We understand wage and employment trends and we can measure equality and growth.

Despite the growing capacity to track and measure and capture data, we’re still failing to understand the whole picture. This is especially true when it comes to understanding North Carolina’s small and rural communities. The voices from these communities are often absent from the problem solving table. As a result, decisions are typically made on behalf of these communities based off of our imperfect understanding of what their needs and wants truly are.

Last week I enjoyed some time outside of the office and beyond the Triangle. I walked on a wooden suspension bridge that spans the Tar River, traced the Greenway on a map that connected the River to downtown, and heard about the efforts to revitalize the downtown and local economy through attracting private capital and investing public dollars.

I was in Rocky Mount. I was excited to see the kinds of ways that grassroots leaders, city officials and planners and business owners are reimagining their city and with it the region.

Over the past few years, Edgecombe and Nash counties have received national notoriety for their crime rates and poverty levels. And while these counties face very real difficulties, the negative stories do not represent the reality of the entire region or the recent efforts that are beginning to bear fruit. Residents and local leaders are beginning to take back the narrative of their community.

Residents of Nash and Edgecombe have launched an effort to take their name back and tell their own stories of their communities, one that moves beyond statistics and fear toward collaboration and hope. In 2013, a citizen group, called The Positive Image Action Group, was formed to combat those negative images and to tell the story of their hometown from their perspective. Earlier this month, the group launched the first phase of a campaign to take back the name of the twin counties.

“Twin Counties – Here’s to Success” is a marketing campaign designed to highlight the positive and promising stories of citizens and business in Edgecombe and Nash County. Read more