PCED Staff Note: This week’s post is part of a series on evaluating site selection factors from a local perspective titled, “Site Selection Factors”. The aim of the series is to outline the criteria used by companies to determine where they will build new facilities or expand existing ones. We will examine the top 10 factors as adapted from Area Development Magazine’s, “The Top Factor’s to Navigate the Location Maze”¹. Those factors, listed in order of priority, are as follows: Availability of Skilled Labor, Highway Accessibility, Quality of Life, Occupancy or Construction Costs, Available Buildings, Labor Costs, Corporate Tax Rate, Proximity to Major Markets, State and Local Incentives, Energy Availability and Costs. Guest bloggers will contribute each week from their area of expertise. Some topics may span multiple weeks.
Understanding North Carolina’s Financial Incentives
Few aspects of economic development are more poorly understood than financial incentives. Much of the public believes that when the State of North Carolina offers a Job Development and Investment Grant (JDIG) or an award from the One North Carolina Fund to support an arriving or expanding business, the state simply writes a check up-front to the target company and walks away.
Perhaps that’s how some states handle it, but not here. North Carolina’s financial incentives are performance-based and back-loaded. Companies must fulfill contractual obligations concerning job-creation and capital investment before receiving any state payments.
State incentives are a mechanism for landing projects that can move the needle on our economy. They are not, however, a strategy for overcoming deficiencies in infrastructure, workforce, site features, proximity to markets or other assets companies seek. But they can be crucial; 95.8 percent of site-selection consultants surveyed by Area Development magazine in 2016 called state and local incentives “very important” to their searches. That’s up from 94.9 percent the year before.
North Carolina’s convenient geography, pleasant climate, excellent transportation, diligent workforce and moderate costs get us to the finish line in most site-selection races. But programs like JDIG and One North Carolina put us across the finish line.
Here’s a brief summary these programs and their value:
- JDIG has been a key tool for attracting high-impact economic investment since its creation in 2003. In recent years, JDIG awards have helped facilitate expansions at Eaton and GKN Driveline, two major Person County employers.
GKN’s most recent expansion, announced in 2016, also involved manufacturing facilities in Alamance and Lee counties. JDIG thus has the flexibility to aggregate award benefits across multiple North Carolina locations. JDIGs have supported similar multi-location expansions at GE and Corning sites across the state.
JDIG’s flexibility and accountability make it a viable tool for attracting companies creating at least 100 jobs at wages significantly above the county average. Self-funded and performance-based, JDIG returns a portion of newly created personal income-tax withholdings to the company. By law, all JDIGs must result in a positive return to North Carolina’s bottom-line through the life of the grant. These forecasts are made via economic and revenue impact models developed by noted economist Michael Walden of N.C. State University. GKN’s latest expansion, for example, is expected to result in $10.7 million in net new state tax revenues through 2028.
JDIG is thus sound fiscal policy as well as an effective economic development tool.
Recipient companies file exhaustive annual reports with the state regarding their job creation, job retention and capital investment. Analysts at the Commerce Finance Center Reports review reports, corroborating them against data from the NC Division of Employment Security and the NC Department of Revenue.
JDIG critics point out that the bulk of employers the program supports are in wealthier communities. But JDIG’s architects anticipated this, creating a mechanism by which grants into more prosperous communities also help those with greater economic distress. Through the state’s Utility Fund, 25 percent of JDIG awards in Tier 3 counties fund the creation of economic infrastructure in Tier 1 and Tier 2 counties. An expansion announced in 2016 by INC Research in Wake County, for example, will result in as much as $2.8 million in new money into the Utility Fund, according to estimates by NC Commerce.
The state’s five-member Economic Investment Committee (EIC) authorizes JDIG offers and meets in open session to approve final awards. The EIC is made up of the Secretary of Commerce, the Secretary of Revenue, the State Budget Director and appointees of the Speaker of the House and the Senate President Pro Tem. The EIC also votes to approve annual disbursements.
- The One North Carolina Fund has driven new investment and job creation in Person County, including projects at CertainTeed Gypsum and Spuntech.
In the One NC Fund program, the state offers financial assistance through local governments to attract business projects that will stimulate economic activity and create new jobs. Arriving and expanding firms receive no money up front and must meet job creation and capital investment targets to receive grant funds. One NC grants require matches by local governments. Tier 2 counties such as Person are expected to put up at least $1 in local incentives for every $2 in One NC funding.
One NC grants are flexible tools for facilitating small and mid-sized relocation and expansion projects — those creating no few than 20 new jobs for Tier 1 and Tier 2 counties and 40 new jobs in Tier 3 counties.
The Secretary of Commerce acts at the Governor’s discretion in approving One NC awards, giving careful consideration to economic impact, local distress levels and other state resources supporting the project (e.g., building re-use funds, transportation infrastructure, workforce training, Golden LEAF grants, etc.).
Projects seeking JDIG and One NC grants must be competitive with locations outside North Carolina. “Claw-back” provisions enable the State to re-claim funds from companies that leave North Carolina while grants are still in force. The accountability features of the two programs include routine analyses of their ultimate impact.
A 2012 study by the Pew Center called North Carolina one of 13 states “leading the way in generating much-needed answers about tax incentives’ effectiveness.” In 2014, a report by Good Jobs First, an economic development watchdog group, ranked North Carolina #3 among the 50 states in terms of transparency of job-creation incentive programs.
Politically, the idea of financial incentives raises vocal objections by both conservatives and liberals – for different reasons. Many on the right view them as a corruption of market forces, not realizing that incentives in the form of bulk discounts are common to nearly every market transaction. North Carolina, in essence, marks down employment costs for a period of years in an effort to help clear surplus labor from the market. Many on the political left believe incentives allow corporations to evade paying their fair share of taxes. In truth, incentives enable governments to expand tax base in order to fund the growing costs of critical public services such as education, law enforcement, public health and transportation without the need to raise tax rates.
In North Carolina, incentives help grow the economic pie while enabling our government to pay its bills.
¹ “The Top Factors to Navigate the Location Maze.” Area Development, Volume 51, Number 4, Q42016, pp. 24-36.
Mr. Lawrence Bivins
This post was submitted by Mr. Lawrence Bivins, longtime Raleigh business writer and contributing editor at the North Carolina Economic Development Guide.