As state lawmakers return to Raleigh this week, business incentives (and especially incentives provided to the film industry) will again be a subject of significant discussion. Lawmakers will debate whether they really create jobs and whether they’re worth the expense.
Unfortunately, one aspect of the business incentives debate that continues to get far too little attention is the issue of where incentives are targeted. As a new report from the North Carolina Budget and Tax Center (“Mismatching money and jobs: State business incentives bypass greatest need”) makes clear, at present, incentives are seldom reaching the state’s most economically distressed areas. Indeed, the money that North Carolina spends on incentives to grow businesses and create jobs overwhelmingly favors the state’s most wealthy and urban areas at the expense of the state’s most distressed—often rural—areas that need the most help.
The state has five major incentive programs these were originally created to target business development resources to economically distressed and rural areas in the state. These programs are known as the OneNC Fund, the Job Development Investment Grant (JDIG), the Jobs Maintenance and Capital Fund, the Industrial Development Fund (IDF), and the IDF-Utility Fund. Unfortunately, the programs have not lived up to their promise and have invested more of these resources in the 20 wealthiest counties (designated Tier 3 counties by the Department of Commerce) than in the poorest 40 counties (designated Tier 1).
This new report finds the following mismatched investments since 2007:
- North Carolina has awarded more than triple the amount of incentive dollars to projects in the wealthiest twenty counties than projects in the state’s 40 most distressed counties. The Department of Commerce has granted more than $840 million through its major incentive programs, and $592 million—more than 70 percent of the money—went to the state’s least distressed, Tier 3 counties.
- The state‘s incentive projects promised to create or retain two jobs in the 20 wealthiest counties in the state for every one job promised to the 40 poorest counties. Given that the distressed Tier 1 counties are the most in need of jobs,effectively targeted incentive programs would attempt to deliver more jobs to these counties than to the wealthier Tier 3 counties. Yet the opposite is happening—the state has implemented incentive projects that promised to create almost 90,000 jobs in the state’s least distressed counties, more than double the 42,235 jobs promised to the most distressed Tier 1 counties.
- The state is paying almost twice as much in incentive dollars for each job promised in the wealthiest twenty counties than in the 40 most distressed counties. Over the past five years, North Carolina has spent $6,580 per promised job in the Tier 3 counties—about one-and-a-half times the $4,303 the state is paying for each promised job in the more distressed Tier 1 counties and more than four times the amount paid for every job promised in the moderately-distressed Tier 2 counties.
- The majority of incentive deals, incentive award dollars, and promised jobs are concentrated in the state’s most urban and prosperous regions of the state: Asheville/Buncombe, the Research Triangle, along the I-40 corridor in the Triad, and the Greater Charlotte region. In perhaps the most troubling trend in the state’s targeting mismatch, just three counties account for more than 56 percent of the total incentive dollars granted statewide since 2007—Durham, Wake, and Mecklenburg. Mecklenburg alone received more than a third ($303 million) of the entire $840 million granted across the state over this period.
The report identifies three problems related to the design and implementation of the North Carolina’s incentive programs that explain why they tend to benefit the state’s least distressed communities instead of the communities that need job creation the most.
- North Carolina spends 20 times as much on a typical JDIG project than it does on a OneNC project, but only gets double the per project return on investment in terms of jobs promised and private capital leveraged.
- The state has offered joint JDIG – OneNC deals in the counties that least need it, resulting in higher costs to the state for the same number of jobs.
- JDIG program guidelines and projected economic impact thresholds bias incentive awards towards larger-scale employers attracted to urban areas with highly skilled workers, supply chains, and extensive transportation infrastructure.
Click here to read the full report.