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‘A huge grain of salt:’ Why do so many companies receiving incentives from NC fail to meet job goals?

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RALEIGH, N.C. Local Charlotte — From Apple to Wolfspeed, a steady stream of companies lately have made grand pronouncements of hundreds of jobs, sparkling new facilities, and a jolt of energy for the economy.

But some new data from the state seems to indicate North Carolinians might not want to get too excited too soon.

“I think it’s important to take, whenever these announcements occur, with a huge grain of salt, because there is no guarantee that those promised number will actually come to pass for any number of legitimate reasons,” said John Quinterno, a visiting professor at the Sanford School of Public Policy at Duke University.

The new Economic Development Grant Report from the state Department of Commerce breaks down the most significant incentive dangled to entice companies to choose North Carolina: the Job Development Investment grants.

A total of 384 JDIGs have been awarded since 2003, when the program started, through June 2022, with an average term of about 10 years and a total value of nearly $4.6 billion, according to the report. Much of that comes in the form of tax breaks.

Of those:

— 183 of them remain active.

— 37 completed their terms.

— 164 ended early, either because they pulled themselves out of the program, or because they failed to meet certain milestones and were kicked out.

Those results could have people looking at those more recent grand announcements in a new light.

— Apple said in April 2021 that it would bring at least 3,000 jobs to the Triangle as part of a plan to invest more than $1 billion in the state. The tech giant is set to receive $846 million in tax benefits over 39 years as part of the deal.

— North Carolina-based semiconductor company Wolfspeed said last month that it will build a $5 billion manufacturing plant in Chatham County and will create 1,800 jobs by the end of 2030. A state committee awarded the company up to $76 million over 20 years if it meets job and investment goals.

“These projects could take years to unfold, and we never come back and look at, ‘Hey, what actually happened?’” Quinterno said. “And I think these numbers show that sizable numbers of firms don’t follow through — whether that’s because business conditions change, whether that’s because they didn’t necessarily, don’t want to comply with the restrictions or the conditions. The reality is much more muddled than the way in which the need for these subsidies is presented to the public.”

Michael Walden, an economist and a professor emeritus at North Carolina State University, developed the formula the state has been using to determine those incentive packages for 20 years.

He says the number of businesses that ended their agreements early — for one reason or another — was not a surprise to him because business is inherently risky.

“Some of them may decide to go with their most optimistic forecasts and say, ‘Oh, yeah, we’re going to create 1,000 jobs,’” Walden said, speaking hypothetically. “And the state says, ‘Oh, OK, if you create 1,000 jobs, here’s what you’re going to get. 

“But maybe that was just the very overly optimistic projection, and maybe they only create 500 jobs,” he added. “Then, again, you’re going to have to break that contract … and get some of that incentive money pulled back.”

He says those “clawback” provisions, which allow the state to take back incentives if certain goals are not met, are critical. 

“Since the firms do have to be held to those targets, or they’re going to give back some of the incentives, I think it’s a very logical system,” Walden said.

Quinterno agrees that it’s a positive that the state’s conditions do “limit the awarding of subsidies until you’ve actually met certain performance goals.”

But he raised questions about the process itself, pointing out that those incentives are awarded by a committee of five people who are not elected and “none of whom most of the public could name.

“This spending occurs in a way without a level of democratic participation or accountability that no other piece of public spending is subjected to,” he said. “If we tried to fund our schools this way, or parks, or courts, or health and human services, you’d get a lot of pushback. … I think that’s a huge, huge issue in terms of accountability in spending.”



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