Grading North Carolina’s Business Incentive Policies

Grading North Carolina’s Business Incentive Policies

- in Progressive Voices

By William Schweke, CFED

Twenty years ago, North Carolina was not a player in the controversial national competition between states sometime referred to as “the corporate incentives game.” Today, it’s a “leader” (at least in the eyes of the site location profession) and has set new precedents for how much a job is “worth” with its recent and costly winning bids for Dell and Google. These “successes” have, in turn, raised the expectations of relocating businesses everywhere for even more lucrative deals and pressured other states to match North Carolina’s largess for the privilege of providing a home for a new plant, distribution center, or headquarters.

The Dell and Google experiences have also highlighted the danger of over-bidding – that is, paying too much for the jobs that are created. Over-bidding is chiefly a result of the fact that corporations have most of the information. They know who and how much each jurisdiction is bidding, their own bottom line, and how the competition compares with respect to non-incentive strengths and weaknesses. Public sector officials are in the dark. The courted business is, therefore, in a stronger position to bluff and browbeat any community (especially a needy one) to do almost anything to make a deal.

To begin to address this risk, North Carolina should start to define incentives success more clearly.  First and foremost, the state should only provide corporate incentives if the assistance is decisive in the business choosing North Carolina. It makes no sense for the state to give millions of dollars in public funds to a business that has already opened for business or to one that has already chosen to relocate here on other grounds. On this front, North Carolina’s performance is mixed at best.

Here are some other key benchmarks for measuring incentives success and a look at how North Carolina is measuring up:

  1. Does the incentive strategy encourage private investment in areas that are either chronically disadvantaged, or being hit hard by economic restructuring, layoffs, and dislocation?  Despite the best efforts of the state Department of Commerce, right now, most of the incentive funds are expended in wealthier counties. What is needed is a new strategy that focuses on such items as a community’s homegrown economy, developing local leadership skills, improving nonprofit community and economic development organizational management and fundraising skills, and providing hiring grants to small firms that agree to employ an appropriately skilled person from the unemployment rolls. Grade: D.
  2. Does it improve the reemployment prospects of displaced workers?  This is hard to answer because, right now, North Carolina doesn’t have a data base and a clear picture of what’s the fit between a given project and the occupational profile of a county and the jobless. In addition, the state does not require companies receiving incentives to hire from an available and appropriate pool of local workers. Grade: C, at best.
  3. Does the state’s incentive “toolkit” help state businesses and sectors compete successfully on the basis of innovation, productivity, timeliness, flexibility, and quality in the new economy?  While the state has had success in this area, it could be doing more to promote stronger linkages between local firms and new facilities, such as efforts to create an in-state supplier chain. The state could also be doing more to promote “smart growth” and to improve on its 25th place ranking on the latest “New Economy Index.”  Grade: B.
  4. Do development strategies help to ensure that the state doesn’t over-bid?  A recent report I co-authored (“Getting Our Money’s Worth” – and focused in depth on this issue and found some evidence that the state was, in fact over-bidding. We suggested that the state review the workings of its economic and fiscal impact model, sift carefully through the portfolio of deals to date, identify any troubling deals by re-running the numbers with varied assumptions, and do a better job of weighing the probability of a project really being induced by the subsidy. Grade: Incomplete.

If North Carolina hopes to become a real leader in promoting sustainable and widely shared economic development, it must complement its incentive and recruitment strategies with initiatives that 1) widen opportunities for the economically disadvantaged, 2) spur in-state innovation, and 3) make workforce development and entrepreneurship much more central to economic development.

William Schweke is a Vice President at the Durham office of the national, nonprofit think tank, CFED.