Economic development bill is not ready for primetime

Economic development bill is not ready for primetime

- in Progressive Voices, Top Story

The North Carolina Senate Finance Committee voted yesterday to approve a bill that will almost triple the maximum amount of cash that companies receive for each individual job they create through the Job Development Investment Grant program (JDIG), North Carolina’s premier economic incentives program.

Although well-intentioned, the plan still needs some work before legislators finally approve it. Legislators wrote SB 820 to support the recruitment of multinational headquarters to North Carolina, along with the thousands of high-paying jobs HQ projects often bring. But there are several glaring problems that legislators need to address before final passage.

But first some background:

Since the creation of the JDIG program in 2002, the exact amount of the subsidy North Carolina pays for each new job has depended on the salary of that position—or more precisely, the amount of personal income tax that is withheld for that position, which obviously depends on the salary. The higher the salary, the higher the withholding, and the bigger the JDIG subsidy.

Under the current law, the most a company can receive from JDIG is $6,500 for every new position. But under SB 820, a company will be able to receive as much as $16,500 for every new job it creates.

Because the subsidy for each job depends on the salary of that position, this change is supposed to support higher wage jobs—much higher wage jobs, like those filled by senior corporate executives interested in relocating their headquarters. In fact, the Fiscal Research Division estimates that the amount of a position’s salary that is subsidized by JDIG would rise from $170,000 per year to as much as $410,000 per year. This allows the state to offer bigger incentive packages, which the bill’s sponsors specifically promoted as a tool for recruiting major corporate headquarters.

But there are some problems with the bill as written:

1. The plan subsidizes senior corporate positions often filled by out-of-state executives at the expense of other good-paying jobs for North Carolinians.

To be clear, North Carolina benefits when wealthy people and corporate headquarters move to North Carolina. They create jobs, they increase the tax base, and they boost supply chains with big ripple effects on the overall economy.

But a problem arises when we subsidize out-of-state corporate executives at the expense of jobs for North Carolinians. And that’s what SB 820 does. North Carolina caps the total amount of JDIG incentives that can be awarded every year to $35 million. Because there is a finite amount of JDIG dollars to go around every year, the more JDIG dollars that go to subsidize senior corporate executives earning at least 400,000 a year and moving to North Carolina, the less money there will be to support jobs in other projects that pay good wages and are actually targeted to existing middle-class residents of the state.

2. The bill tries to target HQs without explicitly mentioning HQs. Perhaps the most glaring problem with SB 820 is what’s missing from it. Legislators want to target HQs, but nowhere in the bill does it even mention headquarters. Instead, the bill triples the maximum amount the state is willing to pay for each job, and puts that increase into statute, permanently affecting every JDIG project going forward, regardless of industry or type of project. By making permanent changes to all of JDIG in an effort to target one particular type of firm, SB 820 opens the door to a massive range of unknown and unintended consequences down the road.

3. The proposal fails to guarantee that the increased subsidy will support good-paying jobs. One unintended consequence is the possible erosion of support for other good paying jobs in the future. If SB 820 spends too much at the top, it doesn’t go far enough to protect wages along the middle of the scale. While the subsidy-per-job maximum is permanently tripled, the specific “black-box formulas” that translate salaries into withholdings into JDIG awards can always be changed without legislative input. Although the present administration and Commerce Department have made fiscally responsible decisions around these awards, it’s not hard to imagine future administrations, faced with that exciting big-ticket project or tough economic times, choosing to water down the formulas and using the new statutory maximums to give bigger and bigger awards for projects with jobs that pay less and less.

Taking all this together, it’s clear that SB820 isn’t ready for primetime in its current form. Hopefully, further action in the Senate and the House will improve the bill and ensure the state’s economic incentives programs will get the most out of every deal.

Dr. Allan Freyer is the Director of the Workers’ Rights Project at the North Carolina Justice Center.