The $846 million subsidy deal that North Carolina struck with Apple just topped the “year’s worst” list of a nonpartisan economic think tank. The Center for Economic Accountability selected the 39-year agreement to put Apple’s campus in Research Triangle Park as the “Worst Economic Development Deal of the Year,” saying that its annual $21 million cost to the state led the list of reasons.
“A billion dollars is a lot of money for North Carolina’s taxpayers and communities, because that’s $1 billion worth of public services not being funded,” said John Mozena, CEA president. “But for a company like Apple, which reported more than $1 billion a day in revenues this past year, it isn’t anywhere near enough money to move the needle on a major site selection decision.”
CEA opposes economic development subsidies in general, as a nonpartisan watchdog group promoting government transparency and free-market principles. In their report, researchers pointed out that North Carolina’s anticipated $21 million in annual lost tax revenue is more than the state spends on work force building programs like community college distance education.
Negotiations with Apple were led by the N.C. Department of Commerce and legislative leaders. Gov. Roy Cooper supported the deal, despite his repeated opposition to across-the-board tax cuts for all businesses.
“I do not support tax cuts for corporations, they don’t need it,” Cooper said in a budget press conference this fall when he announced that he would sign the state budget that reduced business taxes.
Apple’s deal with the state is funded through a Job Development Investment Grant. JDIG was originally intended to draw companies to poor areas in the state, called “Tier One” and “Tier Two” counties. The most affluent counties, like the area surrounding RTP, are rated “Tier Three.” Apple’s move does not meet the original JDIG criteria, but the grant program allows for exceptions in the case of companies investing more than $1 billion and creating more than 3,000 jobs, which Apple says it will.
“They would’ve created these jobs without the incentive, and it’s not actually enough to change their site selection,” said Mozena. “They are coming to North Carolina because it’s a really good place to do business and a good place to find the tech workers they need, but if they’re going to give them free money they’ll take it because they’re not stupid.”
JDIG also requires that incentives be used only in instances where North Carolina is competing with another state. However, CEA says that North Carolina offered a clear competitive advantage without the subsidy and other incentives, pushing the Apple deal to the top of the “worst” list.
North Carolina in general, and Research Triangle Park specifically, consistently ranks nationally among the best places for the tech industry because of a high-tech work force, good quality of life, low taxes, and the quality of infrastructure. Plus, RTP’s location near N.C. State University, Duke University, and UNC-Chapel Hill makes it even more competitive. Add the existing high-tech business neighbors of SAS, Red Hat, Lenovo, IBM, and Epic Games, and it is hard to beat, even without subsidies. Computing Technology Industry Association’s “Cyberstates 2021” report on the national IT labor market named the Raleigh metro area seventh in the nation for density of tech work force.
“There is no such thing as free money,” said Paige Terryberry, fiscal policy analyst at the John Locke Foundation. “North Carolina’s business climate is already competitive, and this political corporate giveaway chooses winners and losers instead of allowing the free market to prosper. North Carolina taxpayers will foot the bill for such subsidies.”
Apple’s planned N.C. project will be a $1 billion campus that focuses on machine learning, artificial intelligence, and software engineering. The company has sky-high projections from its anticipated work force.
“When up and running, Apple’s investments are expected to generate over $1.5 billion in economic benefits annually for North Carolina,” Apple wrote in a press release in April.
When that prediction is divided per predicted Apple worker, it amounts to about $500,000 in GDP impact per worker. According to the U.S. Federal Reserve, the average Raleigh metro area worker in North Carolina had a GDP impact of just more than $54,000 annually.
“They are expecting that each worker is going to be generating nine times more economic impact than that of the average worker in the Raleigh metro area,” said Mozena in a phone interview.
“The other side of this is: Remember this is a 39-year deal,” he added. “Think of how different technology is today than 39 years ago. How can you possibly project out four decades and say you have any concept of what kind of economic impact that facility and those workers will have? The tools that generate economic impact projection are common tools, used and taught all over the country, and actual economists will only use those tools looking five years out at the most.”
Overall, CEA’s economists gave the deal its worst rating, saying that Apple simply didn’t need the handout to choose North Carolina and the return is overstated. Apple’s total annual sales for 2021 were $365.8 billion. The long-awaited state budget that lawmakers spent the last six months negotiating funds the state’s education system, employees, retirements, infrastructure, law enforcement, savings, and all the other financial needs of the state for $25.9 billion.
“Apple has more money than North Carolina does and could have funded North Carolina’s entire state budget out of its $94.7 billion in net profits for the year and still had more than $38 billion left over to distribute to its shareholders,” said Mozena.
Deals that have topped CEA’s list in prior years include the Carolina Panthers’ team offices and practice facility move from Charlotte to Rock Hill, South Carolina, in 2019 and the 2018 battle among states for Amazon’s “HQ2.”