Legislative leaders will boost tax-paid subsidies available in the $23.9 billion 2018-19 budget proposal to induce multibillion-dollar corporations to locate in the state.
House Speaker Tim Moore, R-Cleveland, and Senate leader Phil Berger, R-Rockingham, announced a five-point grant and tax credit plan to reporters Thursday, May 17, a day after notifying the Republican Caucus of their intentions. They said Gov. Roy Cooper was apprised of the changes and was supportive.
They downplayed any potential friction with party members who oppose using taxpayer money to pick winners and losers in the market. They said the plan just modifies existing programs.
Moore said he opposes simple tax giveaways, and characterized the proposed changes as building blocks. He said such approaches are used in other states, citing the economic revitalization ignited by BMW putting an automaking plant 45 minutes from his home in Greenville, South Carolina.
Berger cautioned the revisions aren’t tailored to meet the demands of any specific firm, or type of industry.
“One of the worst things that North Carolina media can do as it relates to our state’s economic recruitment efforts is print speculative stories based on anonymous sources,” as has happened repeatedly in the past, Berger said.
If a source does not go on the record “they do not know what they are talking about, and are spreading rumors or mere speculation,” Berger said. If those unnamed sources’ information were correct, North Carolina already would have four automotive manufacturing plants.
The proposal’s pillars evolved from numerous conversations with many companies across the economic spectrum, some of which rebuffed the state’s recruitment efforts, Berger said.
The plan would:
- Enable a company that invests at least $1 billion and creates at least 3,000 new jobs in North Carolina to be eligible for a transformative project award under the state’s Job Development Investment Grants program, commonly referred to as JDIG. The thresholds are based on research conducted by the General Assembly’s economic team to determine the level at which a major corporate relocation will have an immediate positive impact on state revenue.
- Allow transformative projects to receive credit for “expansion positions” above the 3,000 job minimum. That would encourage companies to grow beyond an initial jobs commitment.
- Lengthen the base period for transformative projects to 10 years, with a maximum JDIG term 30 years beyond that. Companies considering North Carolina would thus have more long-term certainty.
- Eliminate the $6,500 grant cap per job for transformative projects to help attract higher-paying jobs. Those grant incentives would not apply to foreign workers holding H1B visas.
- Modify the subsidy to high-yield and transformative projects so that 10 percent of that money is directed to the state Utility Account to ensure statewide impact. The Utility Account fund supports economic development projects in rural North Carolina. Previously, the company received 100 percent of the incentive.
Berger and Moore said the modifications already are baked into their $23.9 billion spending proposal. Members of the Senate Finance Committee had varying responses.
“I’m going to have to say no comment right now,” Sen. Dan Bishop, R-Mecklenburg, replied when asked if enlarging corporate incentives was a good idea.
Sen. Jerry Tillman, R-Randolph, co-chairman of the Finance Committee, praised the proposal in a newsletter to his constituents.
“We believe this change to our business incentives is the final piece of the puzzle that is needed to put us over the top when it comes to recruiting thousands of new jobs and billions in new investment to our state,” Tillman said.
“I think whenever we talk about incentives they should be narrowly tailored, and centralized in their focus to achieve measurable outcomes,” said Sen. Floyd McKissick, D-Durham. “The benefit needs to be commensurate to the gains to the state in terms of jobs,” and increased taxes.
Asked whether North Carolina has a good track record in corporate subsidization, McKissick said the results are mixed. “I don’t think you can say universally yes or no.”
He recalled vigorous debate in the Senate that the state had to offer much more to be competitive in economic recruitment after North Carolina lost out on the Mercedes Benz plant to Alabama. He worries states are in a bidding war now. High-wealth states have the recruiting advantage, and to compete poorer states might risk more than they can afford.
“At some point it’s not worth it” to stay in the competition, McKissick said. The state needs to be careful to use incentives legislation uniformly to avoid favoritism.
Joe Coletti, a senior fellow who researches fiscal and tax policy at the John Locke Foundation, and formerly worked at the Office of State Budget and Management, was critical of expanding JDIG.
“Apple may or may not come to North Carolina, but the proposed change is another example of how state government creates incentives for auto plants and expand to other industries with lower standards for investment and job creation,” Coletti said.
Moore and Berger insist it’s the right policy.
Moore opened the news conference by reciting a long list of economic gains and top business rankings the state has achieved on numerous fronts.
“I can tell you all of this success was not achieved by accident,” Moore said. “We made our regulations much more reasonable,” and lowered taxes to spark a jobs boom.
“We believe that these modifications will be attractive to large, private-sector employers who will invest substantial dollars in North Carolina,” Berger said.
Moore said the proposal goes hand in hand with thousands of teachers who flooded Raleigh the previous day demanding higher pay and more education spending.
“Our economic growth and the economic prosperity that we have are the reasons that we’re able to put more money in education,” Moore said.
Traditionally, Rep. John Blust, R-Guilford, hasn’t been supportive of giving taxpayer subsidies to large corporations that are heavily capitalized. But, he said, he doesn’t yet know enough about the Berger-Moore proposal to comment, and is eager to see how it plays out in the legislative process.
“I have joked in the past that I don’t dig JDIG,” Blust said.