A new report on the William S. Lee Act shows that 96 percent of the jobs associated with the job-creation component of the act would have been created anyway – without the incentives authorized by the legislation.
The report, released Thursday by the North Carolina Department of Commerce, was prepared by Michael I. Luger, director of the Office of Economic Development for the Kenan Institute of Private Enterprise at UNC-Chapel Hill. The report was prepared for the N.C. Department of Commerce in response to legislation in 1996 requiring a biennial assessment of the program.
Based on his own research, Luger said, “Only 4 percent of the jobs claimed to be created with Lee Act incentives actually were induced.” In other words, 96 percent of the employment associated with the tax credit program would have occurred without it.
According to Luger’s report, from 1996 to 2001 about $1.16 billion in tax credits have been generated, $208 million have been used, and $947 million can still be claimed. The amount is significant when compared to actual net corporate state income taxes collected in North Carolina, which total about $800 million annually.
Luger’s report gives new ammunition to critics of the program. “The Lee Act is a colossal failure,” said Rep. Paul Stam, R-Wake, a frequent critic of targeted tax incentives. “Luger’s report should give the legislature the ammunition to terminate the program. A better economic development strategy would be to uniformly reduce taxes for all businesses.”
A June 2001 Assessment of Results on the Lee Act released by the Commerce Department offered a more positive conclusion even though the report did not address whether the availability of the credits actually induced investment or hiring. “The Lee Act is encouraging job creation and investment in all parts of the state,’ the assessment states. “Based on this review, it appears that the William S. Lee Act is achieving the goals set forth for it in the General Assembly.”
The act also allows credits for investing in machinery and equipment, for research and development, and worker training. It allows special credits for investment in central offices and aircraft facilities as well as additional credits for investments in state-designated business development zones. The machinery and equipment credit component is by far the most costly. It accounted for 74 percent of the credits generated and 56 percent of the credits used during the study period.
The Commerce Department also has surveyed employers about the Lee Act but despite several requests by Carolina Journal, department officials have refused to release the results.
Carrington is associate publisher of Carolina Journal.