News: Quick Takes

Senate committee approves move to raise cap on corporate handouts

The Senate Finance Committee has approved Senate Bill 820, which would raise the amount of corporate handouts to large companies considering moving their headquarters to North Carolina.

The committee voted Tuesday, Nov. 27, to raise the cap on the Job Development Investment Grant Program from $6,500 per job to $16,000.

The discretionary JDIG grants are based on requirements a company create a certain number of jobs in a set amount of time. Benefits from the program must outweigh grant costs. If those and other criteria are not met, the state has clawback provision to recoup the costs.

Finance Committee Chairman Jerry Tillman, R-Randolph, said raising the cap would help the N.C. Department of Commerce recruit “big boys with deep pockets who are out there looking” to relocate corporate headquarters. They would bring jobs paying $300,000 to $400,000.

Tillman said several large companies are considering moving their corporate headquarters to Wake and Mecklenburg counties, with the potential to create several thousand jobs. The effort is an attempt to catch up to South Carolina, which has similar programs, and is beating North Carolina to the draw in landing corporate headquarters, he said.

Jon Sanders, director of regulatory studies at the John Locke Foundation, was critical of the move.

“Ninety-nine percent of employers in North Carolina are small businesses, the little guys who can’t afford lobbying and rent-seeking projects on the side,” Sanders said.  

It’s no secret to what makes North Carolina a good place to start, relocate, or expand a business, he said. That is low tax and regulatory burdens.

“The choice is either to extend low taxes for all businesses, big and small, or just play the economic incentives game and aim for the 1 percent who can afford lobbying and rent-seeking,” Sanders said.

“Still, like other central planning follies, economic incentives actually wind up costing the state more than it benefits us. But it does offer ribbon-cutting ceremonies, golden shovel groundbreaking displays, and other photo ops that make it seem as if economic activity comes at the direction and generosity of politicians, rather than by the strivings and efforts of untold numbers of enterprising risk-takers,” Sanders said.

Sen. Paul Newton, R-Cabarrus, told committee members that raising the incentives was vital, according to the Commerce Department. The cap, set in 2002, prevented the state from landing some companies, he said.

“There are a number of protections here for the state” to ensure it gets its money back, and more, Newton said. Aside from jobs and increased tax revenue, other benefits would flow to the local community by spreading the cost of essential infrastructure among more payers.

A JDIG grant is calculated as a percentage of the personal income tax withholdings of eligible positions for a period of years, according to a fiscal note attached to the bill. The grant amount in a conventional award may not exceed 75 percent of the personal income tax withholdings of eligible created positions.

Fiscal Research staff member Madison Lahey said the estimated impact of the increased cap to the state would be $1.2 million in fiscal 2020/21. It would be $2.3 million the next year, and $3.6 million the following year.

The JDIG program has a total cap of $35 million, of which $20 million is earmarked for Wake and Mecklenburg counties, and $5 million for Tier 1 counties, which include the state’s 40 most distressed. Lawmakers raised that cap by $15 million last year.

Sen. Joel Ford, D-Mecklenburg, asked whether there were requirements for the relocating companies to hire locally in filling their jobs.

Tillman said there are no such mandates, but is confident the firms would tap into the local employment pool.