News: CJ Exclusives

Spirit’s Job Numbers Far Below Expectations

Tax-funded rail spur, costing $24 million, is unused at GTP

When Gov. Mike Easley announced in May 2008 that Wichita, Kan.-based Spirit AeroSystems would open an aircraft component manufacturing plant at the Global TransPark in Kinston, he said the company would create 1,031 jobs within six years, but as of December 2014 the company employed only 375 people.

Spirit has failed to meet its targets even though state and local officials lured the company to North Carolina with a package of financial incentives that, according to an analysis by Triangle Business Journal, could exceed $240 million. TBJ said the Spirit deal ranked just behind the largest incentive deal in state history — $260 million in incentives for the Google data center in Lenoir. The largest component of the Spirit package was a $100 million grant from the Golden LEAF Foundation, the nonprofit grant-making agency that handles North Carolina’s tobacco settlement funds. Spirit also received Job Development Investment Grant and One North Carolina Fund awards from the state.

In addition, state officials built a six-mile-long railroad spur line connecting the Spirit plant to a main rail line, saying the $24 million project was essential to closing the deal with Spirit. Even so, the company hasn’t used the rail spur, saying it was less expensive to transport components from the port at Morehead City to the GTP by truck.

Because Spirit hasn’t employed as many people as promised, the company won’t get all the incentives that were available. State officials say such targets and “claw back” provisions are a reason to continue offering taxpayer incentives to attract businesses, because companies that don’t meet their goals won’t drain state coffers.

Critics of the incentives say any purported “savings” are beside the point, and that it’s impossible to predict how well a company will perform. “The job numbers have always been an issue of concern,” said Sen. Bob Rucho, R-Mecklenburg, one of the General Assembly’s most outspoken opponents of business incentives. “Rarely does someone go back and check. Under the circumstances, this brings into question if incentives work at all.”

[See editor’s note at end of story.]

Commerce agreements

One part of the Spirit incentive package was a JDIG award from the North Carolina Department of Commerce. Under JDIG, recipients annually are returned a percentage of the state annual income tax withholdings made by employees as long as capital investment totals, average wage goals, and job threshold numbers are met. JDIG refunds can last for up to 12 years. Commerce spokesman Graham Wilson told Carolina Journal that Spirit qualified for up to $20.2 million through the JDIG program, but it has received just $1.4 million and is unlikely to receive any more because of the lower job numbers.

Under the agreement, Spirit was expected to hit a target of 1,031 job positions by December 2014, with a minimum of 825 jobs. The company had just 375 jobs in December.

Wilson said Commerce also awarded Spirit a separate One North Carolina Fund grant worth $5 million over a period of three years. The company has received just $180,000 and may have to give some of that back because it didn’t hit employment targets.

“These programs are working the way they are designed. If the companies don’t meet the goals they don’t get the money,” Wilson said.

Golden LEAF grant

Spirit’s lower-than-expected job counts require it to make lease payments, beginning this year, to the GTP, its landlord.

The $100 million Golden LEAF grant was awarded to the GTP Authority. The GTP gave that money to Spirit to build its 500,000 square-foot building. Agreements between GTP and Golden LEAF, and between GTP and Spirit, outline the details of the arrangement.

The GTP owns the building but leases it and approximately 300 acres of land to Spirit. Spirit occupies the site for free as long as it meets capital investment goals and annual job thresholds (which are different than the JDIG job targets). Spirit has met the investment goals but was required to create a minimum of 500 jobs by the end of 2014, 600 by the end of 2015, and 800 every year after that.

By failing to meet the job targets, Spirit must make lease payments to the GTP, and at the end of 2014, the company was short of its target by 125 jobs. So, according to the conditions of the agreements, Spirit owes the GTP $352,112.64, payable in 12 monthly installments of $29,342.72 Payments were to start in January 2015.

Golden LEAF President Dan Gerlach told CJ the lease payments will continue as long as Spirit is below the agreement thresholds, and the amount will vary depending on Spirit’s actual employment. Gerlach said lease payments to the GTP would be transferred back to Golden LEAF.

Unused rail spur

The six-mile-long rail line was completed and ready for service in January 2012 at a cost of $24 million, according to N.C. Department of Transportation Rail Division Director Paul Worley. Spirit was expected to ship the large aircraft components by rail to the Morehead City and Wilmington ports, but instead Spirit is transporting by truck.

“Spirit has always intended to use the rail spur from the Global TransPark to the port at Morehead City, and rail remains the company’s preferred method of shipment,” Spirit spokesman Jarrod Bartlett told CJ. “However, rail carrier charges have been more expensive than shipping product by truck.”

While noting that “staffing numbers have not met the original projections,” Bartlett said, “We are proud to be part of the North Carolina community and expect to continue measured hiring to support production demand.”

Don Carrington is executive editor of Carolina Journal.

Editor’s note: A sentence in the original version of this story, which cited Commerce officials referencing Spirit’s investment in the project, has been removed.