As North Carolina’s unemployment rate hovers at near double-digit levels, Gov. Bev Perdue is standing firm with a job-creation strategy focused on direct tax incentives or cash payments to individual companies, using the community college system to retool the work force, and deploying information technology (including a state-run Web portal) to help job seekers find work.

In November, the state reported an unemployment rate (not seasonally adjusted) of 9.9 percent — 0.6 percentage points above the national average of 9.3 percent, according to the federal Bureau of Labor Statistics. Unemployment rose in 99 of the state’s 100 counties at the close of 2010.

Unemployment statewide was at 11.1 percent in January 2009, when Perdue was sworn into office. The rate reached a historic high in February 2010, at 11.2 percent.

“One thing to be very aware of, regarding North Carolina’s unemployment figures, is they have consistently dropped,” says the governor’s spokeswoman, Chrissy Pearson. “Things are going to go up and down. … We find a lot of hope in that, that North Carolina is doing things right. We know the unemployment rate is still too high.”

North Carolina has borrowed nearly $2.5 billion to keep up with unemployment insurance payments. Since the state’s unemployment trust fund went belly up in 2009, it began borrowing roughly $100 million a month from the U.S. Department of Labor to cover unemployment claims. The state’s first payment to Washington is due in September.

A linchpin of Perdue’s jobs program is the formation of roughly 90 public/private partnerships, in which private companies agree to relocate or expand in North Carolina in exchange for cash incentives, tax breaks, or some combination. During the last two years, the state has spent upward of $2 billion to lure businesses to the state, according to the governor’s website.

“Whether a [tax break] is enough to overcome other issues that impact a relocation decision can only be made by the company,” says Derek Yonai, Lundy Chair of Philosophy of Business at Campbell University. “For example, if a company feels that our educational system is substandard, or that our regulations are onerous, or that our income taxes are too high for their employees, and these things deter their employees from moving, perhaps a tax break is not a large enough factor.

“The taxation system — beyond the tax breaks — the regulatory environment, and the condition of the local labor forces are just as important,” Yonai added. Yet while those other factors may have a bigger impact on business formation and expansion, he said, “it is more costly to change the tax code, reduce regulation, and improve the quality of the labor force. It is easier to offer a break.”

Pearson says the state has received commitments for as many as 50,000 jobs in the two years since Perdue took office. For instance, Becton, Dickinson, and Co., a medical technology company, agreed to build a facility in Johnston County in exchange for an investment of $38.4 million. That project is expected to create 187 jobs. Cereal manufacturer Malt-O-Meal agreed to create 80 jobs in Randolph County in exchange for a $135 million in cash incentives.

Likewise, Caterpillar agreed to create 392 jobs in exchange for a $426 million in state money that will be used to build facility in Forsyth County. The state agreed to shell out another $28.3 million for a manufacturing facility in Lee County. The company is expected to create 325 jobs by 2014. Caterpillar also has agreed to invest $28.3 million — $12.9 million in real property, and $15.4 million in personal property, according to the state Department of Commerce’s Job Development Investment Grant (JDIG) 2010 third quarter report. The two facilities are projected to generate $28.9 million in state revenue.

Pearson says the proximity to local community colleges was a major draw for Caterpillar, which boasts hundreds of facilities worldwide, including 51 in the U.S. and 59 overseas. “They needed assurances they could get the worker training, if necessary.” Caterpillar got the assurances it needed, and a combined $454.3 million in grants and incentives in exchange for 717 jobs.

Seven projects approved under the JDIG program during the third quarter of last year are expected to generate $78.3 million in net revenue for the state over the life of the grants, which can last up to 12 years.

“It appears the governor’s strategy is to use incentives dollars to try to buy the jobs,” says veteran Republican state Sen. Bob Rucho, who will co-chair the Senate Finance Committee in the 2011 General Assembly.

JDIG also is funding an expansion for the software manufacturer Red Hat in Wake County. The project, at an estimated cost to the state of $109 million, is expected to create 540 new jobs. “Without those incentives, we would not have been able to stay here,” Red Hat CEO Jim Whitehurst told the News & Record last week.

Yonai suggests that a rival state would need to offer a lot more than North Carolina did to convince Red Hat to pull up stakes and relocate its corporate headquarters. “[G]iven their location and the access to other software firms in the RTP area,” he said, “I would think that the incentives package would need to be considerable to motivate them to leave North Carolina.”

Sometimes the deals just go bust. When Dell announced it would build a new facility in North Carolina in 2005, the computer manufacturer promised create at least 1,500 jobs by 2020. State lawmakers approved a $242 million package of tax breaks and other incentives, and Forsyth County and Winston-Salem kicked in another $37 million in incentives. In 2009, the Texas-based company announced it was closing the plant, and laying off 905 workers.

Yonai sees a company’s “obligation to repay [an incentive as] a contractual one. If the agreement has a repayment clause, should the company leave before the completion date in the agreement, then the company is obligated to repay. In the event no such clause exists or the completion date has been successfully reached, then I am not sure if such a repayment is obligatory.” Even without such a clause, he notes, a company may choose to repay if it hopes to receive incentives from other states and does not want to gain a reputation as “a hired gun and stiffing its previous partner.”

A pending state appeals court ruling could set a precedent for how the state handles future economic development. The N.C. Court of Appeals last week heard oral arguments in a lawsuit aimed, in part, at recouping $7.5 million in taxpayer money state legislators gave Johnson & Wales University in Charlotte. A Wake County Superior Court judge dismissed the lawsuit last year, ruling the tax breaks for the culinary institute served a legitimate public purpose of education and economic development.

The N.C. Institute for Constitutional Law, representing the plaintiffs in the lawsuit against the state, argued that the cash payments violated the state constitution, which bars the General Assembly from using state funds to benefit certain individuals or institutions to the exclusion of others that are equally worthy.

“No matter how much money you give these large international and national corporations who are headquartered out of state, if it’s financially more feasible for them to shut down the operation in North Carolina, they’ll do it and never look back,” says former state Supreme Court Justice Bob Orr, executive director of NCICL.

“Incentives strategies in the long run have not been successful in maintaining jobs,” Rucho says. “[Republicans] will have a different approach, which will allow our new and existing businesses to benefit.”

Kristy Bailey is a contributor to Carolina Journal.