Tuesday, September 04, 2007

State has paid to keep jobs since '04

It's no secret North Carolina has offered financial incentives of various kinds to companies considering moving here and to existing companies to create new jobs. But I didn’t realize until the other day that since 2004, the state used various kinds of incentives not to recruit or encourage new jobs, but simply to keep the jobs we’ve got. The issue came up when Gov. Mike Easley vetoed a bill that would provide up to $40 million in cash grants to Goodyear Tire & Rubber in Fayetteville if the company invests $200 million in new equipment and meets certain other conditions. That would be a significant step in North Carolina’s economic development policy, but state officials say it would NOT be the first time incentives have been used this way.
Bill Holmes, spokesman for Speaker Joe Hackney, passed along this note from the House’s tax counsel, Caanan Huie:
* This is not the first time economic development incentives have been authorized for retaining jobs. In 2004, the General Assembly codified some of the requirements relating to the One North Carolina Fund. That legislation specifically allows for those funds to be used to encourage job maintenance (as well as the creation of new jobs). (The Fund wasfirst created in 1993 as the Industrial Recruitment Competitiveness Fund, but was limited only by uncodified language that appeared in the budget bills for the next ten years.) The administration felt is was important that they have the flexibility to use those funds to incentivize job maintenance as well as job creation. In addition, some of our tax credits are for items other than creating jobs (i.e. investing in machinery and equipment, exporting cigarettes, producingfilm and TV programs) and have no requirements related to job creation or maintenance.
I also asked Kathy Neal, assistant commerce secretary for communications about these incentives. Here’s part of what she said:
Yes, North Carolina has used incentives to retain jobs and to keep companies from leaving NC.
As you know, JDIGs (Job Development Investment Grants) require job creation. You may not be aware that when the state provides a JDIG grant, in most cases we require that the company maintain existing jobs, as well.
One NC (the One North Carolina fund) is somewhat more flexible. 143B-437.71 (b) states that, “Moneys in the One North Carolina Fund may be allocated only to local governments for use in connection with securing commitments for the recruitment, expansion, or retention of new and existing businesses. …”
Nearly all One NC grants include job creation as well as investment, but a few have focused on retention of jobs.
One example is Philip Morris. A $1 million One NC grant to PM was announced in October 2004, with a goal of helping the company retain jobs at its North Carolina facility in Cabarrus County. The company this year announced it was closing the Cabarrus County plant and moving jobs to Richmond starting in 2008; North Carolina subsequently recovered the $750,000 that had been disbursed to the company.
As for assisting existing industry, it’s important to note that:
· Of the 60 JDIGs awarded since the program began in 2003, 25, or 42 percent, have gone to new companies, and 35, or 58 percent, have gone to existing companies.
· Out of the funds available to JDIG, 70% is going to existing companies.
· Of the 251 One North Carolina grants awarded since 2001, 145, or 58 percent, have gone to new companies; 105, or 42%, have gone to existing companies.
Our overall philosophy about incentives is that, 1) They’re performance-based; and 2) by and large, if a company creates new revenues in the state, those new revenues are typically the source of the incentive, e.g., under JDIG, companies receive a percentage of the withholding tax from the NEW jobs created.
Last but not least: Commerce also has a wide variety of other, non-incentive programs designed to help existing industries/businesses succeed, such as incumbent worker training (in partnership with the Community College System), export assistance, business consulting services and marketing support for travel-related businesses.

10 comments:

Anonymous said...

It seems the basis for these type grants has to do with government making an enviornment favorable to business in order to create or keep jobs for the taxpayers. While this may seem necessary in some areas the idea of government as a job creator has gone overboard in areas which are growing steadily such as Charlotte. Here we have businesses which are vibrant and arguing for subsidies under amendment one laws, which are nothing more than transfer payments to the already well off.

Perhaps in Fayetteville these would be necessary. Not here.

But if government is able to provide incentives by not collecting withholding taxes, which is cited as one method used, we are creating a somewhat arbitrary market of distorted costs for business.

If we truly want to make a business friendly enviornment, we should do it overall.

Eliminate income taxes on business and reduce their property taxes.
Put in place a comprehensive sales tax covering services as well as products.

It can be a simple program, easily administered, which would make a overall more friendly business climate and eliminate much of the paperwork associated with income taxes.

Lewis Guignard

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