Importance of NC incentives debated

Posted by Patrick Gannon on December 5, 2013 

— Economic incentives aren't as important of a player in economic development efforts as the public might perceive because of regular media attention and debates among lawmakers about the topic, an employee of the General Assembly's nonpartisan Fiscal Research Division told state lawmakers Thursday.

The incentives debate took center stage at a meeting of the Joint Legislative Economic Development and Global Engagement Oversight Committee attended by about two dozen lawmakers in the Legislative Office Building in Raleigh. Patrick McHugh of the Fiscal Research Division said incentives can play a role in specific site selections, but he downplayed their importance in the overall economic development process and their effectiveness in creating jobs.

At the macro level, McHugh said, "the preponderance of evidence is that incentives have little or no measurable impact on job creation or on unemployment." He said evidence from the academic community, site selection consultants and economic developers shows that "while incentives can matter in specific cases, they're not fundamental game-changers in most cases."

Why? Because there are things that businesses need to be viable, to survive in a particular location, that cannot be made up for in incentives, McHugh said. He mentioned such factors as the availability of skilled labor, tax rates, access to community colleges and universities, highway infrastructure and land prices. McHugh said incentives can make a difference if a site is on a short list with other locations that are all more or less similar in other factors, but incentives can't make up for the absence of core business needs.

Lawmakers peppered McHugh with questions. Sen. Rick Gunn, a Burlington Republican, said many communities in different states are similar in many of the factors companies look for. "With that being said, it seems to me that if you've got states competing that are similar … why would I not want to conclude the exact opposite of your report that incentives in fact are the game-changer when we're recruiting?"

McHugh responded that there are times when incentives make a difference. "However, the evidence that is out there says that they don't make a large, measurable impact on the macroeconomic fortunes of states and communities," he said. He acknowledged, however, that because so many other states offer economic perks, that it would be challenging to "unilaterally disarm in the incentives game."

Rep. Jeff Collins, a Rocky Mount Republican, questioned whether the state should focus on projects such as a school for entrepreneurship at N.C. Wesleyan College in his district "rather than throwing out cash to large companies that will get big tax breaks, come to an area for three years and then pull out of the state and go somewhere else."

Rep. Susi Hamilton, a New Hanover County Democrat, said it's been well established that all things being equal, incentives can make the difference. She suggested state lawmakers talk about how to create a skilled workforce and invest in education and "turn the debate away from policy issues that seem to be continuing on and contentious."

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