More than a year ago, Gov. Pat McCrory’s administration sounded an alarm to legislators: The state’s main job incentives fund was running low, and major employers would go elsewhere without that financing as a lure.
The incentive program – known as the Job Development Investment Grant fund, or JDIG – ran out of new funding in October. Some companies, most notably a 4,000-employee Volvo plant, spurned North Carolina for neighboring states. Legislators, however, have waited until the end of a nine-month session to address the issue.
The governor’s wait will likely end Wednesday with a final House vote and the arrival of a 17-page bill on his desk. After a long debate about the role of government in recruiting jobs, the state House voted 84-24 Tuesday to replenish the JDIG fund and extend several industry-specific tax breaks.
The House and Senate compromise package would increase the cap on JDIG incentive awards from a current $15 million per year to $20 million a year. The cap would be increased to $35 million for any year in which the state lands a “high-yield” jobs deal, one in which a company invests at least $500 million and adds at least 1,750 jobs.
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Those types of companies would be eligible for more generous incentives. That provision is aimed at attracting a large manufacturer, such as an auto plant.
Supporters of incentives say they are needed to compete with other states that offer them to companies. “If you look at what BMW did to the Upstate of South Carolina, and you want to tell me incentives don’t have an impact, then you can’t do math,” said Rep. Charles Jeter, a Mecklenburg County Republican.
The Senate took a final unanimous vote on the bill Tuesday without any debate. But the proposal proved more controversial in the House, where a number of Republicans and a few Democrats questioned whether incentives were the right approach to attract jobs.
“I think giving incentives is an obscenity, and we ought to be ashamed of ourselves,” said Rep. Larry Pittman, a Concord Republican.
Incentives, he said, represent “stealing from the people to give to your crony and keep yourself in power. I came here to fight this kind of corruption.”
Rep. John Blust, a Greensboro Republican, said the state’s incentives aren’t big enough to outweigh other economic factors companies consider.
“This is a bill about the political class,” he said. “What this is for is to allow the political class to take credit in the eyes of the public for decisions made in the private sector.”
But Rep. Pat Hurley said she saw the JDIG program work when it brought a breakfast cereal manufacturer to her Randolph County district.
“Money wasn’t handed out in the beginning, it was earned,” Hurley said. “They’re one of our biggest taxpayers in Randolph County. It creates jobs, and that’s what we’re here for.”
In the state’s wealthiest counties, local governments would need to add incentives of their own in order to qualify for a JDIG grant. And companies willing to locate in poorer counties could receive more generous awards.
The compromise bill before legislators this week also extends tax credits aimed at specific industries – part of the original economic development bill the House approved in March.
Aviation fuel, technology data centers and motor sports would all benefit from sales tax exemptions under the bill. Those provisions have been criticized as handouts for favored industries, but supporters say companies might leave North Carolina if the credits were allowed to expire.
“That (data centers) industry is really transient and can easily pick up their machines and move somewhere else,” said Rep. Susan Martin, a Wilson Republican who presented the incentives bill.
What took so long?
House Bill 117 will likely become law this week after spending months in limbo as a vehicle for other, more controversial policy proposals.
The House made the bill an early priority, passing it 88-29 on March 5 – with many of the same provisions that appeared in the final version. But Senate leaders were concerned about statistics showing that more than 80 percent of JDIG money went to Wake, Durham and Mecklenburg counties.
The Senate inserted a competing incentives proposal in its budget bill that would have limited how much money could go to wealthy counties. House members protested that the Senate was trying to settle too many complicated policy issues in the budget, and Senate leaders eventually agreed to remove incentives and other policy issues from the budget negotiations.
In August, the Senate voted 34-12 on a revised House Bill 117. But its version included a controversial plan to shift sales tax revenues from urban to rural counties – a provision McCrory vowed to veto.
The sales tax debate was finally settled in the budget last week, with an expanded sales tax on repair and installation services directing more revenue to suburban and rural counties.
That left just two issues to be addressed in the compromise economic development bill: incentives and tax credits.
Even with new JDIG funding nearly guaranteed by Tuesday, McCrory’s Commerce Department wasn’t ready to declare victory.
“We are hopeful 117 will pass this week but have no further comment until it moves through the House,” spokeswoman Kim Genardo said in an email.
How do the incentives work?
Job Development Investment Grants are based on a percentage of payroll tax withholdings that a company generates. The program’s biggest grants today give a company back 75 percent of those tax withholdings.
Supporters argue that the incentives effectively pay for themselves, because the company wouldn’t be generating any payroll tax revenue if it went to another state. But opponents say some of the companies might have come to North Carolina without incentives and the money could be better spent elsewhere.