State Politics

Commerce secretary takes heat from NC Senate on incentives plan

Sen. Bob Rucho, left, and Sen. Jerry Tillman, center, both co-chairs, talk to John E. Skvarla, III, the Secretary of the North Carolina Department of Commerce, right, about the former JDIG (Job Development Investment Grant) program following a Senate Committee on Finance meeting at the N.C. General Assembly on Tuesday, March 17, 2015. The program has changed its name to the Job Growth Reimbursement Opportunities (JobGRO).
Sen. Bob Rucho, left, and Sen. Jerry Tillman, center, both co-chairs, talk to John E. Skvarla, III, the Secretary of the North Carolina Department of Commerce, right, about the former JDIG (Job Development Investment Grant) program following a Senate Committee on Finance meeting at the N.C. General Assembly on Tuesday, March 17, 2015. The program has changed its name to the Job Growth Reimbursement Opportunities (JobGRO). clowenst@newsobserver.com

Gov. Pat McCrory’s commerce secretary faced skepticism Tuesday from state senators in a powerful committee as he outlined a request to reinvigorate jobs incentives spending – one of the governor’s signature goals of the legislative session.

John Skvarla, who has been McCrory’s commerce secretary since January, pitched the governor’s plan to allocate millions more for incentives and suggested a deadline looms on some major projects.

“We have three opportunities right now that are looking for JDIG awards in the next seven days, maybe sooner,” said Skvarla, referring to the Job Development Investment Grant program. “I am convinced that they will not come to North Carolina if we don’t make the award.”

The Senate’s finance chairman, Mecklenburg County Republican Bob Rucho, led a doubtful response.

“The evidence really doesn’t show that, Mr. Secretary,” said Rucho, who has broadly expressed support for using incentives if a major jobs project requires it.

The exchange was one of several tense moments that suggested McCrory’s jobs effort is likely to see changes – or new approaches – outlined in the Senate.

The House already has approved a bill that would increase funding for JDIG, the state’s main job recruiting account. It is designed to lure large numbers of employees. The program is out of money, and McCrory says he has little to offer new employers.

McCrory had wanted new money within weeks of the start of the legislative session, which began in January.

It is now clear the Senate is approaching the broad issue with caution. Its leaders have placed House Bill 117 into the Rules Committee, which hasn’t scheduled its next meeting.

The governor’s plan as adopted by the House would increase the JDIG cap from $22.5 million to $45 million. It also extends tax breaks for jet fuel and technology data centers.

Comments from Republican senators Tuesday indicated that McCrory’s plan, called N.C. Competes, faces hurdles as it is – and as it has been administered – from members in that chamber.

At one point, Rucho and Skvarla engaged in an extended back-and-forth that for a time prevented other senators from asking questions. The two men continued their debate after the committee meeting ended.

More for rural areas

A major complaint from senators is that more than 80 percent of JDIG incentives have been going to Wake and Mecklenburg counties, the largest and most prosperous in the state. A News & Observer analysis published in February also showed that McCrory, a Republican, has been paying more in incentives per job created than his predecessor, Democrat Bev Perdue.

Sen. Harry Brown, a Jacksonville Republican, said the program has focused too heavily on major urban employers when a 50-job project in a poor county would make a big difference.

Brown is one of many legislators highlighting a divide between the state’s urban and rural areas. Several other senators representing rural areas said their districts desperately need more employers paying $8 to $10 per hour in low-skill jobs.

“The counties are out there on their own fighting for those jobs,” Brown said. “How do we get in some of these distressed areas that really need help?”

Skvarla said his department offers smaller grants through the One North Carolina program to target smaller employers. He pointed to a grant announced last week for Sanderson Farms in Robeson County, which is creating 1,100 poultry processing jobs.

“We need to be proactive in targeting those industries that can create jobs in our smaller communities,” Skvarla said. “The one that obviously comes to mind is food packaging.”

Skvarla said Commerce Department officials will be courting food packaging facilities. They’re concentrated in Ohio, but “we have no shame in stealing,” he said.

Tax cuts vs. incentives

Several senators argued that North Carolina can better create jobs through lower taxes rather than providing incentives to individual companies.

“We’ve done a lot to reform our tax structure, and I think that’s going to attract a lot of jobs,” said Sen. Jerry Tillman, an Archdale Republican. “If you had a choice, and I don’t want both: JDIG grants or tax reform and lowering the base?”

Skvarla praised the state’s “very favorable tax structure” but said it won’t persuade companies to pass up incentives packages from other states. “Because of the competitive environment in the Southeast, I’m going to go with incentives,” he told Tillman.

Sen. Andy Wells, a Hickory Republican, said he’d like the state to shift to a single sales factor method for corporate income tax. That would calculate companies’ tax liability based entirely on their sales – instead of also factoring in their payroll and property value. It’s effectively a substantial corporate tax cut.

Skvarla said McCrory agrees with House and Senate leaders that single sales factor is a good idea. But he said it’s difficult in practice, and he compared it to going to heaven without dying first: The state would see a revenue drop of about $180 million initially. “I think everybody would love to get there, but it will take some time to figure out how,” he said.

McCrory’s incentives plan would apply the single sales factor to companies investing more than $1 billion in what the state considers a high-poverty county. That provision is designed to help lure an auto manufacturer – a top priority for McCrory.

Rucho argued that North Carolina is at a “disadvantage” because other states offer the single sales factor across the board. Skvarla said it poses a challenge. “I know of a corporate headquarters we lost to Georgia because of that,” he said.

Incentives bill parked in committee

Although Rucho chairs the Finance Committee that hosted Tuesday’s debate, that panel doesn’t yet have the House incentives bill.

It wouldn’t review the bill formally until the legislation clears the Senate Rules Committee, where Chairman Tom Apodaca has said it needs “a lot of look-see.” The Rules Committee currently has more than 100 bills and hasn’t held a single meeting this session.

That means Apodaca, a Hendersonville Republican, has control over when that particular incentives plan gets a hearing.

For now, Skvarla says most companies are well aware that North Carolina has no incentive money to offer and are making decisions about where to build or grow.

He urged senators to take action. “We’re out of business, and the world knows it,” he said.

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Apodaca criticizes secrecy

Influential state Sen. Tom Apodaca criticized the state’s new public-private partnership for economic development Tuesday over its apparent decision to not make records of failed recruitment efforts public.

Before the state created the new jobs-focused agency – which is a nonprofit – those same records were housed in the Department of Commerce and were subject to records laws.

“I thought we were really specific in our legislation that the records would be public,” Apodaca said.

Commerce Secretary John Skvarla defended the move to keep records secret. “If all the proposed awards are made public, it sets the bar for people seeking new awards” who will demand similar terms, he said.

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