JDIG Imperative to Compete for Jobs

February 20, 2015

The NC Justice Center’s report, “Picking Losers: Why the majority of North Carolina’s incentive projects end in failure,” is, at best, incredibly biased. The following response is from Ben Teague, Executive Director of the Economic Development Coalition for Asheville-Buncombe County and Andrew Tate, President & CEO of the Henderson County Partnership for Economic Development.

The rivalry for quality jobs and significant economic development projects is far greater than mere competition among counties within North Carolina as characterized by the report. For projects which require the Job Development Investment Grant (JDIG) the true rivalry is between North Carolina and other states and nations around the globe.

However, this global and national competition is intensely local in its impact on communities. These significant projects, which typically create more than 150 jobs, have the ability to provide employment for communities and their connected regions in transformative ways, perhaps for generations.

The suggestion that JDIG is not effective because those resources tend to concentrate in already-prosperous areas of the state misses the simple truth that North Carolina would not otherwise be competitive for those jobs. Employers want a concentration of workforce. The urban areas are job centers for regions, which include rural areas.

Simply put: If we do not have access to the JDIG program, our state cannot compete. Ultimately the financial responsibility in a competitive project will be shifted from the state to local governments with far fewer resources. That would further shut out rural areas from the benefits of economic development.

The JDIG program isn’t about picking winners and losers, as the report contends. It’s about recognizing that businesses that create great jobs, pay great wages and create new taxable investment have choices about where to do that.

Currently the JDIG program faces two challenges: 1. approaching the cap on the amount of authorized grants, and 2. the scheduled sunset of the program on December 31, 2015. Both of these challenges broadcast uncertainty to businesses that are, and will be, assessing competing state locations.

Our competition is watching us now, as are many of the companies that might consider North Carolina for future job growth. Without an improved and expanded JDIG, the only winners that will be picked are the states that are competing against North Carolina for quality jobs.

North Carolina’s Job Development Investment Grant requires that companies meet their commitments for jobs, wages and investment before any incentives are awarded. In situations where companies did not fully meet their job growth goals, the grant agreements were terminated by the NC Department of Commerce, and the state was absolved of its commitment for continued incentive support. Simply put, if the company does not perform, no grant is awarded.

The program is also self-funded – the eligible dollars are generated by a percentage of withholding taxes paid by the new employees created by the project. It’s similar to the way a rebate works: the new funds paid out in JDIG grants are only spent if we win the project, the jobs and taxes it creates.

By design, JDIG ensures a positive return on investment for the taxpayers of North Carolina. The report prepared by the NC Justice Center characterizes a project which does not ultimately receive the rebate as a “failure.” An employer who creates a portion of the jobs promised—and therefore does not get a tax rebate—yet provides new employment and tax base for state and local economies should not be viewed as a “failure.” The incentive worked in helping land the project and creating more jobs—with no cash coming from state coffers. We would define this as prudent investment versus a “failure.”

The fact that JDIG results are tracked highlights the accountability that is the basis of this program. Grant applications are carefully considered by a five-member committee that includes top Executive Branch officials and two appointees of the NC General Assembly. A cost-benefit analysis is done for each project, ensuring that the proposed project’s benefits outweigh its costs. If an agreement is entered into, it must include the claw-back provision to recapture part or all of the grant if the business fails to meet performance measures. All agreements must be reviewed and approved by the Attorney General.

In 2012, the Pew Center for the Public Interest analyzed incentives policies in the United States, reviewing nearly 600 documents and interviewing over 175 experts to examine how – and how effectively – states weigh the impact of their economic incentives strategies. Pew named North Carolina one of 13 states, “leading the way in generating much-needed answers about tax incentives’ effectiveness.” A 2014 report by Good Jobs First, an economic development watchdog group, ranked North Carolina #3 among the 50 states in terms of transparency of job-creation incentive programs. The study assessed the degree of public disclosure of economic development awards and outcomes.

The JDIG program started in 2002, and the life cycle of the program includes a significant economic recession that forced most businesses, large and small, to reassess their plans for continued economic investment and employment. Given that JDIG terms can last up to 12 years, it is certainly too early in the process to declare the JDIG program or the companies that have grown in our state a “failure.”

When JDIG was created, so was the Industrial Development Fund/Utility Fund. The Utility Fund provides grants to local governments in the most distressed counties in North Carolina for public infrastructure in support of job creation. When JDIG grants are awarded to a company, 15-25% of the amount approved for disbursement is diverted from the company to the Utility Fund. In essence, this builds an account to ensure accessibility to grant funds for North Carolina’s least prosperous counties (tier 1 and 2). Since the inception of this program, the Utility Fund has awarded over $28 million in grants to tier 1 and 2 counties. 75% of the grants, and 73% of the grant dollars have gone to the most distressed tier 1 locations. As the number of JDIG grantees continues to grow, so does the potential revenue stream to support projects in the most distressed areas of the state.

These projects which are large enough to attract substantial attention from around the globe are also large enough to compel communities to compete by all means possible. Without a tool in place each community will seek special appropriations from the legislature to supplement and win projects. This essentially turns the economic development process into a political process and ignores the restraints of client decisions.

The Asheville and Hendersonville areas are unique in the fact that we are large enough to see major projects which would rise to the level of JDIG incentives but too small to fully shoulder the burden of financial incentives like some of the other major markets in North Carolina. The incentive that JDIG provides is make-or-break for our area, and for the surrounding counties from which we draw workers.

We urge North Carolina’s General Assembly to raise the JDIG cap and ensure the continuation of this important incentive. It is critical for our region’s economic health, which is critical to our state and its people.