1. ckouri@nexsenpruet.com NC and SC Economic Development Incentives Presented to: Association of Corporate Counsel May 4, 2016 Christopher H. Kouri, Esq.

2. www.nexsenpruet.com NC and SC Economic Development Incentives Incentives Real Economic Value Funds to offset cost of project Inducement to select a site / location Future funds that reduce operating costs 2 What’s the big deal?

3. www.nexsenpruet.com NC and SC Economic Development Incentives Incentives Statutory: automatically available as a result of some action by the company. o e.g. INVEST $XM = TAX BREAK per statute o Negotiation not required; file/apply/register (taxes) o Value if no income reported (?) Discretionary: DO NOT HAVE TO BE GIVEN; negotiated for; competition; highly desirable public private collaboration; often in form of grants, abatements to property tax. 3 Statutory vs. Discretionary

4. www.nexsenpruet.com NC and SC Economic Development Incentives Incentives Local capital investment State new jobs, new income taxes 4 Local & State

5. www.nexsenpruet.com NC and SC Economic Development Incentives NC Local Development Act 5 Authorization for Local Governments (Municipalities and Counties) to Use Incentives for Economic Development As ratified October 2015: (a) General Authority “Each county and city in this State is authorized to make appropriations for economic development purposes. These appropriations must be determined by the governing body of the city or county to increase the population, taxable property, agricultural industries, employment, industrial output, or business prospects of the city or county.” N.C.G.S. § 158-7.1 Revised law: Extraordinarily Broad just got broader – appropriations for “economic development” (b) Specific Activities -- express list does not limit authority

6. www.nexsenpruet.com NC and SC Economic Development Incentives Incentives Variable Cash Grant that equals a percentage of new property taxes o CharMeck Business Investment Program (“BIP”) o Cash grant X years at Y% of new taxes from project’s Capital Expenditure (CapEx) Example: BIP awarded at 90% new taxes for 3 yrs $3M CapEx = $39K new property taxes 90% of new taxes ($35K) paid for 3 yrs = $105K Grant NC LOW BUSINESS PROPERTY TAX: Generally ranked 11 th to 5 th lowest depending on category 1 Low Tax + Grant = HIGH VALUE 6 NC Local [1]: Minnesota Center for Fiscal Excellence and 2014 50-State Property Tax Comparison

7. www.nexsenpruet.com NC and SC Economic Development Incentives Incentives Job Development Investment Grant: o Up to 80% income tax withholding for new FTJs (75% max Tiers 2 and 3) (100% HY) o Up to 12 year term (20 yrs HY) o Qualitative Analysis, Application and EIC Approval o Cap per job $6,500 o Ex: 200 FTJs at $40K average wage; 5.75% income tax rate; 12 yr. term @ 75% = $345,000/yr (total 12year value = $4.1M) 7 NC State

8. www.nexsenpruet.com NC and SC Economic Development Incentives Job Development Investment Grant Utility Account of the Industrial Development Fund $345,000/year JDIG grant Tier 1 = 100% of $345,000 to grantee Tier 2 = 90% of $345,000 = $310,500 to grantee 10% of $345,000 = $34,500 to utility account Tier 3 = 75% of $345,000 = $258,750 to grantee 25% of $345,000 = $86,250 to utility account 8

9. www.nexsenpruet.com NC and SC Economic Development Incentives Job Development Investment Grant New: High Yield Project = $500M CapEx; 1750 Jobs Past: Two Caps – (i) number of grants per year and (ii) total dollar amounts of the grants New: Only $ Cap – (i) $20M for FY 2015-2016; (ii) $35M if High Yield Project New: High Yield Project – 20 yrs; 100% Inc Tax W/hld Past: 12 yrs max at 10%-75% Inc Tax W/hld New: 12 yrs max and up to 80% in Tier 1 Generally: 150 to 250 new FTJs (but exceptions) 9

10. www.nexsenpruet.com NC and SC Economic Development Incentives Job Development Investment Grant No Local Match Requirement But 2015 Amendment Requires for Tier 3: “[EIC must find] the affected local governments have participated in recruitment and offered incentives in a manner appropriate to the project.” No Precedent 10

11. www.nexsenpruet.com NC and SC Economic Development Incentives One NC Fund Grants One NC Fund: Cash grant program, Governor quick response o local match required; $X/new FTJ; avg wage; paid proportionally as the new FTJs come on line o Based on CapEx; new FTJs; location; qualitative factors o Administered by Department of Commerce for the Governor o Typically for projects where JDIG grants are not offered o Normally only one major grant program applies: JDIG or One NC grants; but special projects, both? 11

12. www.nexsenpruet.com NC and SC Economic Development Incentives One NC Fund Grants Local Match required: 2015 legislation made the match requirements as follows: o Tier One: $3 to $1 – three state dollars for one local dollar o Tier Two: $2 to $1 – two state dollars for one local dollar o Tier Three: $1 to $1 – one state dollar for one local dollar 12

13. www.nexsenpruet.com NC and SC Economic Development Incentives Incentives Fee In Lieu of Taxes (FILOT) = reduce property taxes up to 40% o lock millage rates o 10.5% to 6% (4% for Super Fee) Special Source Revenue Credit (SSRC) = further property tax discount of 25% to 50% for 5 to 10 years (no limit on benefit) SC HIGH BUSINESS PROPERTY TAX – No. 1 most expensive in USA for Urban Industrial 1 NOTE: discount expensive property taxes. 13 SC Local [1]: Minnesota Center for Fiscal Excellence and 2014 50-State Property Tax Comparison

14. www.nexsenpruet.com NC and SC Economic Development Incentives Incentives Governor’s Closing Fund (approx. $58M currently); Set Aside Fund ($20M annually) Job Development Credits -- cash grant paid quarterly, percentage of withholding for each new FTJ paying at least county average wage 14 SC State [1]: Minnesota Center for Fiscal Excellence and 2014 50-State Property Tax Comparison

15. www.nexsenpruet.com NC and SC Economic Development Incentives Job Development Credits Caps? o Border crossing jobs o Other net new jobs Applicable Formulas o Higher wage levels = higher percentage of wages granted back (e.g., $24.07/hour = 5% credit) o Wages that are too low (below $9.63/hour) = no grant o Economic tier status of county further determine size of grant (Tier I = 55%; Tier II = 70%; Tier III = 85%; Tier IV = 100%) 15

16. www.nexsenpruet.com NC and SC Economic Development Incentives Recent Example Project Fresh – Healthy/Produce Wholesaler o Full HQ relocation from Midwest o Up to 400 jobs, average wage $95,000 o Capital Investment of $17M in real property improvements and business personal property 16 NC Office Headquarters

17. www.nexsenpruet.com NC and SC Economic Development Incentives Incentives State – JDIG = 400 jobs x $96K avg wage x 75% = $17M State – One NC = $2.5M Local – BIP ($17M capex) = o Property Tax = $212K/yr 90% BIP for 5 years = $956,000 o *Local Match Required for One NC; Special one-time cash grant ‣ City = $750,000 ‣ County = $750,000 ‣ utility grant 17 Incentives for Project Fresh Location: Charlotte

18. www.nexsenpruet.com NC and SC Economic Development Incentives 18 THANK YOU! Christopher H. Kouri, Esq. Member 227 W. Trade Street, Suite 1550 Charlotte, North Carolina 28202 (704) 338-5333 ckouri@nexsenpruet.com