1. Evaluating North Carolina’s Economic Incentives
Brent Lane
Director, UNC Center for Competitive Economies
Frank Hawkins Kenan Institute of Private Enterprise
Kenan-Flagler Business School
University of North Carolina
Kenan Institute of Private Enterprise

2. NC’s Economy is Big
GSP of $491 Billion (9th) >GA, MI, MA since 2003
NC = 24th largest national economy
350,000+ employers
Population of 10 million (9th)
Workforce of 4,619,000
Kenan Institute of Private Enterprise

3. Big is Hard to Affect NC has 350,000+ businesses
Targeted incentives to a few dozen firms
1% gain in employment = 46,000 new jobs
Economic development “success” insufficient
Kenan Institute of Private Enterprise

4. NC & Incentives 1996+ Concerned about declining “competiveness”…
Created narrow TAX CREDITS for job creation, investment and worker training
Expanded to add’l industries and all NC
JDIG / OneNC incentives added
Regional partnerships created
Kenan Institute of Private Enterprise

5. GRANT INCENTIVES 2007-09 Incentive Study
Prompted by high profile incentive deals, NCGA convenes joint legislative study committee
GRANT INCENTIVES
…and Tax Credits
Kenan Institute of Private Enterprise 5

6. Joint Select Committee On Economic Development Incentives
Lee Act tax credits, JDIG, and One NC Fund
18th month study of 5,000 firms ( )
“Portfolio analysis” to determine which incentives achieve the greatest return
Quality job creation
Distressed areas focus
Enhanced NC competitiveness
Changes/alternatives to better achieve goals?
Kenan Institute of Private Enterprise

7. Which Incentives Best Achieve NC’s Economic Priorities?
C3E led UNC, NCSU and ECU study
Portfolio of $2 billion in incentives during
employment histories for 5,000+ incented companies
250,000 pre/post incentive data points
Surveys/case studies of incented firms
Kenan Institute of Private Enterprise 7

8. 2006 NC Incentives Portfolio
Statutory Tax Credits
Tax credits to qualifying businesses for job creation, training and investment
Lee Act and Article 3J
Discretionary Performance Grants
Cash grants to new and expanding businesses for job creation and/or retention
Job Development Investment Grant (JDIG)
One North Carolina Fund
Kenan Institute of Private Enterprise

9. 2006 Incentives Portfolio
Kenan Institute of Private Enterprise

10. Most NOT Jobs Based
Kenan Institute of Private Enterprise

11. LEAST to Poorest Counties
Kenan Institute of Private Enterprise

12. Incented Companies Often SHED Jobs
Kenan Institute of Private Enterprise

13. Investment Credit
Kenan Institute of Private Enterprise

14. Job Creation Credit
Kenan Institute of Private Enterprise

15. R&D Credit
Kenan Institute of Private Enterprise

16. Tax Credit Obsolescence-5 5 10
Growth Rate in Percentage
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
year
State-wide Employment
incentive companies (Number of Companies: 1213)
Employment Growth Rate:
State vs. Incentive Companies with Single Location
Kenan Institute of Private Enterprise

17. Findings: Time to Update NC’s Incentive Portfolio
Current incentive portfolio relies too much on tax credits that are less effective than in 1990s
Incentives were following firms to wealthier areas, rather than leading them to poorer areas
Few tax credit incented firms show job growth – most have same or fewer jobs after tax credits
OneNC & JDIG potentially better than tax credits
Corporate tax rate uncompetitive
Kenan Institute of Private Enterprise

18. Limited Location Effect
Actual effectiveness is unknowable
National surveys indicate incentives are relatively low in importance in location decisions
UNC survey of NC incented and non-incented ranked incentives 12th and 13th respectively
Negative effect on non-incented firms
Incentives do not compensate for disadvantages
“But For” are the cards never shown.
Kenan Institute of Private Enterprise

19. Most Persuasive When … Other location factors are relatively equal
Prospects are highly mobile (and more are)
Tailored to companies’ specific priorities
Benefits are front-loaded (cash > credits)
Combined with other assistance
Before the auction starts – “proactivity reward”
Kenan Institute of Private Enterprise

20. Greatest Benefit When…
Company is a headquarters/local ownership in an export industry – “wealth creation”
Company in growth mode – “ROI upside”
Company has high catalytic effect on local economy – “ripple effect”
Company affinity for location factors and workforces of distressed regions – “significance”
Company employs local residents, minimizing new public service cost – “net impact”
Kenan Institute of Private Enterprise

21. NC Corporate Tax Rate
Company executives preferred lower tax rate to selective tax incentives
Rate reduction would have positive effect on more firms and across NC
Recommended changes to incentives portfolio could support corporate tax rate reduction
Kenan Institute of Private Enterprise

22. North Carolina Ranked “Best Business Climate” 12 of last 15 years by Site Selection magazine
Kenan Institute of Private Enterprise

23. Economic Development Success isn’t Economic Success
Kenan Institute of Private Enterprise

24. Recommendations Eliminate Article 3J statutory credits effective 2010
Retain Research and Development Tax Credit
Expand JDIG and One NC programs with increased amounts targeted to distressed counties
Increase economic research and marketing budgets for proactive targeting of growth firms
Address systemic economic competitiveness factors
Reduce corporate tax rate to competitive neutral rate
Institute legislative oversight function
Kenan Institute of Private Enterprise 24

25. Recommendations Eliminate Article 3J statutory credits effective 2010
Retain Research and Development Tax Credit
Reduce corporate tax rate to competitive neutral rate
Institute legislative oversight function
Address systemic economic competitiveness factors
Increase economic research and marketing budgets for proactive targeting of growth firms
Expand JDIG and One NC programs with increased amounts targeted to distressed counties
Kenan Institute of Private Enterprise 25

26. JDIG Incentives ROI 2007 to 2014
136 JDIG awards of $757 million for 40,291 jobs
Disbursed $34 million for actual 13,651 jobs
Average annual actual creation of 1,950 jobs
NC added 114,500 new jobs in 2014
Kenan Institute of Private Enterprise

27. ?
Kenan Institute of Private Enterprise

28. Kenan Institute of Private Enterprise
Brent Lane, Director, UNC Center for Competitive Economies
Kenan Institute of Private Enterprise

29. 27 years Kenan Institute of Private Enterprise
Brent Lane, Director, UNC Center for Competitive Economies
27 years
Kenan Institute of Private Enterprise

30. NC PCI
Kenan Institute of Private Enterprise

31. 2008-13 US = 1.8 NC = 1.6 Kenan Institute of Private Enterprise
Top 25 PCI%
Northampton, NC 3
Chatham, NC
2.9
Union, NC
Bladen, NC
2.8
Gates, NC
Halifax, NC
Currituck, NC
2.7
Jones, NC
Lenoir, NC
Greene, NC
2.6
Martin, NC
Alexander, NC
2.5
Camden, NC
Granville, NC
Perquimans, NC
Sampson, NC
Davidson, NC
2.4
Lincoln, NC
Stokes, NC
Washington, NC
Pamlico, NC
2.3
Swain, NC
Montgomery, NC
2.2
McDowell, NC
2.1
Mitchell, NC
Bottom 25 PCI%
Gaston, NC
1.3
Nash, NC
Pender, NC
Wake, NC
Craven, NC
1.2
Macon, NC
Mecklenburg, NC
Surry, NC
Alamance, NC
1.1
Clay, NC
Davie, NC
Graham, NC
New Hanover, NC
Anson, NC 1
Guilford, NC
Henderson, NC
Durham, NC
0.9
Person, NC
Watauga, NC
0.8
Forsyth, NC
0.6
Moore, NC
Harnett, NC
0.5
Rowan, NC
-0.1
Transylvania, NC
-0.2
Lee, NC
-0.5
US = 1.8
NC = 1.6
Kenan Institute of Private Enterprise

32. Income is More than Wages
Kenan Institute of Private Enterprise

33. Kenan Institute of Private Enterprise

34. NC’s Income Challenge
Economic well-being depends on breath of policies – not just economic incentives
Economic incentives can have a regional benefit, but can not meet state-wide needs
NCGA has addressed policies enhancing existing income
NCGA needs to examine market-based policies that would increase incomes state-wide
More capitalism by more citizens
Kenan Institute of Private Enterprise

35. Questions: Evaluating North Carolina’s Economic Incentives
Brent Lane
Director, UNC Center for Competitive Economies
Kenan Institute of Private Enterprise