Report criticizes performance of state's incentive program

Posted February 16, 2015

Employees of Allegro Light Sport Aircraft, in Littleton, N.C., work with a piece of sheet metal that will eventually become a plane wing. The company planned to hire 34 workers as part of an incentive grant. (Photo by Tyler Dukes)

— A new analysis of one of the state's largest programs to entice job growth in North Carolina says a majority of those projects fail to deliver on promises of hiring, wages and investment.

The report from the left-leaning North Carolina Justice Center, a Raleigh-based nonprofit, comes as state House lawmakers work to complete new legislation to expand existing job incentive programs at the request of Gov. Pat McCrory. McCrory has argued for months that he needs new tools to help attract major employers, such as automakers and other manufacturers, to continue job creation in the state.

Chief on McCrory's wish list is the expansion of the Job Development Investment Grant, or JDIG, program, the focus of the Justice Center report.

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The group's analysis shows that, since the creation of the program in 2002, the state Commerce Department canceled 60 percent of its JDIG awards after companies failed to meet certain required targets. The findings echo a similar analysis by WRAL News in October, which found firms that received incentives from 2009 to 2012 have so far filled fewer than half the jobs they promised to create.

Allan Freyer, director of the center's Workers' Rights Project and author of the report, says the low success rate is a sign the legislature needs to slow down its move to expand the program and study ways to make it more effective.

"If the state wants to continue to pick winners and losers with incentive projects, we need to do better at picking winners," Freyer said. "Any time you have any government program that's failing 60 percent of the time, it's important to stop what you're doing – certainly not expand."

JDIG projects are performance-based, so companies don't get grant money until they meet certain benchmarks. So-called "clawback" provisions also require firms to pay back grant money in cases where jobs are later eliminated.

Although those measure are widely considered effective, Freyer said taxpayers are still "on the hook" for staff time spent managing the grants and recruiting firms. McCrory and Commerce Secretary John Skvarla, for example, traveled to the U.K. in mid-January on an economic development trip with an undisclosed company.

When those efforts don't pan out, he said, citizens lose.

"We want a program that creates jobs, not headlines," Freyer said.

The Justice Center report also notes that JDIG awards overwhelmingly benefit urban counties, rather than rural counties that need job growth the most. Since 2002, Freyer found, almost 60 percent of JDIG's incentive awards went to firms in Wake, Mecklenburg and Durham counties. 

A portion of the grants awarded to urban counties is set aside for an rural infrastructure development fund. That's a good thing, Freyer said, but given that grants to rural counties fail 77 percent of the time, compared with 56 percent in urban counties, he said it's clear there's not enough support for areas with struggling economies.

"The fact that so few dollars are going to direct job creation in those counties is a concern," Freyer said.

Praise from across the aisle

The release of the report Monday prompted a rarity among North Carolina think tanks on opposite ends of the ideological divide: policy agreement.

Sarah Curry, director of fiscal policy studies from the conservative John Locke Foundation, said she liked much of what she saw in the study, including its recommendation not to expand JDIG or enact a new "catalyst fund" for closing big deals.

"If we're going to keep using incentives, we need to do a better job of using our tax dollars," Curry said. "But expanding is the last thing we need to be doing, especially when we have other necessary government functions that require attention."

And given the $271 million budget shortfall state fiscal researchers are projecting for this year, she said North Carolina policymakers have difficult choices ahead.

"We know we have a budget shortfall and we know money is going to be tight," Curry said. "Why are we putting money into a failing program when we have needs like teacher pay out there?"

Curry said she's not surprised to see agreement from the left and right on the issue of incentives. Liberal groups, she said, would argue the money would be better directed at the needy, while free market proponents see lower taxes for everyone as a better strategy for attracting business.

"There are different core reasons, but they both come to same conclusion: It's not the state's responsibility to give money to corporations," Curry said.

Read the report


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  • Dolly Butler Feb 16, 2015
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    Thanks ! to the North Carolina Justice Center ...send your support to it today !

  • Sammy Macloud Feb 16, 2015
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    who is surprised at this finding? Sad isn't it?

  • Matt Wood Feb 16, 2015
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    The problem is, govt agencies typically rely on industry to provide all the estimates on the benefits that will be produced. Sure, and companies NEVER embellish (read: lie) to receive govt handouts, RIGHT????