Work-from-home contributing to canceled NC economic development deals

North Carolina economic development officials terminated lucrative incentives packages for three companies Tuesday — the latest in a steady string of canceled deals for the state, in part reflecting changes to how companies work in a post-pandemic marketplace.

The companies — Clorox Services Company, Syneos Health and Service Offsite Solutions — had been poised to receive millions of dollars from state and local governments for expanding their North Carolina footprint. But they said they wouldn’t create as many local jobs as they had originally promised. In two of the three cases, executives cited a rise in remote work as a factor.

The cancelations of the Job Development Investment Grants, approved during a meeting of North Carolina Department of Commerce’s Economic Investment Committee meeting, were made at the companies’ request. The companies continue to operate in the state; neither telegraphed major cuts.

“Due to unforeseen changes in market conditions and most notably the evolution of the work-from-home landscape, we have had to reevaluate our ability to meet our requirements as initially agreed to in our JDIG agreement,” Donna Kralowetz, Syneos Health’s chief accounting officer, said in a letter to commerce officials. The biotech researcher continues to employ more than 2,000 in Morrisville.

David Green, Clorox’s assistant treasurer and vice president of taxes, said in its letter to state officials that the company was unable to meet job targets in part due to a change in the strategy of the consumer products company's vitamins, minerals and supplements business, “combined with the emergence of remote work.” Clorox, which maintains a big presence in Durham, employs more than 500 people in the Triangle.

State incentives are often tied to the construction or occupancy of offices or factories — to strengthen the local property tax base and ensure the state benefits from employees who are physically in the state. But the Covid-19 pandemic accelerated a change in how — and where — companies do business. The state allows companies to count remote workers toward hiring targets, provided the employees live in North Carolina.

Major companies have long enabled employees to work remotely. But lockdowns and social distancing during the pandemic made the practice far more prevalent across industries. That has led to a post-pandemic tug-of-war between employees and employers. Many workers have been reluctant to return to the office full time, and many companies have therefore enabled them to work from home more regularly — flexibility that has helped companies retain and recruit employees, including some who work from far-flung places. The shift has caused companies to rethink their growth strategies, an adjustment that is ongoing for some.

“We thought Covid was over a couple years ago. It's still with us,” said Michael Walden, an economist at N.C. State University. “We're still looking at the aftermath of Covid. And Covid is really leaving permanent impacts on the economy.”

Surge in terminated deals

The incentives packages canceled Tuesday were among a recent wave of canceled incentives deals this year. State officials have terminated at least 10 incentives deals in the first two months of this year. The state, on average, has terminated fewer than one per month between 2005 and 2023. Earlier this month, the state’s chief economic developer said that of the dozens of new leads North Carolina has begun pursuing since December, none were for traditional office jobs.

The cancelations don't necessarily reflect the state of North Carolina's economy, but surges in terminations tend to lag periods of economic instability. "I think investors have the best of intentions, but the economic terrain can change," Walden said. "And something that looked good five years ago could maybe not look as well today."

Oftentimes the terminations are due to strategic changes specific to an individual company.

The third company to have its incentives deal canceled Tuesday, Service Offsite Solutions, said it had been purchased by a different company that no longer planned to go through with its expansion. It would’ve created 235 jobs in home construction work in Lee County, in exchange for $11 million in incentives. It didn’t receive any incentives payments.

Earlier this year, Bandwidth Inc. terminated a $32 million incentives deal after an acquisition caused the company to rethink its growth plans. And a $40 million incentives package for Credit Suisse was terminated this month as Swiss lender UBS sought to cut costs related to its acquisition of Credit Suisse.

"Each company has individual circumstances that impact them," said David Rhoades, a spokesman for the North Carolina Department of Commerce. "... The vast majority of these projects continue to operate in North Carolina and hire North Carolina folk. And the flip side of these companies deciding to withdraw also means the initially announced incentive number also is not paid out. So these companies then have been attracted [for fewer] public dollars. So these are successful projects, but they just are not moving forward at the levels that they initially projected."

Clorox owns Durham-based Burt’s Bees and in 2020 had been awarded over $2 million in incentives to create 158 more jobs in Durham, with an average salary of $123,000 per year, by relocating its vitamins, minerals and supplements headquarters there. Incentives tied to that expansion were canceled Tuesday. The company hadn't received any payments tied to those incentives.

Syneos, formerly INC Research Holdings, said in 2016 it would create 550 jobs as part of a $37.9 million expansion in Wake County. The company was eligible to receive up to $8.4 million in total reimbursements if it met job creation and investment targets. It qualified to receive two payments as part of that agreement, and it will be able to retain that money because it met growth benchmarks. But it said it wouldn’t be able to meet future targets and therefore requested the termination.

WRAL State Government Reporter Will Doran contributed to this report.