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With Apple on hook, legislative leaders roll out incentive reforms

Posted May 17, 2018 11:30 a.m. EDT
Updated July 13, 2018 1:50 p.m. EDT

— Top legislative leaders on Thursday rolled out proposed changes to an economic development incentives program meant to lure big fish to the state.

The state's "transformative projects" incentives, created in 2017, are a richer tier of incentives originally intended to help attract a major automaker. To qualify, a project is currently required to bring at least $4 billion in capital investment and 5,000 jobs.

The changes unveiled Thursday reduce those thresholds to $1 billion in capital investment and 3,000 jobs. Jobs filled by immigrants holding H-1B visas wouldn't count toward that threshold under the proposal.

"We believe that these modifications will be attractive to large private-sector employers who will invest substantial dollars in North Carolina," Senate President Pro Tem Phil Berger said.

Sources told WRAL News that Apple plans to open a research and development facility in North Carolina, bringing at least 3,000 jobs and as many as 10,000 over time. The sources put the investment between $1.5 billion and $2 billion.

Sources said negotiations with the tech giant led to the incentives tweaks and that the company is likely to build a major research and development hub in Research Triangle Park. But Berger, R-Rockingham, and House Speaker Tim Moore denied that the changes are aimed at any specific target.

"These changes that will be in the budget to our job recruitment and economic development programs are not for any specific company," Berger told reporters. "These thresholds are based on research conducted by the General Assembly’s economic team regarding the level at which a major corporate relocation will have an immediate positive impact on state revenues."

Berger and Moore, R-Cleveland, did say the changes are "expected to help secure a major jobs announcement in North Carolina in the coming months" and that the changes are based on feedback from previous recruitment efforts as well as "recent conversations between lawmakers and prospective companies across many sectors of the economy looking to move to North Carolina."

Nathan Jensen, a professor in the Department of Government at the University of Texas at Austin who studies incentives nationwide, said he doesn't believe the claim that the proposal isn't targeted at Apple.

"I know the claim is this wasn't for Apple, but this is perfectly sized for Apple's campus," Jensen said.

Austin is home to Apple's largest campus behind its Cupertino, Calif., headquarters, with more than 6,000 employees.

Asked about Apple, Berger declined to comment but chided reporters for "speculative stories."

"I would point out that, if anonymous sources were accurate, North Carolina today would have four automobile manufacturing facilities," he noted dryly. "I would suggest that there were stray cats that got out of bags before."

Among other things, the proposal includes the elimination of a $6,500-per-job incentives cap meant to attract higher-paying jobs. The average salary for the jobs Apple is expected to announce has been pegged at around $130,000 a year.

Joe Coletti, senior fellow at the conservative John Locke Foundation, a frequent critic of incentives, questioned the elimination of the incentives cap.

"Removing the caps takes a bad policy and puts an exclamation point on it," Coletti said, adding that he believes some limit will eventually be reinserted in the legislation.

"Incentives packages that states put together are about show business," he said. "They're about states demonstrating they’re trying to do something to bring business in."

The legislation would also lengthen the maximum terms for the transformative projects program as well as the state's Job Development Investment Grant program to as much as 40 years total.

Jensen said a 40-year term is inefficient because companies discount future money.

"Once you get out 20 years, you're just burning money. What you're offering doesn't make it any more attractive," he said.

"You're really borrowing against future revenues for very little benefit," he added. "The community will be around in 20, 30, 40 years, and you're going to have revenue needs."

Other provisions, such as the ability to count jobs created above the initial projection, create the potential to game the system by claiming fewer jobs than a company expects to create, Jensen said.

But Mike Walden, an economist at North Carolina State University, said he's excited about the proposed incentives.

"They are about jobs that pay well (and) require high levels of education. They are about the future," Walden said.

The Triangle is primed for a company like Apple, he said, because of decisions made over decades – the kind of decisions that created RTP.

"My gosh, in the time I have been here – 40 years – we have built a technology industry that is known nationwide and worldwide," he said.

The proposed changes were described to Republican lawmakers Wednesday afternoon in a joint House-Senate caucus held behind closed doors. The full legislature will have to approve the changes for them to take effect, and they will go before Gov. Roy Cooper as well.

Berger and Moore said the proposal has been discussed with the executive branch and that there seems to be agreement. But Cooper spokesman Ford Porter said the governor doesn't want the incentives changes rolled into the 2018-19 budget.

"As we do on many economic development efforts, the Governor's Office worked closely with the legislature and other interested parties on this change that can help bring even more jobs to North Carolina. We believe this is important enough to be voted on as a standalone measure," Porter said in an email.

House Majority Leader John Bell said the incentives pitch was well-received in caucus and should pass.

"I think so," Bell said. "But I've got to go through and look a little more in-depth."

There's likely to be some pushback, though, from lawmakers and groups who are against incentives on principle. Americans For Prosperity criticized parts of the proposal Thursday morning, with state deputy director Anna Beavon Gravely noting that the program is continually used to sweeten offers to companies already interested in coming to urban parts of the state.

"We don't need to entice people to come here," she said. "People want to come here."

For more nearly a decade, if not longer, the state's wealthier, larger counties have far and away benefited the most from state economic development incentives, a WRAL News analysis showed last year.

The changes announced Thursday would flow money from new employers, though, to a fund specifically earmarked to boost job development in rural parts of the state through an account meant to fund infrastructure improvements, including broadband.