House Bill 117, NC Competes, makes changes to several of North Carolina’s economic development programs. H.B. 117 moves $20 million that was set aside for a Job Catalyst Fund to a renamed Site Acceleration Fund and modifies the criteria for a single sales factor apportionment. The bill extends a sales tax refund over $2.5 million on fuel for passenger air carriers (costing the state $47.5 million over four years) and gives a break on electricity taxes to big data centers (costing, by one estimate, $13.5 million in the current fiscal year).
But the part of H.B. 117 that is getting the most attention and concern is Part 1: JDIG Modifications. It extends, modifies, and changes the name of the Job Development Investment Grant (JDIG) to Job Growth Reimbursement Opportunity – People Program (Job GROW). (Seriously, who comes up with these acronyms?)
JDIG was started in 2002. The grant is measured against a percentage (10% to 75%) of withholding taxes paid by newly hired employees. It is described as a “discretionary” incentive, so all businesses do not receive the tax break. In other words, some companies, determined by a Commerce Department committee, get paid for creating jobs at the expense of all North Carolina taxpayers.
JDIG grants can last up to 12 years. There is a $15 million per grant cap and a maximum liability of $180 million over a 12-year term. The state’s total outstanding JDIG liability is about $1 billion. All agreements are binding to the state.
Prior to FY 2013-14, the annual JDIG recurring appropriation from the General Fund was $27.4 million. Now it is $63 million, but the governor says he is almost out of money. In order to meet current obligations, $74.4 million will be needed in FY 2015-16 and $83.4 million in 2016-17. Again, the state’s total outstanding JDIG liability through 2027 is about $1 billion. In addition to JDIG grants, many companies also get other incentives, tax credits, work force grants, and various local incentives.
Very few of the JDIG deals actually go all the way to fruition. Of the 201 grants that have been awarded since 2002, only three have gone the full term of the original deal; 73 either have been withdrawn or terminated. All or part of the grant has been returned or forfeited for noncompliance — or clawed back — in only nine JDIG awards.
Rural counties have largely been left out of JDIG. Since 2002, 67% of the grants have landed with companies in Durham, Wake, and Mecklenburg counties, and in the past two years 83% have gone to companies in Wake and Mecklenburg. But of course all state taxpayers pay whether they benefit or not.
JDIG has been revisited several times, in 2005, 2009, and now. Under Democrats and Republicans the same concerns have been expressed — the number of grants going to wealthy counties, the accumulating costs, whether the state is getting much of a return from the program.
When Republicans took over the North Carolina General Assembly in 2011, in anticipation of comprehensive tax reform that would follow, they pledged to look at creating a fair playing field for all companies and to eliminate special favors, carve-outs and loopholes. They allowed dozens of special tax treatments to expire, including tax credits for the film industry and historic restoration projects. JDIG was scheduled to sunset on Jan. 1, 2016.
Instead, H.B. 117 was introduced on Feb. 27, expanding and extending JDIG. The cap on each grant would increase from $15 million to $45 million. The program would be extended for another four years. Since the grants can be for as long as 12 years, this extends the program though 2031-32. Additional cost? Between $739 million and $900 million.
H.B. 117 will be working its way through the General Assembly in the next few days. There is an opportunity for North Carolina to be a national model, a leader in real incentives — low taxes, fewer regulations, strong infrastructure, and well-skilled workers — a fair playing field. That’s the incentive North Carolinians want.
