Defenders of corporate welfare programs that grant major tax breaks to corporations like VinFast claim that a key feature is the “clawback” provision which means that if job goals are not met then the company does not receive the subsidy. It’s a “no harm, no foul” situation, they claim.

But as the VinFast deal demonstrates, that’s not the case. If this deal doesn’t create one single job, taxpayers will still be on the hook for tens, if not hundreds of millions of dollars.

Corporate Giveaway Program Has Poor Track Record

Since the inception of the Job Development Investment Grant (JDIG) in 2003, the state’s largest economic incentives program, over 45 percent of recipients have withdrawn from or terminated their agreement with the state without meeting their hiring goals. These failed agreements promised to deliver North Carolinians 57,000 new jobs, but only made good on the creation of less than 19,000.

An Offer You Can’t Refuse

In March of 2022, Governor Cooper announced that the largest economic development incentives package in the history of North Carolina would be offered to VinFast, a Vietnamese electric vehicle manufacturer founded in 2017, to establish a plant in Chatham County. VinFast secured the offer by pledging to create 7,500 jobs and invest $4 billion. The potential value of the package exceeds $1.2 billion and is composed of the following funding sources:

  • State Appropriations for infrastructure = $450 million
  • JDIG = $316.2 million
  • Industrial Development Fund – Utility Account = $36.6 million
  • Golden LEAF = $50 million
  • North Carolina Community College System = $38 million
  • Chatham County = $400 million

Too Good to be True

Governor Cooper’s press release stated that construction would begin in 2022 and vehicle production would start in July 2024. However, since 2022, the project has experienced setbacks, resulting in the production start date being first delayed until 2025 and then pushed back to 2028. Making matters worse, VinFast has also faced the following challenges:

  • Over $5 billion in losses since 2021.
  • A vehicle recall in 2023 due to safety concerns.
  • A lawsuit from its shareholders due to extremely poor stock performance.
  • Near universal negative reviews for their vehicles.

Protections in Place

While policymakers remain optimistic, concerns from taxpayers about the likelihood that the project will be completed have become ubiquitous. Fortunately, some of the benefits offered to VinFast in the incentives package have safeguards:

  • The $316.2 million JDIG and $36.6 million from the Industrial Development Fund are to be paid over 32 years and the funds are contingent on VinFast meeting job and investment targets.
  • Of the $450 million in state appropriations, $125 million was authorized to reimburse VinFast for site preparation. If VinFast fails to meet job and investment benchmarks, the state can recover the $125 million.
  • The $400 million from Chatham County also depends on VinFast’s achievement of job and investment criteria.

Even with these protections in place, however, more than $400 million of public funds are still exposed to risk. The remaining $325 million in state appropriations, $50 million from the Golden LEAF, and $38 million from the North Carolina Community College System do not have job and investment safeguards in place.  

Skin in the Game

Approximately $112 million of the more than $1.2 billion incentives package has been spent. Of the $50 million from the Golden LEAF, $16.5 million has been given to the city of Sanford to help provide water and sewer to the facility. The remaining $95.7 million that has been expended comes from the $450 million in state appropriations:

  • $51.7 million for site preparation out of an available and recoverable $125 million.
  • $28.4 million for road construction out of an available $250 million.
  • $15.6 million for Sanford to help provide water and sewer out of an available $75 million.

Speculative Destruction

Beyond the promise of taxpayer money, the government has invoked eminent domain to clear the way for VinFast. Policymakers approved the removal of 27 homes, 11 businesses, and a church to make room for the foreign-based corporation that sold under 1,000 vehicles in North America in 2023. North Carolina approves the use of eminent domain to seize private property for the public benefit. However, the concept of “public benefit” is subjective.

Workforce Training

The $38 million awarded to VinFast from the North Carolina Community College System is intended to provide workforce training to “would-be” VinFast employees through Central Carolina Community College. While the college will not receive most of the $38 million until workforce training plans are established, it has already dedicated 30,000 square feet of its new manufacturing and biotech center to support VinFast. College representatives have traveled to Vietnam and stated they expect the VinFast training program to begin in January 2025. However, there is no guarantee that VinFast will ever create a single job in the state.

Worst-Case Scenario

In the worst-case scenario, where VinFast fails to complete construction, start production, and achieve the agreed-upon job and investment benchmarks, the state can buy the site from VinFast. The purchase price would be the lesser of $175 million or VinFast’s expenditures on the site minus any incentives it has already received.

Key Takeaways

Economic development incentive packages are risky, especially when awarded to companies such as VinFast that lack a proven track record of success. As a strict rule, it is not the role of the government to engage in speculative investments at the taxpayers’ expense. Diverting taxpayer money away from the market so policymakers can select winners, which are often actually losers, distorts the market, reduces economic growth, and is unfair to those companies forced to compete while paying taxes that reward politically-selected corporations.

A VinFast withdrawal would mean that the government forced dozens of citizens off their private property for a false “public benefit,” and potentially, students were trained for jobs that do not exist.

Economic development incentives are sometimes crafted with good intentions; however, these policies often do not benefit the public. Instead, economic development policies provide welfare to corporations and power to politicians, at the expense of taxpayers.