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The Inclusive Economy

CFED testifies to NC panel on shortcomings of Economic Incentives

By Bill Schweke on 12/16/2008 @ 12:12 PM

Tags: Ideas in Development, North Carolina, Business Incentives

December 16, 2008, Raleigh, NC -- Bill Schweke, CFED’s Vice President for Learning and Innovation today presented the results of two CFED economic studies at a meeting of the North Carolina General Assembly’s Joint Select Committee on Economic Development Incentives. Schweke, along with CFED researchers Frank DiSilvestro, and Brian Turner raise a number of serious new questions about the wisdom and efficacy of North Carolina’s costly commitment to state and local business incentives.

Among the findings of the CFED research team was that in some cases, towns, cities and counties are coming up with more subsidies than the state. Yet, these jurisdictions have a less developed “infrastructure” for holding the firms accountable and for coming up with rational bids. They also are often less savvy when it comes to negotiating with firms. Additionally, a study of the effectiveness of inducing increased private investment in economically struggling rural economies finds that they have not made much of a difference in North Carolina. Schweke recommended that would be better if the state redirected some subsidy dollars to community development and capacity building, entrepreneurship, business retention/expansion/modernization, and upgrading workforce skills.

Testimony was based on two 2008 CFED reports:

The first report, Local Economic Development Incentives in North Carolina , explores the often underreported area of local business incentives. The authors looked at 338 deals between 2001 and 2008 in which businesses received local incentives in addition to state assistance from either the state Job Development Assistance Grant (JDIG) program or the One North Carolina Fund. According to the report:

“All companies that received state incentives from the One NC Fund and or JDIG program also received incentives from county and or municipal governments. These incentives came in the form of cash grants, building and land purchases, infrastructure assistance, reduced fees, low interest loans, etc…. This study estimates that these local incentive packages had a median value of at least $200,000; the average incentive package was much higher at almost $2 million…. Even when accounting for the number of jobs connected with each incentive deal, there were over 50 cases in which local governments paid more than $10,000 per job. The most costly incentives, in terms of dollars per job, were also local incentives. While the most expensive JDIG award had a maximum cost of $37,000 per job, the study found 6 instances in which local governments offered more than $40,000 per job in incentives.”

A power point of Schweke’s presentation to the panel on this report is included here.

The second report, Business Incentives and North Carolina’s Tier 1 Counties : Have they Worked? makes a strong case that North Carolina’s state-level business incentives are not having their intended effect on the state’s poorest and most development-starved counties. According to the report:

“The three primary incentive tools North Carolina has relied on in recent years are Bill Lee Tax Credits (now called Article 3J Credits), the Job Development Investment Grant Program (JDIG), and the One North Carolina Fund. These tools may have helped the state increase investment and generate new employment opportunities. However, their effect on the most distressed areas of the state has been disappointing. The very counties that most need incentive programs to stimulate growth have been left behind in these programs. Over half of Bill Lee credits have been generated in Tier 5 counties in recent years, while only 13% of credits have come from Tier 1 counties. The One North Carolina Fund has awarded funding to distressed areas in similarly low proportions, and the JDIG program has awarded a majority of its funds to Tier 4 and 5 counties.”

A power point of Schweke’s presentation to the panel on this report is included here.

Schweke is a veteran economic policy expert and a specialist in development finance, plant closings, small and community business initiatives, local development planning, environmentally compatible development, and urban neighborhood development initiatives.

This research was made possible by a grant from the Z. Smith Reynolds Foundation.

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