After decades of trying to attract new industries with tax breaks, North Carolina lawmakers are considering whether to just offer selected corporations upfront taxpayer money if they will move to the state.
The proposal for a new state incentive fund left solely to the discretion of one of Gov. Pat McCrory's appointees is headed toward last-minute legislative negotiations.
Tax breaks that only become available after workers are hired and factories built are no longer enough to draw big manufacturing projects, said Commerce Secretary Sharon Decker, who would control what's being called the Job Catalyst Fund. The state budget being unveiled this week will include $20 million this year for the fund, said Senate leader Phil Berger, R-Rockingham.
Decker said Wednesday she would offer taxpayer money to manufacturers that would hire hundreds of workers and attract many other companies that want to supply parts or goods to the big factory's production line. The upfront money could be used to buy or upgrade land or buildings.
Aviation and international car manufacturers will be hunting for U.S. factory sites in the coming decade, with lots of jobs in the balance, she said.
"This particular fund is intended for the large, transformational kinds of projects," Decker said.
Companies would be required to create a certain number of jobs and retain them for a decade or more. The requirement ranges from 500 jobs — if they set up in one of the state's poorest counties — to 1,200 in the most affluent, urban counties. Businesses would have to invest between $20 million and $50 million, pay at least the local average wage, and offer health insurance. Local governments would have to match between 3 percent and 9 percent of the state's upfront offer.
Democrats noted the irony that the drive to offer upfront money comes almost three years after former Gov. Beverly Perdue, a Democrat, tried to find a way to meet a similar demand by German tire-maker Continental. The company wanted $45 million in advance as part of a $100 million package of tax breaks, infrastructure improvements and other enticements. Republican legislative leaders refused and the company's 1,300 jobs went to South Carolina instead.
Some conservatives and liberals criticized the proposal as corporate welfare.
"Taxpayers should not be expected to fund the most politically connected businesses," said Donald Bryson, deputy state director for Americans for Prosperity, a conservative interest group. "The free-market is the best jobs catalyst, not corporate subsidies."
Since the mid-1990s, North Carolina has had a series of programs allowing companies to reduce their tax bill in exchange for sustained jobs and investment. Before that, Gov. Jim Hunt had discretion to offer companies up to $1,000 for each new job. Then-House Speaker Harold Brubaker called Hunt's fund "a government program run amok."
But the upfront funds were among the recommendations in a 2009 report by the Carolina Center for Competitive Economies, an organization linked to the University of North Carolina at Chapel Hill business school. The study of the most effective state incentives was based on the center's review of tax returns for thousands of companies — documents the Legislature gave special permission for the center to examine.
Companies "wanted more upfront certainty" than tax breaks that would take years to fully realize, said E. Brent Lane, the center's director. "All in all I would say that this is a better tool than (state business recruiters) have right now, depending on how well they use it."