– North Carolina
North Carolina’s economic development strategy changed drastically in 1996 when the state legislature passed the William S. Lee tax credit act. Feeling burned after “losing" some high-profile competitions such as Mercedes and BMW, the state abandoned its previously stingy, even-handed approach and started granting huge company-specific deals, a pattern that still persists.
The “lots of eggs in a few baskets” approach peaked in the state's 2004 deal with Dell for a computer assembly plant in Winston-Salem (see below). This deal also ended up showing the drawbacks of the new generosity. Despite being approved for a subsidy package of $242 million, Dell announced plans to shut the plant just four years after it opened. Another nine-figure giveaway occurred in 2007, when state and local officials gave Google a package worth about $260 million for a computer server farm projected to create only about 200 jobs (also see below). Both the Dell and Google deals involved special votes by the state legislature.
In 2007 the state decided to begin replacing the William S. Lee credits with Article 3J credits, which were supposed to be more focused on job creation and investment in distressed areas. However, Lee credits are still being generated by companies on deals done before the change took effect. As the Lee credit agreements expire, it is expected that those claimed under Article 3J will increase.
North Carolina’s major subsidy programs have each provoked controversy. For example, research done at the University of North Carolina at Chapel Hill found that in the early 2000s companies receiving the Lee credits were creating jobs at a sluggish pace. A 2009 report by the Corporation for Enterprise Development found that the lion’s share of Job Development Investment Grants and One North Carolina Fund deals went to the wealthiest portions of the state. The Dell and Google deals were challenged by lawsuits filed by the free-market-oriented North Carolina Institute for Constitutional Law, but these were ultimately unsuccessful.
In 2002, North Carolina enacted company-specific disclosure for the state’s major subsidy programs. The Department of Revenue discloses credits awarded under film production tax credits, the William S. Lee Act and Article 3J credits, and the Department of Commerce publishes the Economic Development Grant Report covering the Job Development Investment Grant program, the One North Carolina Fund, and two other programs. There are other annual and quarterly reports as well.
Across these reports, detailed information is provided about program recipients, including but not limited to: projected vs. actual job creation/retention, projected vs. actual average wage rates, and amounts of funds recaptured (when targets were not met). Further information on funds recaptured through the Job Development and One North Carolina programs can be found in the Commerce Department’s clawback report.
After taking the office in January 2013, Governor Pat McCrory and Secretary of Commerce Sharon Decker began pushing to privatize the Department of Commerce. A bill that would privatize the agency failed in 2013 but a small provision in the state budget allowed the Department to go forward with the privatization plan. It has been reported that the Governor and the Secretary will try to pass the full privatization bill in 2014.
Key Subsidy Programs
|Subsidy Program||Recent Annual Cost||Online Recipient Disclosure||Recipient Disclosure Score*||Job-Creation/Job-Quality Score**||Monitoring/Enforcement Score***|
Film Production Tax Credit
refundable corporate income tax credits for film production
|$69.3 million (FY2013)||61/100||10/100||38/100|
Job Development Investment Grants (JDIG)
grants funded by worker personal income tax withholding for firms which meet job-creation requirements
|$17.1 million (CY2011)||
One North Carolina Fund
"deal closing" grants for firms which meet wage requirements; funds can be used only for qualified expenses and local communities must commit matching funds
|$4.8 million (2007-2013)||
Tax Credits for New and Expanding Businesses (Article 3J Credits)
corporate income tax credits for firms which meet job creation, wage, and investment requirements; replacing William S. Lee credits
|$28.5 million (CY2012)||
William S. Lee (Article 3A) Tax Credits
corporate income tax and other credits for businesses which meet job creation, wage, and investment requirements; no new recipients since 2007 but has significant ongoing fiscal impact
|$39.4 million (CY2012)||
* The score is derived from the Good Jobs First report Show Us the Subsidized Jobs (January 2014).
** The score is derived from the Good Jobs First report Money for Something (December 2011).
*** The score is derived from the Good Jobs First report Money-Back Guarantees for Taxpayers (January 2012).
Major Subsidy Deals
In 2004 North Carolina rolled out the red carpet when Dell, then riding high in the computer business, sought to locate a new assembly plant that was projected to create 1,900 jobs. Gov. Mike Easley called a special one-day session of the state legislature to vote on a subsidy package worth $242 million. Legislators approved the plan, which created a new tax credit to enable the company to escape corporate income and franchise taxes for an estimated 15 years. Newspapers later won the release of the state's negotiations records; in one meeting a state official recorded a Dell executive as saying that, with so many jobs being created, “Shouldn’t you be happy with no [tax] revenue?”
Once the state deal was resolved, the Easley administration allowed Dell to pit localities against each other; the “winner” was Winston-Salem, whose offer included $30 million in cash and services as well as land worth $7 million. In June 2005 the North Carolina Institute for Constitutional Law filed a lawsuit challenging the tax breaks offered to Dell (it lost all the way up to the state supreme court). The plant opened in October 2005 with 350 workers and grew to about 1,100 before cutting back to about 900.
State and local officials were stunned in October 2009 when Dell announced plans to shut the plant, revealing later that the work would be outsourced to contract plants in Mexico and other countries. Officials pressed Dell to return the subsidies it had received. The company agreed to give back about $26 million of the local subsidies but balked at repaying state tax credits it had claimed. Dell reduced the plant's workforce to about 400, but postponed closing the operation entirely until late 2010. (Key sources)
When it first came to light in late 2006 that Google was interested in locating a computer server farm in the western North Carolina town of Lenoir, news reports said that the company was being offered a modest amount in subsidies. When the deal for the $600 million facility was formally announced in January 2007, the newspapers put the value of the subsidy package at “more than $100 million over 30 years,” including the cost of a state law passed at Google's behest eliminating the sales tax on electricity and equipment used by data centers. That was a substantial amount for a project expected to create only about 200 jobs, but within a few weeks it came to light that the actual cost could reach $260 million, about 60 percent of which came from local subsidies.
There were also reports that Google put intense pressure on state and local officials during 13 months of secret negotiations, avoiding, among other things, binding promises on job creation or capital investment. The deal drew the attention of some state legislators, who held a hearing at which local officials defended the arrangement with Google, calling it “an opportunity of a lifetime.” In July 2007 the North Carolina Institute for Constitutional Law filed suit against the deal, arguing that it violated the principle of uniform taxation. The challenge was unsuccessful. In December 2008 Google turned down a small portion of the subsidy package – $4.7 million from the Job Development Investment Grant program – apparently because it did not expect to reach its original goal of creating 210 jobs within four years. (Key sources)
Wal-Mart in North Carolina
- At least 3 Wal-Mart locations have received subsidies worth about $5.1 million in North Carolina.
- At least 3 Wal-Mart locations in North Carolina have challenged their property tax assessment.
- Many Wal-Mart workers are ineligible for health coverage from their employer or choose not to purchase what is available, because it is too expensive or too limited in scope. These workers often turn to taxpayer-funded health programs such as Medicaid. North Carolina is among those states that have not disclosed data on the employers with the most workers or their dependents enrolled in such programs.
For more information, see the North Carolina page of Wal-Mart Subsidy Watch.