'A Necessary Evil': Debating The Future Of (Some) Incentives

Mar 25, 2015

They’ve been called a deal breaker, a necessary evil, and largely useless.

Lawmakers are debating the role of economic incentives. Growing the economy is a complicated and arduous process. Senators approved a short-term allocation for incentives yesterday. The long-term funding plan is not as clear.

The construction site is located between exits 73 and 75 on I-95 northbound. It's hard to miss.
Credit Jeff Tiberii / WUNC

All vehicles traveling north on I-95 about halfway between Raleigh and Fayetteville pass a massive construction site in Dunn.  The unfinished building is longer than a football field.

A Rooms To Go sign hovers above – where you would expect to see a billboard. Later this year the retail furniture, mattresses and home décor company will open a distribution center here in Harnett County.
 

Nick Dula is the Economic Development Director for Harnett County. He says rural areas must develop partnerships with nearby cities to create the most jobs
Credit Jeff Tiberii / WUNC

"Two hundred forty jobs; people are going to have the opportunity to go to work. They’re also going to invest 40 million dollars into our local economy," said Nick Dula, Economic Development Director for the county. Once operational, Rooms To Go will be one of the ten largest employers in Harnett. Dula says this is a scene of rural economic growth, made possible—in part—with the use of economic incentives.

"It’s like you’re a fisherman and what you want to do is get your boat positioned to where you know the fish are, throw in your line and your hook and have it baited up so that if the fish pass by they’re going to take a bite," said Dula.

Not every story involving incentives is one of success. Chiquita Banana took tax breaks before recently deciding to leave Charlotte. In Winston-Salem, Dell did an about face years ago, after never coming close to its stated goals. There are all kinds of economic incentives—sales tax exemptions, rebates, retention payments; as well as breaks geared toward particular industries like film and aviation. 

'Increasing the number of jobs is a lever we can pull... We don't know if it's actually worth that expenditure'

Rooms To Go received incentives based on projected job creation.  For years, the state has used JDIG, the Job Development Investment Grants Program, to recruit new businesses and help existing ones expand.

"Increasing the number of jobs is a lever we can pull… We don’t know if it’s actually worth that expenditure," described Juan Carlos Suárez Serrato, an economics professor at Duke University.

He studies incentives, tax changes and their impacts on local economies. JDIG grants aren’t cash payouts. Rather, companies establish their businesses and then get back a fraction of the taxes they pay for several years.

"So when we decided whether or not to use funds for a program like JDIG, we should bare in mind that we are having to cut money from somewhere else ... We’re going to have more jobs at the expense of having less services or at the expense of having higher tax rates."

Suárez Serrato also points out incentives are just part of the reason a business commits. They are usually more interested in location, the workforce and infrastructure. Meanwhile, critics of incentives come from both political parties.

"Statisticians teach us that correlation does not imply causation," Paul “Skip” Stam contended on the House Floor. He is a powerful Republican in the North Carolina House. Stam believes many businesses would relocate here without the breaks and he would rather see funds go toward helping small businesses and transportation growth.

"About 2,500 years ago, the ancients categorized logical fallacies—and one of them is post hoc ergo propter hoc; It’s the rooster crows because he thinks he made the sun come up."

Today, funding for JDIG is virtually gone, and the program is set to expire in January. A majority of House lawmakers voted in favor of a proposal to extend JDIG and double its funding, a measure Governor Pat McCrory supports. But senators appear unlikely to approve that kind of funding. Many take issue with the program sending more than 80 percent of its money to three counties: Wake, Durham and Mecklenburg. Phil Berger is the leader of that chamber and from rural Rockingham County.

"Many members believe that that sort of an imbalance is something that needs to be addressed and corrected," said Berger.

His competing proposal would require half of state job recruitment incentives go to rural counties. But in the short term, senators voted yesterday to approve $5 million dollars in grant money to the Department of Commerce so it can attempt to lure three car manufacturers to the state.