While state lawmakers and Gov. McCrory debate the future of the NC Department of Commerce, the wisdom of “walking-around money,” and how to land the “big fish” in corporate relocations, they would do well to study the efficacy of North Carolina’s existing economic development toolkit.
UNC economists William Lester, Nichola Lowe, and Allan Freyer assessed the impact of state-level economic development incentives on job growth. They found that when the state combines incentives with sector-specific development efforts, they have a much stronger effect on employment. For example, incentivized businesses in the bio-manufacturing and textiles sectors “were associated with 28 percent faster employment growth than non-incentivized establishments in the same industry sectors.”[i]
The authors analyzed various development efforts, including strategic public investments, like a customized workforce development service and technical assistance. The authors also argue these investments take pressure off financial incentives.
"These public investments…reduc[e] the incentive to a deal-sweetener or deal-closer, rather than the entire focus of the state’s retention effort."
Smart incentive strategies have helped support the state’s industrial growth for decades, and made financial incentives that much more effective.
North Carolina has been using incentives for local economic development since the 1990, in particular: the One NC Fund, which provides matching funds to local governments to expand their own incentive grants; and Job Development Investment Grants (JDIG). JDIG grants are performance-based, disbursing annual grants to qualifying businesses to support their recruitment, retention, and expansion efforts. Both programs have strict job-creating requirements and performance criteria, to ensure that these incentive grants will have their intended impact on North Carolina’s job growth. In the past year alone, JDIG and the One NC Fund have helped incentivize the following business developments:
- Novozyme – creating a new bio-agriculture research and development facility in Wake County, bringing 100 new jobs and investing over $36 million
- United Furniture Industries – expanding in Forsythe County, creating 200 jobs and investing $5.2 million over the next 3 years
- Sealed Air Corporation – relocating global headquarters to Charlotte, creating over 1,200 jobs by 2017
- Harris Teeter – expanding its Union County distribution center to serve over 20 more stores and invest $5.5 million
Incentives aren’t a silver bullet for North Carolina’s slow job growth. Rather, evidence indicates “incentives are simply one policy tool that communities can deploy in support of broader recruitment and retention strategies.”[ii] Instead of focusing entirely on financial incentives, North Carolina should continue to make strategic investments in education, workforce and infrastructure that will complement our economic development efforts.
[i] Lester, T. William; Lowe, Nichola J.; and Freyer, Allan. (2014). Mediating Incentive Use: A Time-Series Assessment of Economic Development Deals in North Carolina. Economic Development Quarterly, 28:132.
[ii] See note i.