Editorial

The New Bill Lee Act

In one of its final actions before the General Assembly adjourned on Sept. 30, House and Senate leaders reached a compromise on the first major overhaul of the state’s economic development policies since adoption of the Bill Lee Act in the early1990s. The centerpiece of the new law is a Job Development Investment Grant Program under which targeted companies that relocate to North Carolina, or existing companies that expand here, can receive cash grants of as much as 75 percent of the income taxes paid by workers in those new jobs. The total amount of such grants that can be made in any one year was capped in the legislation at $10 million.

In writing about this new law, some newspapers reported that the Job Development Investment Grant Program would end up costing the state $10 million in lost General Fund revenue. What nonsense! The only way that could be true would be to assume that all these new industries that the state hopes to attract, and domestic companies looking to expand, would suddenly decide that North Carolina was the one and only state they would consider. Not only are we not landing as many corporate relocations as we once did, we’re having trouble holding on to existing companies that are expanding, as witnessed by Pilot Therapeutics’ decision to leave Winston-Salem for Charleston, S.C.

Our hunch was that the state would gain far more that it would pay out under the new program, so we called the Employment Security Commission for some help in working through the numbers. And here they are:

The average annual wage in North Carolina in 2001, the latest year those figures are available, was about $31,826. The average state income tax levy is 7 percent, although that figure varies according to the number of deductions claimed and whether the taxpayer is filing alone or jointly with a spouse. So, the average wage earner pays about $2,228 in state income taxes, 75 percent of which is about $1,671. Thus, for the for state to refund $10 million in income taxes to companies that qualify under the new Job Development Investment Grant Program, they would have to create 5,984 new jobs.

The state still would receive 25 percent of the income taxes paid by the workers in those 5,984 new job, or roughly $3.33 million, but think about all the additional economic activity that would be created. Again, using the average annual wage figure (although the legislation is designed to attract high wage, new economy jobs), creating 5,984 new jobs would send about $190 million in wages rippling through the economy. The companies creating these new jobs would pay corporate income taxes, franchise taxes and other state levies, just like every other employer. They also would pay contributions into the state’s unemployment insurance trust fund, which badly needs additional revenue.

So, one simple way of assessing the new Job Development Grant Program is that North Carolina will pay out $10 million and get $190 million back. That’s a rate of return of 19 to 1. The one question that was left in my mind after going through these figures with the ESC folks was, why was the program capped at $10 million?

-- Steve Tuttle

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