State Government

Major Changes Proposed in
Economic Development Policy

By Steve Tuttle

The N.C. Economic Development Board has recommended several changes in the Bill Lee Act, the centerpiece of the state’s economic development policy, in order to make the legislation more flexible and more competitive with other states that offer higher-dollar packages. Many of the changes are intended to divert more new jobs and investment to poorer counties. The proposals are contained in legislation proposed in the state House by Rep. Bill Owens (D-Pasquotank) and in the Senate by Sen. David Hoyle (D-Gaston).

The Economic Development Board (EDB) is chaired by former NCCBI Chair Gordon Myers of Asheville, the Ingles Markets executive. Several prominent NCCBI members also sit on the board. The EDB’s Recruitment and Retention Committee, headed by former Commerce Assistant Secretary Watts Carr, made the recommendations after comparing North Carolina’s economic development incentive policies with those used by other southeastern states. The committee concluded that, if new and more powerful incentives were enacted, savings from any Lee Act changes that would reduce credits taken under the act could be used to offset any costs of the committee’s other recommendations without harming the state’s competitiveness.

The most significant recommendation by the board is creation of a Job Development Investment Grant Program, under which North Carolina would attempt to land projects that it is about to lose to another state allowing the company to get back a portion of the state withholding taxes of its new employees. Available for both urban and rural projects, the initiative is modeled on successful programs used in 15 other states, including South Carolina.

A committee, made up of the secretaries of Revenue and Commerce and the State Budget Director, would be authorized to award job development grants to strategically important businesses and industrial projects. The committee would report periodically to the General Assembly. Grants would be negotiated and awarded only for jobs and investment that are truly new to the state and were at risk of being lost to other states.

Grants of up to 80 percent of the employee withholding taxes generated by the new jobs at the new or expanded facility would be given to the new industry over a period of years. The program is essentially self-funding from new revenue to the state. Only projects whose benefits exceed their costs to the state would be eligible. A portion of the eligible grant amount in more developed counties would be used to help fund a rural infrastructure grant fund.

Below is a summary of other recommendations by the EDB’s Recruitment and Retention Committee:

Scale back the William S. Lee Act to fund more targeted incentive programs. The committee proposes increasing the job and investment tax credit thresholds by requiring more jobs to be created and more investment to be made to become eligible for credits in the state’s wealthier counties. In Mecklenburg and Wake counties, for example, companies would be required to create 25 new jobs to become eligible for the tax credit. It also would lower the rates for the investment tax credit in the state’s wealthier counties.  This section of the legislation would alter the worker training tax credit to increase its utilization and remove the wage standard requirement to assist poorest counties in recovering from recent job losses. The Lee Act currently requires the taxpayer to create only one new job to be eligible for the jobs tax credit.

Use Lee Act savings to fund industrial recruitment competitiveness fund. The bill would create a $15 million recurring source of funding for the One North Carolina Fund, often called the “governor’s walking around money.”  Virginia has a $30 million fund.

Renew the Qualified Business Venture Tax Credit. Extends the existing tax credit for investments in entrepreneurial, small business start-up companies which expired on Jan. 1. This is one of North Carolina’s only programs to encourage venture capital investments.

Alter rates and increase threshold for machinery and equipment tax credits. Taxpayers are currently eligible for Lee Act tax credits of 7 percent of the value of new investments in machinery and equipment above certain threshold amounts. Although the value of some Lee Act tax credits is graduated by tier, the machinery and equipment credit is not. The vast majority of tax credit is claimed in higher tier counties. In Tier 5 counties, the state’s wealthiest, companies would have to invest more than $2 million to be eligible for the machinery and equipment tax credit, twice the current level.

Delete the extra wage test for the worker training credit. The worker training tax credit is scarcely used at present even though it is the state’s primary incentive for encouraging retraining of existing workers. Currently, a business must first meet the wage test for creating new jobs or for investing in machinery and equipment. Then, the company must meet a second wage test — whether the average wage of the workers trained exceeds the county wage standard. Because the workers that require training are often production workers who are not highly paid, companies that meet the first wage test may nonetheless be rendered ineligible because the workers who are receiving the training cannot meet the second wage test.

Eliminate or significantly loosen the wage test in Tiers 1 and 2. Companies currently must pay 110 percent (except 100 percent in Tier 1) of the county average weekly wage and provide health insurance to be eligible for any Lee Act credits. Current wage standard test tends to discourage jobs and investments in Tiers 1 and 2. With their smaller wage bases, their counties are the ones most likely to suffer distortion of their true wage picture by the presence of a single well-paying industry. The requirement that Lee Act eligible industries provide health insurance ensures that only quality jobs and investment will be rewarded.

Return to magazine index