RALEIGH, N.C. – More major location projects will be getting stuck on sites in the Tar Heel State - or at least that's the idea behind a new incentive program that the North Carolina House of Representatives passed last week.
        The legislative proposal - formally dubbed the North Carolina Economic Stimulus and Job Creation Act (ESJCA) - gained House ratification by a wide margin of 81-34. Even so, the ESJCA generated considerable controversy.
        The program will award as much as US$540 million in cash grants over the next 15 years to selected companies. The source of the funding: income taxes paid by the employees of the businesses that receive the grants. But the incentives can only be used to bring new companies into the state - one of the provisions that spurred the hottest debate on the House floor.

One of the ESJCA program's most important backers has been Gov. Mike Easley, pictured above at the podium at the dedication of Biogen's two new facilities in Research Triangle Park.

        "What concerns me about this bill is $540 million," said Rep. Mickey Michaux (D), who was among the lawmakers who pointed out the state's current struggles in balancing its budget. "We need to support the businesses already in this state," Michaux contended.

Supporters: ‘The Voice of Economic Development Was Heard’

But supporters of the bill, including Gov. Mike Easley (D) and House Speaker Jim Black (D), see a dramatically different picture.
        The legislation, they say, will provide a huge boost in bringing in higher-paying jobs to replace the manufacturing jobs lost during the economic downturn. The lack of such cash grants, ESJCA backers successfully contended, has eliminated North Carolina from final short-list contention for a number of major new ventures - including high-profile Southeast projects for BMW, Mercedes Benz and Pirelli Tire.
        "The voice of economic development was heard," Dale Carroll, president of the North Carolina Economic Developers Assn. (www.nceda.org), said after House passage of ESJCA. Without the new legislation, the state's recruiting position would "worsen relative to other states, which offer more aggressive incentives," contended Carroll, president and CEO of the Asheville-based Western North Carolina Regional Economic Development Commission (www.awnc.org).
        That rationale swayed 70 percent of the House votes. House ratification was considered the key step in translating ESJCA into state law. State legislative analysts expect the Senate to approve the House bill with few, if any, modifications.

11th-Hour Incentives Cap Helped Seal Deal

If the Senate gives its expected approval, the ESJCA incentive program would be administered by a seven-member board, comprised of state administrative officials and legislative appointees. That board could pick as many as 25 companies a year to receive ESJCA cash grants. Companies tapped for the grants could receive as much as 75 percent of their employees' income taxes for up to 12 years.
        The House-approved bill, though, differed significantly from the original ESJCA proposal.
        One major alteration: a cap on the total dollar value of the grants that can be awarded. The original legislation contained no such ceiling. A cap on grants, the legislation's architects contended, would be tantamount to a cap on new jobs.
        The prospect of no-limits incentives, however, didn't play well with a considerable segment of legislators already grappling with state belt-tightening.
        That resistance was significant enough, in fact, that the bill's supporters agreed to a cap over
        the weekend before House approval on Aug. 27. The final bill has a $15-million ceiling for total grants awarded in each of the three years that the ESJCA legislation covers. With each grant's potential to extend as long as 12 years, the $15-million limit in turn caps the total value over the grants' lifetime at $180 million a year - or $540 million during the ESJCA's three-year authorization.
        "At least when we walk out of this room, we will know the maximum obligation North Carolina will have," Rep. Martin Nesbitt (D), a cap advocate, said during the vote. "I still don't like the bill," Nesbitt continued. "I don't like it if it cost $10 million. But at least we have put some fiscal sense into it."

North Carolina's incentives legislation includes language criticizing incentives. "I feel like the legislatures have had a gun put to their head, and the person holding the gun is saying, 'If you don't give us this money, we are going somewhere else'," Rep. Cary Allred (pictured above) said during legislative debate.

An Incentive Bill Condemning Incentives

Fiscal sense, though, is exactly what the state's economic development community sees in the ESJCA. The legislation adds a powerful weapon to the state's business recruiting arsenal, supporters say. The Tar Heel State has previously used tax credits as a recruiting lure. Cash grants, however, are a far more flexible and powerful tool, ESJCA backers assert.
        Even so, the incentives bill is somewhat unusual in that it contains language highly critical of the practice of awarding incentives. The bill, in fact, even urges the U.S. Congress to outlaw location incentives in all states.
        "What this would do is to eliminate all these, so we would not be out there like a carrot on a stick, chasing something we can never achieve," Rep. Cary Allred (R) said during final ESJCA debate. "I feel like the legislatures have had a gun put to their head, and the person holding the gun is saying, 'If you don't give us this money, we are going somewhere else'," Allred added.
        The added anti-incentive language in part reflects North Carolina's (www.nccommerce.com) historic approach to business recruiting. The state has built a business climate that's highly regarded by many corporate site seekers, regularly rated in the top tiers of Site Selection's rankings. (Editor's note: The newest business climate rankings will be unveiled in the upcoming November issue.) Big-ticket incentives, however, haven't been part of the state's recruiting package.

Board Enlarged, Legislative Appointees Added

That history also explains why the size of the ESJCA board was considerably enlarged from what was originally proposed.
        The legislation initially called for grant decisions to be made by a three-member board composed of the state commerce secretary, budget director and revenue secretary. A smaller board could move more quickly to reach unanimous decisions, the bill's authors argued.
        Lawmakers, however, twice altered the board's total membership and makeup during House debate. First, the total number of members was enlarged to five. By the time the bill gained final passage, the ESJCA board had seven members: the commerce and revenue secretaries; plus the labor secretary; the community college system president; a member from one of North Carolina's seven regional economic development partnerships; and appointees by both the House speaker and the Senate president pro tem.
        Those seven members will negotiate with individual companies in determining the amounts and lengths of the cash grants.