Do Economic Incentives Actually Create Jobs?

>>BY SARA LANG

Politicians talk an awful lot about jobs– creating them, attracting them, retaining them. But to quote James Carville: “What happens when the politics ends, and the governing begins?”

Since the 1990’s, incentives have been a piece of North Carolina’s economic development strategy — from industry tax credits to performance-based grants to historic tax credits to film industry incentives.

Recent numbers show that these cash infusions seldom go where they are most needed, and even when they do, we’re left to wonder to whether they work. Meanwhile, the Governor and Senate are locked in a battle of how much to spend, and where to find the money.

North Carolina’s major incentive programs are the Job Development Investment Grant (JDIG) program, the Jobs Maintenance Capital Fund (JMAC), and the OneNC Fund. These programs focus on job creation and require companies to fulfill their promises of job creation and investment in order to receive the money from the state.

According to an analysis by the NC Budget & Tax Center, between 2007 and 2013, >>555 projects in North Carolina were awarded incentives, totaling $840.3 million and creating 168,981 jobs. But there are serious concerns about where these dollars went and whether they actually created jobs.

Tier 1 counties– the 40 nc counties with the highest levels of economic distress– have received incentives for the largest number of projects, but the amount of money they received falls short. Tier 1 counties received $181 million in incentives between 2007 and 2013, compared to $592 million during the same period for Tier 3 counties – the 20 least distressed counties. In fact, 56% of the total incentive dollars awarded since 2007 was spent in just three counties— Mecklenburg, Wake, and Durham.

While those urban areas are economic engines for the entire state, they are also the fastest growing in terms of jobs. So, are the incentives bringing more jobs in or are the dollars simply following the jobs that are already coming?

The success rate of these incentives is pretty lousy. One analysis found that >>60% of all firms receiving incentives awards from the JDIG program have failed to live up to their promises of job creation, investment, or wages. More than 77% of JDIG projects in rural counties have failed, compared to just 56% of urban county projects.

I’m no economist (Econ 101 at UNC-Chapel Hill notwithstanding), but here’s what I understand about incentives and economic development:

• No one likes spending state money to create jobs. But, as the clichéd saying goes, we don’t make the rules, we just live by them. As long as other states are offering incentive packages, North Carolina needs them to stay in the game.

• Incentives are only one piece of the puzzle when a company is deciding where to locate. Workforce, local schools and quality of life are all powerful motivators. If we want to continue to stimulate economic growth, we can’t ignore these factors.

• We have to get over the idea that our rural areas are vying for the same opportunities that our major cities – Raleigh, Durham, Charlotte, Greensboro – can attract. That’s not a knock on rural areas, it’s just a reality that politics make it hard to accept, or talk about. Raleigh is competing against Austin, Atlanta and other major cities, not Smithfield or Clinton.

• Investing in infrastructure, transportation and education from pre-k to post-grad are powerful economic development forces that may yield more long-term success than incentives. Let’s ensure we have transportation options to get people to and from the job centers. Let’s make sure our community colleges are preparing students for the jobs available. And, let’s keep our universities centers of discovery and innovation.

Our state needs economic development strategies that are realistic, sustainable and embrace the strengths of each region. Incentives can be part of this equation, but only part.

Let’s hope the politics stop and the governing begins. Soon.