N.C. counties promised $284 million in incentives over five years

| July 10, 2015

sarah curryby Sarah Curry, John Locke Foundation, July 9, 2015.

N.C. counties entered into incentives contracts totaling nearly $284 million from 2009 to 2014, according to a first-of-its-kind John Locke Foundation Policy Report compiling statewide local incentives data. The report shows actual incentives payments totaled $144 million over the same five-year period.

Report authors urge the N.C. General Assembly to consider changing state law to make local incentives information more transparent.

“Data for this report were much more difficult to collect and interpret than was anticipated,” said report co-author Sarah Curry, JLF Director of Fiscal Policy Studies. “Each county has a different way of keeping records of their incentive activities, which makes it extremely difficult to make comparisons and capture the same data for every county.”

The report calls on legislators to mandate that counties meet a standardized reporting requirement for all economic development activities.

“Legislators also should allocate funding for a Web portal that gives taxpayers access to aggregate and county-specific economic development expenditures and machine-readable documents,” Curry said. “Elected officials should then use this information to evaluate whether the costs of incentives outweigh the benefits.”

A provision of the state Senate’s 2015-17 budget plan calls for state officials to “coordinate with” local governments to ensure posting of budget and spending data on local government websites and to provide the data to the state Local Government Commission.

Despite current reporting challenges, Curry and her co-author, JLF Research Intern Catherine Konieczny, assembled information from all 100 county governments. Eighty-one counties reported participating in county-level economic development activities.

The governments entered into 776 agreements promising nearly $284 million to private-sector companies over the five-year study period. Counties actually paid out $144 million in incentives from 2009 to 2014.

“In some cases, the difference between incentives promised and incentives paid is that not all recipients met the terms of their agreements,” Curry said. “In other cases, the timing of the incentive agreement did not match the five-year study period. In other words, some counties were making incentive payments for agreements they entered before 2009, while others granted incentives during the study period that did not lead to payments by 2014.”

There was no obvious trend distinguishing reliance on incentives in larger versus smaller counties, Curry said. “The popular perception of economic development is that wealthier urban and suburban counties are able to leverage greater resources for these activities,” Curry said. “Yet, on a per-capita basis, there is no evidence of a divide between large and small, or between urban and rural counties.”

Iredell, Davie, Halifax, Lenoir, and Buncombe counties reported the highest-per capita totals approved for incentive agreements. Each budgeted more than $100 per resident. Only Wilson County ended up paying out incentives of more than $100 per person from 2009 to 2014. That was due to an agreement finalized before 2009.

“Several of the highest-paying counties had their numbers skewed by one or two exceptionally large incentives agreements,” Curry said. “Those included Wilson County’s $5.7 million in payments related to Bridgestone-Firestone, Catawba County’s $8 million for Apple, Iredell County’s $3 million for Lowe’s Home Improvement, and Randolph County’s $2.3 million for Malt-O-Meal.”

Larger deals helped lead to some “notable outliers” among the counties, Curry said. “For instance, Iredell County approved, but did not pay, $222.65 in incentives per capita over the five years, more than any other county in the state and 78 percent more than the next-highest county in its region,” she said. “Iredell ended up paying $47.41 per person.”

North Carolina’s largest county, Mecklenburg, ranked No. 4 in approved agreements of $25.3 million. At $26.89 per person, Mecklenburg ranked No. 31 in per-capita incentives approved. Wake County’s $18.5 million in approved incentives ranked No. 5. Its per-capita total of $19.98 ranked No. 35.

At the other end of the population scale, Hertford County ranked No. 44 with nearly $750,000 in incentives approved. At $30.62 per person, Hertford ranked No. 26 on a per-capita basis.

Along with the county-by-county data, Curry and Konieczny spell out counties’ legal authority to offer incentives. The authors also identify different types of incentives used across the state.

“Sixty-four counties used performance-based incentives, meaning that the private entity must meet benchmark requirements within a certain timeframe to get the incentive,” Curry said. “The two most common performance measures used are the number of jobs created and the monetary investment in real property or existing infrastructure.”

Nonperformance incentives include “unconditional” awards that cannot be classified as infrastructure, Curry said. A third category, infrastructure grants, helped private companies meet state building code requirements or connect to public utilities. These included fire hydrants, roadway intersections, and water and sewer lines. Seventeen counties reported using tax-based reimbursements, a category that includes any incentive that adjusts property tax valuation.

“Of the 81 counties that reported economic development expenditures, six had no performance requirements, five did not report any reason for the incentive, and another six awarded cash grants only for infrastructure investment,” Curry said. “The remaining counties tied their incentive to various performance measures.”

Despite the fact that most counties used performance requirements, many reported no results, Curry said. “Thirty-three counties did not disclose performance results or outcomes, even though these counties disclosed payment,” she said. “This suggests that there are gaps in the data and reporting deficiencies.”

A standardized reporting requirement would help address those gaps, Curry said. “There is no single data source now that tracks expenditure of tax revenue on economic development at the local level,” she said. “A standardized reporting requirement would give local and state officials a helpful tool to evaluate incentives. We suspect that, in most cases, there are much better uses of tax revenue and much more efficient ways to spur economic growth, such as lower tax rates and reduced regulation.”

Sarah Curry and Catherine Konieczny’s Policy Report, “Economic Incentives: County by county,” is available at the JLF website. For more information, please contact Curry at (919) 828-3876 or [email protected]. To arrange an interview, contact Mitch Kokai at (919) 306-8736 or [email protected].

http://johnlocke.org/press_releases/show/773

Category: NC Stateline, SPIN Blog

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