Archive for the ‘North Carolina’ Category

Astonishing Failure Rate Found in Major North Carolina Subsidy Program

February 19, 2015

Every time a company is approved by the North Carolina Commerce Department for a Job Development Investment GrantPICKING LOSERS Cover (JDIG), there is 60 percent of chance that the company will fail short on its jobs, investment or wage promises. This astonishing statistic is contained in a new report by the North Carolina Justice Center that evaluates performance of this key subsidy program in the Tarheel State.  The study comes at a time when the North Carolina legislature is about to debate Gov. Pat McCrory’s request to expand the faulty program.

JDIG provides performance-based grants to companies that create certain number of jobs in the state.  If a company fails to deliver on the promised jobs within five to seven years, the subsidy is cancelled and in some situations money is recouped through clawback provisions (for example, the 2004 failed Dell deal). The Justice Center found that 62 out of 102 projects approved for JDIG grants between 2002 (the year the program was created) and 2013 did not deliver on their jobs, investment or wage obligations and thus were canceled. This 60 percent rate would give you an F in school!

The report also found that out of only nine percent of JDIG grants that went to rural counties, 77 percent were canceled (90 percent of JDIG projects went to urban counties). However, “the most troubling trend in the state’s targeting mismatch,” as Allan Freyer, the author of the study, puts it, is the fact that 60 percent of all approved grants went to three counties with the fastest job growth: Durham, Wake and Mecklenburg. Freyer adds: “the state is investing the majority of its incentives resources in the counties that need it least.”

In recent months Gov. McCrory has been arguing that money in the JDIG program has dried up and is asking the legislature to allocate more resources.  The report, however, shows that JDIG money did not suddenly run out. Rather, more than a half of the money earmarked for the program was granted to one “megadeal” for MetLife. In 2013, the insurance company was awarded $110 million over ten years, or $11 million a year. The yearly payments to MetLife constitute half of the money in the program, leaving only $11.5 million for all other projects.

Instead of expanding the JDIG program as requested by the Governor, the report urges lawmakers to strengthen performance measures and evaluation processes. It also recommends focusing on companies in growing industries and taking steps to bring about a more equal distribution of grants between urban and rural counties.

North Carolina Conflict of Interest Controversies

September 16, 2014

As odd as it sounds, North Carolina’s ethics law allows high-level state appointees to serve on the boards of for-profit

Secretary Sharon Decker

Secretary Sharon Decker

corporations. Such officials are prohibited, however, from taking actions that might create a conflict of interest with their official duties. Sharon Decker, the state’s secretary of commerce, is taking advantage of that law but is ignoring what many observers see as an obvious conflict.

Decker has been serving on the board of Family Dollar Stores, one of the country’s largest chains of deep-discount retailers. That part-time post pays her more (nearly $150,000 last year) than her official salary ($136,000). Being a Family Dollar director these days is more challenging than usual. The company, responding to concerns about its financial performance, agreed a few months ago to be acquired by its rival Dollar Tree. But then the biggest dollar-store chain of all, Dollar General, made its own offer.

The situation remains unresolved, but it is likely that any change in ownership of Family Dollar will jeopardize jobs at the company’s headquarters in Matthews, North Carolina. In other words, Decker, whose duties include promoting job creation, might very well be taking steps in her private position that reduces employment in the state.

Decker’s situation creates serious questions about the policy of allowing high-level economic development officials to sit on corporate boards. On one hand, those officials are responsible for protecting North Carolina jobs and for representing the state’s interest in negotiations with companies. On the other hand, as directors they are responsible for maximizing profits of corporations.

Decker is not the first high-level official whose close relationship with a private company has caused public concern. For 14 years when Gov. McCrory was Charlotte’s mayor, he was also a manager at Duke Energy. The recent coal ash spill caused by the company raised questions about whether the Governor was still advancing the interests of the company.

There is another troubling aspect of this story. The Economic Development Partnership of North Carolina, a newly created private arm of the Commerce Department, is about to start its operation. Its employees will follow the same ethics rules as legislators and executive branch officials, meaning that they could end up in similar positions to McCrory and Decker.

The next time they meet, North Carolina legislators might want to consider whether it’s time to overhaul the state’s conflict of interest rules.

North Carolina Puts the Brakes on Subsidy Spending but Moves Ahead on Privatization

August 25, 2014
North Carolina State Capitol. Image by Abbylabar (Own work) [CC-BY-SA-3.0 (http://creativecommons.org/licenses/by-sa/3.0)], via Wikimedia Commons

North Carolina State Capitol. Image by Abbylabar (Own work) [CC-BY-SA-3.0 (http://creativecommons.org/licenses/by-sa/3.0)%5D, via Wikimedia Commons

For the past decade, North Carolina has spent heavily on subsidies, abandoning its previous economic stinginess. In an encouraging new reversal, the Tar Heel State is returning to its old ways. In a just completed short session, the state legislature took two important steps to limit giveaways: it ended one of the country’s biggest film tax credit programs and it defeated a proposal by Gov. Pat McCrory and Secretary of Commerce Sharon Decker to create a deal-closing slush fund. The defeat of the fund also meant the rejection of an expansion of several existing subsidy programs and a special deal for a paper mill.

Not everything coming out of the session was positive. Lawmakers moved ahead with an ill-conceived plan to privatize job recruitment functions of the state’s Commerce Department. The plan was approved despite warnings of problems with similar quasi-public agencies across the country and despite revelations by the N.C. Policy Watch that the Partnership’s CEO lacks experience in economic development and led his company into bankruptcy.

It was the second attempt by the Governor and Commerce Secretary to pass this bill. During the previous legislative session, a similar proposal failed when an amendment that would lift the state moratorium on hydraulic fracturing was added to the bill (the North Carolina chapter in our Creating Scandals Instead of Jobs study has more details on that plan).

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Subsidies to Campaign Contributors in NC and DC

May 20, 2013

Two recent investigative news reports, one in North Carolina and another in District of Columbia, provide useful examples of how major campaign contributors often end up receiving substantial subsidies or special tax treatment.

Click the image to go to the WAMU website

Click the image to go to the WAMU website

The News & Observer in North Carolina published a series of articles called “Missing Money” that examined the state’s tax subsides. One of the articles looked at ties between lawmakers and subsidy recipients. For example, two large hog and poultry processors each contributed $100,000 to a state senator who introduced a bill making the materials they purchased to build their animal housing exempt from sales taxes. Although the contributions were far in excess of legal limits, the processors were not prosecuted.

WAMU, an NPR affiliate in the District of Columbia, has begun a series of reports called “Deals for Developers.” The “Day 1” part exposes connections between political campaign contributions and subsidies.

The investigation shows that one-third of the $1.7 billion in public money paid out over the last decade has gone to the ten developers who contributed the most to local political campaigns. In total, those who received subsidies contributed more than $2.5 million and received subsidies worth some $641 million.

To avoid the city’s limits on campaign donations, the radio station found that developers contributed money through multiple shell companies as well as their employees and family members. Sadly, only a small fraction of the subsidies, about five percent, went to the neediest neighborhoods in the city. (Make sure to check out the station’s table of campaign contributions and subsidies and an infographic examining the connections.)

These two investigations were possible because of the growing transparency of economic development subsidies. North Carolina has done well on Good Jobs First transparency reports and Washington, DC not too long ago started disclosing its subsides. We hope to see similar investigative reports coming from other parts of the country, but for now we congratulate The News & Observer and WAMU on their exceptional work.