State leaders' job promises continue to come up short

The annual economic development report was released earlier this month, about a week after state lawmakers voted to extend North Carolina's largest incentive programs to entice job creation. The data show that, for incentive projects announced from 2009 to 2012, most of the jobs have still failed to materialize.

Despite missed hiring targets, the data also show state officials have paid out only about 16 percent of the more than $367 million in grants they've promised to companies in exchange for about 19,000 jobs, and almost a third of the companies have hired 80 percent or more of their job targets.

Critics say the results show the programs are failing to make a real impact on economic progress in the state, but Commerce Secretary John Skvarla argues that, given the structure of the programs, which only pay out if jobs are actually created, "there's no bad news" even if job promises don't pan out.

"We should be absolutely on our knees thanking God that we have 19,000-some jobs that we didn't have before but for the utilization of this program," Skvarla said. "That’s the key message that needs to continue to be sent and transmitted, because people don't get it."

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Among the state's grant programs, the largest are the Job Development Investment Grants and the One North Carolina Fund. Depending on the project, the performance-based grants take two to eight years to fully pay out as companies ramp up production, build new facilities or relocate operations.

After more than a year of pushing legislators to overhaul the programs with the help of two commerce secretaries, Gov. Pat McCrory in late September signed a bill into law that would, among other things, extend the JDIG program beyond this year.

Because the grants take time to mature, WRAL News analyzed the JDIG and One North Carolina projects announced by Gov. Bev Perdue from 2009 to 2012 to get a complete picture of how the administration's incentives measure up.

Of the 279 projects Perdue's administration announced, 275 have reported on their hiring progress. About 39 percent, however, told the state they haven't created a single job yet – 108 companies in all.

In her announcements, Perdue promised the creation of 41,778 jobs during her tenure.

Data show that 47 percent – 19,482 – of those jobs have been created, despite the projects being a cumulative 87 percent of the way through their grant cycles.

Some projects still have time in their multi-year grant cycles to catch up, but among the 194 projects completely closed out or past their ramp-up period, companies created 13,023 of the 26,330 announced jobs – about 49 percent.

The statistics concern critics such as Sarah Curry, director of fiscal policy studies at the John Locke Foundation, a conservative think tank. Curry has studied the use of incentives on the state and local levels in North Carolina and says she's skeptical of their impact on job growth.

"The data allows the Commerce Department to say, 'Look at what we did,'" Curry said. "But I don't think they're doing anything, because they're failing more than they're succeeding."

Skvarla dismissed that line of criticism in a phone interview last week, pointing out that programs pay companies only a portion of the income tax generated by new jobs. The strategy makes initiatives like JDIG "a winning program," and anybody framing it differently "doesn’t understand how it works."

"Do we say that, because you missed your forecast by creating 200 jobs instead of 400 jobs, you’re a failure? Or did we put 200 new jobs in an area that needs 200 jobs desperately?" Skvarla said. "The answer is, of course we want the 200 jobs, because we’re only paying for 200 jobs."

Given the complicated nature of economic forecasting, Skvarla said it's not surprising some companies won't hit their job targets five or more years into the future. Because of that variation, he said it's important to look at the number of companies that have hired at least 80 percent of the announced jobs, clearing out companies that didn't perform.

"The zeros are skewing the statistics because they're getting nothing," Skvarla said.

Among the individual projects announced from 2009 to 2012, 78 of them hired 80 percent or more of their job targets. That's about 28 percent of the total.

Although the projects' job goals often fall short, so do the costs. Only 16 percent of the projected cost of the grants has so far paid out – a price tag of $59 million for about 19,000 jobs.

That reduces the projected cost per job from about $8,800 to an actual cost of $3,000 per job.

Brent Lane, director of the UNC Center for Competitive Economies, said state leaders' focus on incentives can often obscure the broader discussion of North Carolina's economic progress. The danger, Lane said, is that incentive-driven job creation – even when it hits 100 percent of the goal – isn't significant enough overall to boost the nation's ninth-largest economy.

"That’s generally my take on our whole economic development incentive scheme, is we haven’t set a high enough standard of economic success that, when we make it, it moves the economic needle for North Carolina," said Lane, who authored a major 2009 report on state incentives commissioned by lawmakers.

From 2009 to the end of 2014, the period of time the projects announced under Perdue would be hiring, North Carolina employers added 205,300 nonfarm jobs, according to the state's Labor and Economic Analysis Division.

Incentive projects from 2009 through 2012, by comparison, were credited with the creation of 19,482 jobs.

Lane said 2015 was marked in North Carolina by both broad economic gains and bad economic incentive news, including the loss of several high-profile projects and the legislature's long wait to pass an extension to the incentive program. The contrast there, he said, actively undermines the assumption that incentive programs are key to economic growth.

"It puts the significance of economic development results in the proper context," Lane said. "It calibrates them."

But Skvarla argues that many of the gains the state has seen in job creation can be attributed to the work of the state's economic developers – even without incentive legislation in place. He said he continued to make proposals "with an asterisk next to the incentive side" while they waited for the General Assembly to take action.

"We didn't let up. So, it wasn't a function of companies coming here anyway," Skvarla said. "We would have lost thousands of jobs had the legislature not acted."

Although employers look at dozens of factors when considering relocation or expansion, he said it's critical for North Carolina to offer low tax rates, a high quality of life and an educated workforce to keep up with neighboring states. But part of the overall package must include incentives, he said, because the state can't compete without them.

"We are going to get run over like Sherman through Georgia, because that is the way of the world," Skvarla said.

Despite her opposition to them philosophically, Curry said she recognizes that North Carolina's incentives, which have exploded in value since their introduction in the 1990s, are here to stay.

"Every state in the nation is using incentives in one form or another, so the idea that North Carolina can eliminate them is a nice wish, but I don't think it will ever happen," Curry said. "Really, what we need to focus on is, if we are going to use them, why not use them more effectively?"

She said she wants to see a fairer process that could benefit both large and small companies. The latter are often left out of the process. More nuanced metrics, she said, would also help the Commerce Department figure out what works and what doesn't.

"You can't just look at it and say, 'Oh, we created jobs. That's all that matters,'" Curry said.

In some cases, Lane said, it's up to the legislature to build in real definitions of economic development success with specific targets so the administration, including the Commerce Department, can evaluate the effectiveness of programs like JDIG and One North Carolina Fund.

"We’re still left with the impression that any job is better than no job," Lane said. "It’s the prejudice of low expectations: Any job is better than no job, and our only goal is more jobs, not enough jobs. How many is enough jobs? That’s an example of a goal."

Skvarla said his goal is to get the tools to recruit "any company, any place in the state that properly fits." So far, he contends, that strategy is working.

"You know what my methodology is?" Skvarla said. "If it's legal, I want it."