Our economic development policy must address the economic needs of the state and reform the special treatment of select businesses and industries based on arbitrary criteria. The following proposed reforms will enable North Carolina’s economic development policy to provide for openness, accountability and fairness – just principles of a democratic society and a sound foundation in public policy.

North Carolina cannot rectify the interstate incentives competition alone. As Governor, I will convene a taskforce to address interstate competition in targeted business incentives at the national level. The taskforce will be charged to work with our state congressional delegation to address potential federal legislative solutions. This taskforce will be comprised of business leaders, political leaders, and public policy advocates of both political parties.

The taskforce will also initiate discussions with states across the southeast to tackle current "closed door" recruitment efforts. Negotiations with relocating businesses too often include references to what may or may not be offered in neighboring states. Site selection experts, recruitment specialists and lobbyists who have an interest in attaining the largest incentive package possible, are not a reliable source of independent information on competing state offers. We can control the escalating size of incentives by working with other states to bring incentive negotiations out in the open. In doing so, we empower the states, not the site selection experts or the corporations, to identify who the competition is and what is being offered.

Reform of current practices is necessary for regional development. Money spent on incentives supplants state investments in education, transportation and infrastructure, and can have a negative impact on broader regional recruitment efforts. Poor roads in South Carolina detract from North Carolina's marketability by making it difficult to transport products made here to lucrative markets in Atlanta and Florida. Meanwhile, inadequate upkeep of North Carolina's ports could damage manufacturing recruitment in landlocked Tennessee. The relative proximity of the Rock Hill, Norfolk, and Tidewater regions to the North Carolina border heightens competition and makes these areas among the most important areas to focus on for increased cooperation.

The Taskforce would further work with the National Governors Association and the National Conference of State Legislatures to draw the discussion beyond regional interests and work with likeminded officials from coast to coast to encourage a broader coalition of reform to help address the challenges of economic growth and targeted business incentives.

The North Carolina Supreme Court has said that in classifying entities
for taxation the "classification itself must be based on a reasonable distinction." Special legislation passed to provide a tax incentive to a targeted business cannot be justified as a classification based on any reasonable distinction. In arguing on behalf of the Goodyear incentive, proponents defended the legislation by asserting the need to retain existing North Carolina jobs. However, they failed to explain the distinction that made jobs at Goodyear and Bridgestone Firestone more valuable than those at other facilities across the state. If the purpose of targeted incentives is to encourage job creation, then our Governor and our legislature have pursued the classification of businesses based on their particular opinion of what jobs are most valuable. While we do not have the revenue base to respond to every business that makes a request or "threatens" to leave without a state subsidy, that does not mean we should draft our policies to provide only for those with the loudest voices or the biggest names and the most politically influential lobbyists.

If the goal of these economic development programs is to support job creation, particularly in economically distressed corners of the state, then our policies need to be directed to just that, not to supporting select industries or select businesses who have the lobbying power to influence decision making. Instead of focusing on special deals we should focus on improving tax conditions for all businesses. And, if and when incentives are required by the General Assembly, our incentive policies need to provide for the genuine accomplishment of job creation and apply a uniform system of credits or rebates that assists fiscally responsible growth.

While it is in the interest of the state to limit support to those companies which meet environmental and safety standards, pay adequate wages, provide adequate health care, and create long term versus seasonal employment, we should not choose to support only those industries or companies which special interests deem most valuable. A new nurse and a new assembly line operator, each making $40,000 a year, will encourage growth in local communities. While I am not proposing that we provide incentives to the healthcare industry, I do think it is important to not favor in our state policies the multi-national internet service provider at the expense of the small manufacturing operation. By encouraging the growth of local businesses, be they textile, furniture, biotechnology, or semiconductor producers, we are making a lasting investment in the growth of our state by providing new products and services to keep North Carolina competitive nationally and internationally well into the future.

 The One North Carolina Fund provides cash grants for new or expanding businesses at the discretion of the Governor. Over $42 million has been spent under the program since its initiation in 2004 in over 194 separate grants.

Under the One NC Program, local governments must provide matching funds to be eligible for grant awards. This places an undue burden and a high opportunity cost on some of our poorest communities. Governments must choose between budgeting resources away from needed government services and forfeiting their eligibility to receive state funds. Limited in their ability to contribute local tax dollars, communities in the western and northeastern regions in the state must accept smaller grants than communities like Raleigh and Charlotte which can more easily match state contributions up to the $3 million maximum grant award. The relatively small size of most One NC grants, down to as little as $75,000, suggests that their ability to serve as an effective recruitment tool is limited. Our smaller communities would be far better served by investments in infrastructure and education than in meager cash payouts from the Governor's office that they must try and match.

The nature of these grants as “discretionary” provides added complications. Discretionary incentives, authorized exclusively by the executive branch, allow too much room for political considerations to enter the decision making process. We have often heard the One NC Fund described as the “Governor’s walking around money,” a term generically applied to money used for vote buying in elections. Grants could thus be distributed to preferred businesses and industries in order to garner votes in the next election cycle. Therefore, I propose that the One NC Fund be eliminated.

 The Job Development Investment Grant Program was developed to "stimulate the economy, facilitate economic recovery, and create new jobs in North Carolina[.]" The language of the original legislation stated that enactment of the JDIG program would "promote the general welfare and confer, as its primary purpose and effect, benefits on citizens throughout the State[.] However, according to data from the Department of Commerce, the loose discretionary allocation of grants has favored investment in already attractive urban areas to already successful and profitable corporations. According to the data from the Department of Commerce, 31% of JDIG grants awarded between 2003 and 2006 were given to companies relocating or expanding in Durham and Wake County. An additional 11% were awarded in Mecklenburg County, meaning that 42% of all JDIG awards went to three counties.

Meanwhile, North Carolina has lost more than 72,000 manufacturing jobs over the last four years. The North Carolina State of the North Carolina Workforce report published in 2007 notes that expanding industries are not creating jobs that can utilize the existing skill set of workers unemployed or underemployed due to losses in the manufacturing industry. Unable to compete, many workers are forced to accept lower-skill, lower-wage jobs. Policy makers have argued that multi-million dollar incentive deals like the $260 million for Google will alleviate the unemployment crisis in many regions across the state. However, incentives for Google, Dell, Novartis and HondaJet are poorly spent by giving the direct benefits to the company as opposed to the worker, based on the hope that some of those benefits will be passed along to North Carolina residents. Without the skill set necessary to fill new positions, North Carolina workers will be ill-equipped to compete for jobs and excluded from participation in a changing economy.

In order to promote the general welfare throughout, I propose that we replace the Job Development Investment Grant Program, which has failed to meet its intended goals, with a new initiative geared towards providing training assistance to both new and expanding businesses.

Under my proposal the Workforce Development Fund will provide to qualifying companies with demonstrated need, 100% or up to $2,500 per worker for costs incurred in the training of new or existing employees. Qualifying companies will be required to demonstrate that state funds will not supplant investment that could have been otherwise made privately. To demonstrate need, expanding and relocating operations hiring new workers will be required to show that training funds are necessary to their expansion or relocation in the community. Furthermore, companies looking for support to upgrade the skills of existing employees will be required to show that the additional training is necessary to remain competitive.

In abandoning our current cash grant initiative, we can better assure that state funds are being spent in such a way as to support sound policy and growth. Training assistance will provide a valuable incentive to operations considering relocation from outside the state. A better educated workforce is indispensable to compete at the national level but also the best means to distinguish our state in the competition for international investment. We know now that the future development of the North Carolina economy will be found in the expansion of the education, healthcare, and service industries as well as the development of new high-tech manufacturing for the pharmaceutical, biotech and technology sectors. In order to continue this growth, we need to focus efforts on developing a workforce to meet these demands.

Under the program, support will only be available for the training of existing North Carolina workers who have been permanent residents of the state for at least one year. No funds will be provided to companies relocating within the state. In-state moves do not result in a net gain for North Carolina and create unfair and fiscally unsound competition between regional and local interests. In order to ensure businesses have fulfilled their obligation to provide new or continued employment, businesses will be required to maintain new or existing employment for a given period of time following the award or be required to payback training costs to the state.

Under current law, the Economic Investment Committee is limited to 25 JDIG grant awards per calendar year. I do not propose any similar cap on awards from the Workforce Development Fund. This would allow for the fair consideration of all eligible industries as opposed to the current policy of awarding grants only to a limited number of favorable corporations. Limitation on the number of awards would be based solely on the availability of funds as determined by the General Assembly.

As opposed to reimbursing the company directly for the costs of worker training, the Department of Commerce will work with the North Carolina Community College System, the University of North Carolina System, and the North Carolina Commission on Workforce Development to provide up-front assistance for the training of workers through programs developed at or through the aforementioned institutions. Companies wishing to establish training programs at approved private, in-state educational institutions will be eligible for a corresponding credit. Companies will be required to certify to the Department of Commerce that all new employees or existing employees being retrained will be employed on a full-time basis, will be paid at or above the average wage for the county, and will be provided health benefits. Companies with an overdue tax debt, or with recent violations of environmental or OSHA standards will not be eligible.

By eliminating existing discretionary incentives in favor of investing in workforce development, we can begin to make lasting changes to improve the state economy in a sound and fiscally responsible way. New companies will be attracted to the state and others will inevitably leave regardless of incentives. However, investments in education and worker training will add value to the community and provide for a better standard of living for residents in communities across the state.

The Local Development Act, N.C.G.S. § 158-7.1, needs to be amended to ensure that North Carolina is instituting sound local policies that encourage the growth of all local businesses and curb the expansion of unfair targeted business incentives. I am therefore recommending the following amendments to the local development act and North Carolina's local recruitment policies:

Discretionary incentive awards have for the most part not resulted in fair and favorable incentives. We have seen at the state and local level how greatly grant awards can vary even in the face of similar job creation and investment expectations. North Carolina local governments, who desire to engage in economic development initiatives, must develop a structured economic development policy to set uniform job creation and investment standards, reporting procedures and a mechanism by which defaulting companies must repay any funds awarded. This should not require governments to award incentives to all eligible businesses. However, it should set the standards by which industries are judged, thereby creating a fairer system and removing some of the arbitrary decision-making.

Intrastate moves do not result in any net gain for the state. Closing a facility in Rocky Mount to build one in Statesville only shifts the burden of unemployment from one county to another. Furthermore, allowing intrastate competition for jobs to continue puts rural communities at a significant disadvantage. Cities like Shelby in the west and Havelock in the east do not have the revenue stream to match competitive incentives offered in Raleigh or Charlotte. Yet it is many of these smaller communities that struggle the most. While we need to encourage the growth of communities like Kannapolis, Holly Springs, and High Point, it cannot be done at the expensive of Lumberton, Kernersville, Morganton, and other cities struggling to maintain existing businesses.

North Carolina local governments must show the same support for North Carolina businesses as they do for competitors relocating from out-of-state. Similar opportunities need to be provided so as not to harm already existing operation’s ability to compete in the market and recruit from a limited specialized labor supply.

 Local property tax exemptions or abatements that forgive taxes on a specific parcel of land are restricted by the North Carolina Constitution. Article V, Sections 2(2) and Section 2(3) grant to the General Assembly the exclusive power to classify property for taxation. As an alternative, many local governments have instituted tax rebate programs.

Under these programs companies receive cash grants based on a percentage of paid property taxes or business equipment taxes. While some programs require companies to meet specific hiring, investment, and operational criteria, others require only that a specific amount of taxes be paid in order to receive a percent return. However, all of these initiatives fail to account for the added demand for local government services the expansion of private industry brings. When business expansions or relocations add new residents, that demand is even higher. If revenues necessary to support the expansion of government services are not received, that cost will be passed on to existing local residents and businesses. In more than one community we have seen governments grant tax rebates in the same year that significant property tax increases have been authorized.

 Incentives for the modernization of existing operations are not a productive use of taxpayer dollars. In particular, modernization efforts that may eliminate North Carolina employees from the payroll should not be subsidized. While it has been argued in light of the Goodyear deal that incentives for modernizing businesses encourage operations to stay in-state, the sheer number of potential incentive requests this invites is far more than any local government can handle, with a negligibly small benefit to offset the costs, if any. If we are to continue allowing any form of incentives, the focus needs to remain on job creation and not exclusive deals for any investment in favored corporations and industries to simply modernize.

 In order to verify the necessity of incentive awards, companies applying for assistance must provide documented proof that an alternative site outside of North Carolina is in competition for the facility. This requirement should help to eliminate any inducement to deceive local governments regarding the consideration of other sites.

The local development act, as now written, only requires that the county or city governing body conduct a public hearing prior to any incentive approval. While this provides some mechanism for public input, these provisions are inadequate to provide the proper vetting of economic development incentives by the public and to uphold the principle of open government. Therefore, I propose the following changes:

 a.     No governmental vote may be taken for or against any incentive deal until 45 days after the public hearing. Currently, incentives are approved immediately following the public hearing. Given that few details about the deal are released prior to the hearing, the press and the public is limited in their ability to adequately investigate or comment on the proposed plan. A 45 day hold would provide adequate time for the public and press to research, formulate opinions, and provide their comments on the incentive. Multi-year commitments, many for millions of dollars, should not be taken lightly and deserve time for consideration and input.

b.     By no later than the date of the public hearing, the local government must make available as public record a draft of the economic development agreement. These agreements, frequently drafted and signed months after the date the incentive award is approved, are the best means to assess the terms of the commitment, and should be available for review by the public before the county or city approves the award.

c.     By no later than the date of the public hearing, the local government must disclose the names and employers of all lobbyists, site consultants and recruitment specialists paid by the company in negotiating the incentives or used by the local government.

d.     Any notice of a public hearing regarding the award of economic development incentives must disclose the name of the company eligible for incentives and the estimated value of all economic development incentives proposed.

Economic development activities are currently spread across multiple state and local agencies. Thus it has been difficult for policy makers, the press, and the public to gain perspective on actual spending for the many initiatives currently in place and what resulting gains, if any, would occur as a result of those investments. We should implement a unified development budget or similar mechanism by which all credits, expenditures and future commitments for economic development are disclosed on an annual or biennial basis by the state and local governments. Job and investment returns on individual initiatives must also be included in this report. A unified development budget will aid in holding public officials accountable and in providing policy makers the necessary information to make well informed decisions regarding future state and local investments. Our economic development policy should invest in activities which have been successful in meeting program goals and eliminate those programs which are not providing adequate returns.

Under current state law, N.C.G.S. § 120C-101(b), all activities and expenses by lobbyists granted economic development designation are exempt from public disclosure until the company has committed to the site and relocation. We should not grant to lobbyists, site selection experts or recruitment specialists representing corporate interests exclusive benefits that we deny to all other lobbying entities. Accountability should not have to wait until the deal is done and the legislation enacted. The law preserves only corporate trade secrets as confidential. Recruitment specialists and site selections expert’s mere presence and activity in the legislature, executive branch or with local government officials should not be redacted to any greater extent than the general lobbying efforts of any other state business entity.

Likewise, corporate entities should not take part in suppressing discussion and debate on legislation. Corporations which threaten to abandon the deal if their participation is leaked and attempt to force non-disclosure agreements on elected officials should not be tolerated by administration officials and legislative leadership.

The State Performance Audit on Economic Development Studies, released in March 2007, noted that the state's monitoring of our seven regional economic development partnerships' operations has been weak. We need increased oversight of these organizations to help ensure that state economic development priorities are streamlined – and our seven regions are not implementing competing initiatives in business recruitment. Increased monitoring and coordination must be addressed by both the Department of Commerce and the Governor. This will additionally encourage public accountability, since partnerships still receive the majority of their financing from public coffers.