Majority of state JDIG projects end in failure, report shows; the results are especially poor for rural NC
RALEIGH (February 16, 2015) — More than half of all firms receiving incentive awards from a key state incentive program have failed to live up to their promises of job creation, investment, or wages since the program’s inception in 2002, according to a new report released by the North Carolina Justice Center today.
These failed projects from the state’s Job Development Investment Grant (JDIG) program have forced the Department of Commerce to cancel those grants and even occasionally take back funds that had already been given these non-performing firms. These findings are based on analysis of JDIG performance reports released by the Department of Commerce every year.
“If North Carolina continues to use incentives to pick winners and losers in economic development, the state needs to do a much better job of picking winners,” said Allan Freyer, director of the Workers’ Rights Project and author of the report. “Given the troubling number of failed projects, now is not the time to accept the Governor’s proposal to expand JDIG and create a new ‘catalyst fund’ for closing new incentive deals.”
Specific findings include:
- In the years between the creation of the JDIG program in 2002 and 2013 (the last year for which the program’s performance data is available), the Department of Commerce was forced to cancel 62 out of 102 eligible JDIG awards due to companies’ failure to fulfill their promises, according to an analysis of the Department’s annual JDIG reports — a 60 percent failure rate for all JDIG projects across the state.
JDIG isn’t working for rural North Carolina. Rural counties have received a fraction of the awards urban counties have received, while experiencing significantly worse project failure rates. Since 2002, only 9 percent of all JDIG dollars have gone to rural counties, while more than 90 percent have gone to urban counties. Meanwhile, even those dollars haven’t translated into the reality of more jobs in rural North Carolina—more than 77 percent of JDIG projects in rural counties have failed, compared to just 56 percent of urban county projects.
- JDIG is running out of money because the Governor spent more than half of the program’s available funds on just one project in 2013—the MetLife deal in Charlotte—leaving less for everyone else. The JDIG program didn’t just suddenly stumble into insolvency. Since 2002, the legislature capped the total amount of public dollars JDIG could spend on all projects combined in each year. In 2014, this fiscal cap stood at $22.5 million. Unfortunately, the Governor ate up about half of the available JDIG funds below this cap in the 2013 award to insurance giant MetLife.
- JDIG is failing to recruit jobs to the state: 59 percent of JDIG recruitment projects have failed since 2002. Gov. Pat McCrory often talks about JDIG as an essential tool in recruiting new businesses from outside North Carolina to locate here, yet almost 60 percent of the 58 awards used in recruitment projects failed to generate the benefits promised by the recipient firms and were cancelled. This suggests that while JDIG may be a useful tool in securing the promises of new jobs, it falls very short in securing the reality of new jobs.
- The Governor’s proposed “deal closing” fund is unnecessary and duplicative, since the OneNC program already plays this role. The existing OneNC program operates in almost exactly the same way as the proposed “Catalyst Fund”—it provides matching grants to local government to help increase their incentive offers to prospective firms, and more distressed counties receive larger awards. Governors have used OneNC as a deal closer 26 times over the past ten years by piggy-backing OneNC awards on top of JDIG awards—spending total of $90 million since 2002.
“No state should ignore a 60 percent failure rate in any of its programs. To address these problems, legislators should resist adding to the state’s incentive programs and instead focus on strengthening the performance standards that hold recipient firms accountable for the promises they make,” said Freyer. “Without these critical accountability measures, each one of these unsuccessful projects would have continued to receive millions in public subsidies, despite failing to create promised jobs and investment.”
Specifically, the report recommends the following:
- Refuse to expand JDIG or enact a new catalyst fund. Lawmakers need to understand why the state’s incentive programs are experiencing such excessively high rates of project failure before spending any more of the state’s shrinking revenues on these failing programs. Otherwise, the state will continue to invest in programs that are proven to be ineffective at creating jobs—this is not a recipe for generating economic success in an era of persistent joblessness and income stagnation.
- Improve the evaluation process for prospective JDIG projects before the state agrees to grant the award. Currently, the cost-benefit analysis every project must undergo is clearly letting too many bad projects slip through the cracks. The Department of Commerce needs to improve its pre-project analysis to better capture the likelihood of project failure, especially by better accounting for industry decline.
- Focus on giving incentives to firms in industries most likely to experience robust growth. Rather than giving incentives to firms in industries that are shrinking, the state should grant incentives to those firms in targeted industries that are most likely to pay good wages and experience growth in a competitive global economy—aerospace, biotechnology, advanced textiles, and others. Subsidizing industries in decline makes little sense for building a successful, growing 21st century economy.
The report is available online at this link: https://www.ncjustice.org/publications/picking-losers-why-majority-of-nc-incentive-programs-end-in-failure/
FOR MORE INFORMATION, CONTACT: Allan Freyer, director of the NC Justice Center’s Workers’ Rights Project, firstname.lastname@example.org, 919.856.2151; Jeff Shaw, director of communications, email@example.com, 503.551.3615 (cell).