North Carolina--Follow the Money:

Thu, February 10, 2011


Follow the Money: Issue 84

Incentives on the Chopping Block


Legislature’s Proposal: Slash Incentive Funds to Balance Budget Shortfall Equals a Step in the Right Direction

In only their second week back in session, the N.C. General Assembly took up the issue of reigning in the state’s economic incentive handouts in order to close a gaping budget gap. Last week, the state Senate approved transferring $142 million to the General Fund from over 20 funds including those that award economic development incentives to handpicked businesses. Yesterday, the House approved the same measure and a final vote on the bill is expected today.

Under the General Assembly’s plan, roughly $75.7 million would come from funds the state uses to award incentives to businesses looking for handouts. Here’s the breakdown: the bill would transfer $67.5 million from the Golden LEAF Foundation, $5.2 million from the One North Carolina Fund, and $3 million from the Job Development Investment Grant (JDIG). It would also transfer $2.5 million from the Utility Fund.

A well-kept secret is that the state has roughly $50 million in its One North Carolina Fund balance to use for economic-development projects.

Senators Pete Brunstetter (R-Forsyth), and Richard Stevens (R-Wake) are two of the bill’s co-sponsors. They say everything is on the table this session when it comes to making cuts and transferring funds to help close the budget gap. "Sacred cows are now on the endangered species list. We have a large gap to close, and we intend to do everything we can to protect teachers and classrooms," said Rep. Darrell McCormick, who represents Iredell, Surry, and Yadkin counties.

Governor Perdue will likely veto the bill as soon as it gets to her desk. It will be interesting to see how her office spins the state’s use of economic incentives when she delivers the State of the State address on Monday night. She will also release her budget next week.

State Treasurer Says North Carolina Can’t Afford to Take on More Debt

According to a study recently released by State Treasurer Janet Cowell’s office, the state has exhausted its capacity to take on additional general fund debt until FY 2013.

The Triangle Business Journal first highlighted the study by the eight-person North Carolina Debt Affordability Advisory Committee, a group that is in charge of advising the General Assembly on whether the state can afford to float additional bond issues. Total North Carolina bond debt was at $6.89 billion back in November.

In a press release issued by the debt committee the group says that in addition to the general fund debt capacity being exhausted, the combined transportation debt of the Highway Fund and the Highway Trust Fund “has been more than utilized” through FY 2014.

The release goes on to say: “North Carolina’s debt is considered manageable at current levels…However, the report acknowledges that the state’s current revenue picture is less than robust as it faces the expiration of temporary taxes and surcharges and the absence of the federal support that was available in the recent past.”

More evidence that its time to start replenishing the General Fund.

Even with the Incentives, Businesses Point to Lack of Direct Flights out of RDU as Reason not to Pick N.C.

Incentives proponents would have you believe that if the state no longer has the ability to dangle large incentive checks in front of businesses looking to move or expand here, we’ll fail to compete with the rest of the country. Last month, when NC was busy convincing homegrown open source software firm Red Hat to stay in the Triangle Gov. Perdue said, “North Carolina would be severely penalized if we didn’t have the ability to offer incentives.”

Back when Red Hat was considering relocating out of the state, this was what the media reported:

“Red Hat CEO Jim Whitehurst added, ‘Without those incentives, we would not have been able to stay here.’ He said Boston, Austin and Atlanta were in the running as expansion locations and each of those places were offering up their own incentives deals…Perdue and Whitehurst sounded like they were making the case for continuing incentives spending as they were praising the deal that was the subject of today’s news…don’t be surprised if she points to Red Hat as one that could have gotten away.”

But now that Red Hat has accepted over $20 million in state and local incentives for agreeing to stay in the Triangle, the firm admits that the lack of direct flights from RDU to San Francisco has always been a point of concern:

“The lack of a San Francisco flight was a sore point for Red Hat, the Triangle software maker, and one reason that CEO Jim Whitehurst considered moving the home office last year to another city, possibly Atlanta, where he previously worked for Delta. ‘We have a lot of strategic partners on the West Coast and a lot of high-profile customers there,’ Red Hat spokeswoman Leigh Day said. ‘I would think at the top of everyone's list in Raleigh would be a direct flight to San Francisco.’”

So will Red Hat threaten to leave North Carolina (again) if a direct flight to the West Coast isn’t added ASAP?

Well, RDU hired aviation consultant Barry Clark, to study demand from passengers who travel to certain cities and gauge the average fares they pay, in order to show the airlines whether they would lose money by allocating additional flights to RDU.

Clark said he still isn’t sure when RDU will see regular direct flights to the West Coast offered year round. “In a chilly economy airlines need to be convinced that they can pack enough travelers onto a plane and charge them a high enough fare to make money on a long-haul flight to the West Coast.”

Film Incentives: North Carolina Should Follow Missouri’s Lead

Missouri’s Gov. Jay Nixon, a Democrat, has the courage to do what we wish our governor would do when it comes to the state’s film tax credit system.

Two years ago, when heartthrob George Clooney filmed the movie “Up in the Air” in St. Louis, there was talk of raising the state’s $4.5 million film tax credits to $10 million a year. But now it looks like that won’t happen.

Last month Gov. Nixon held up the tax credit and only approved $1 million of the $4.5 million producer Michael Beugg sought to film a new movie in St. Louis.

Nixon appointed a panel that recommended that Missouri abolish its film tax credits altogether. In his January State of the State address, Nixon urged lawmakers to consider the tax credit cuts.

The governor has vowed to balance the budget without raising taxes and has targeted tax credits as a way to cut spending. More proof that he’s serious – his proposed $23 billion FY 2012 budget doesn’t include the $250,000 annual funding for the Missouri Film Office, which would effectively shut it down.


Quote of the Week

"Sacred cows are now on the endangered species list. We have a large gap to close, and we intend to do everything we can to protect teachers and classrooms."   -Rep. Darrell McCormick, who represents Iredell, Surry, and Yadkin counties, on a proposed bill that would take money from the state’s economic incentives funds


NCICL Supports Sensible Economic Development Under the Constitution
The Center for Economic Development Reform (CEDR) is a center of the North Carolina Institute for Constitutional Law.

Please visit the North Carolina Institute for Constitutional Law website at www.ncicl.org for more information.
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