The announcement in late 2009 that the Winston-Salem Dell plant was closing placed North Carolina’s economic incentive policies under sharp scrutiny. The failure of Dell – the state’s largest-ever incentive deal recipient – to stay open for even five years once again called into question the state’s practice of attempting to pick winners and losers in the marketplace.
Over the last dozen years, state lawmakers in Raleigh have increasingly relied upon targeted tax breaks and handouts under the guise of “economic development.”
In order to provide more details and greater context about North Carolina’s growing economic incentive policies, the Civitas Institute has pulled together a list of the top ten state incentive packages. The following list includes only state-granted exemptions and handouts, even though most of these projects received local incentives as well. Furthermore, because North Carolina’s Commerce Department does not provide accessible data regarding the number of jobs created by the recipients of incentive programs, Civitas is unable to provide data on whether or not the following list of companies followed through on their promised job creation numbers.
The dollar amounts listed reflect the total potential state incentive package for the companies if they would have fulfilled their promised job numbers.
Total State Incentive Package: $259.9 million
In 2005, Dell was promised state incentives including $243 million in tax breaks via legislation1 that created exemptions from the state’s franchise and corporate income taxes, based on the number of jobs Dell created. Also included in the incentive package was a $14.1 million Job Development Investment Grant (JDIG) and $2.8 million from Golden LEAF to Forsyth Technical Community College for a Dell Training Initiative.2
In October of last year, Dell announced it will be closing its Winston-Salem facility and letting go of its 400 remaining employees by the end of April.3
Total State Incentive Package: $161 million
In 1998, North Carolina lawmakers passed legislation4 that added “major recycling facilities” to the list of industries entitled to certain property, sales and income tax exemptions and credits. There was little question the intended beneficiary was Nucor, who had plans to build a plant in Hertford County.5
3) Spirit AeroSystems, Inc.
Total State Incentive Package: $125.23 million
Spirit Aerosystems announced in 2008 its plans to open a manufacturing plant in Kinston’s Global TransPark. Influencing their decision was a state incentive plan6 that included a JDIG agreement that could reach $20.23 million over 12 years, a $5 million grant from the One North Carolina Fund and a Golden LEAF grant of $100 million7 to Global TransPark to help construct Spirit’s new production facility.
Total State Incentive Package: $115 million
The same 1998 legislation that applied to Nucor also added “interstate air couriers” to the list of industries receiving substantial tax exemptions and credits. This provision was included explicitly to help entice FedEx into building a new cargo hub at Piedmont Triad International Airport in Greensboro.8 In spite of promises of 1,500 full and part time jobs, more than ten years later the FedEx hub only recently was completed and boasts roughly 200 employees.
Total State Incentive Package: $100 million
North Carolina’s fiscal year 2006-07 state budget9 carved out significant tax exemptions for “eligible internet data centers.” The eligibility requirements for the exemptions were so specific; however, that it was clear the legislation was targeting Google and their potential server farm in Lenoir. The tax breaks exempted Google from paying sales tax on a number of their most highly used inputs, including electricity. Tax savings are estimated to total nearly $100 million.10
Total State Incentive Package: $69 million
In 2006, Fidelity received a substantial incentive deal from North Carolina to develop and build a new facility in Research Triangle Park. The deal included a reported $54.6 million, 12-year JDIG grant, along with a $2 million grant from the One North Carolina Fund, roughly $3.8 million in tax breaks and credits, and “$4.6 million in training services and grants.”11
Total State Incentive Package: Indeterminate, but potentially worth $58 million in first 10 years
A 2009 bill12 adjusted the apportionment formula for North Carolina’s corporate income tax for eligible corporations. The eligibility rules were quite specific, and turned out to apply to the server farm Apple Computers built in Caldwell County. Fiscal Research estimates13 determined the new apportionment formula would exempt Apple from about $3 million of corporate tax liabilities in the first seven years of the agreement, and then $12.5 million annually thereafter. The legislation specified no end date for the new apportionment formula, so the tax break could continue indefinitely. Therefore, a specific total benefit amount for the package cannot be determined.
Total State Incentive Package: $55 million
In 1999, state lawmakers passed a bill14 clearly aimed at encouraging DuPont to build a facility in Bladen County. The law created new eligibility requirements for certain tax credits for investments in machinery and equipment. The requirements were so specific it became clear the new exemption was focused on DuPont and their potential investment. Media accounts reported the tax credits could total up to $55 million.15
Total State Incentive Package: $47.725 million
In 2003, the North Carolina legislature passed a new law called the Job Growth and Infrastructure Act (JGIA). 16 The law, passed in a special session, created a sales tax break for bioprocessing and pharmaceutical companies making an investment of $100 million or more. The tax break exempts the company from sales taxes on their purchase of building materials and supplies. Because of the specific nature of the eligibility requirements, it became clear the new law was part of a deal cut with Merck in exchange for their constructing a new production plant in Durham. Also included in the deal was a $4.1 million JDIG award, $625,000 in worker training grants and $3 million from the Department of Transportation. 17
10) GE Hitachi
Total State Incentive Package: $26.6 million
GE Hitachi, a joint venture of General Electric and Hitachi, received a 2008 JDIG package worth up to $25.7 million and a $900,000 grant from the One North Carolina Fund to expand its facilities in New Hanover County. 18
Special Mention: Major Tobacco Manufacturers
Total State Incentive Package: R.J. Reynolds – $162 million over 19 years
Phillip Morris – $115 million over 19 years
While not targeted at one specific company, North Carolina has extended substantial tax credits to the state’s major tobacco manufacturers. The two largest beneficiaries are R.J. Reynolds and Phillip Morris.
Beginning in 1999, North Carolina law19 included substantial tax exemptions for tobacco manufacturers who manufacture cigarettes for export. The exemption created a credit to be deducted from the corporate tax liability of eligible companies, based on the number of cigarettes the company exported. The maximum credit amount allowed was $6 million per year, and was scheduled to sunset after six years. Top tobacco manufacturers like RJ Reynolds and Phillip Morris likely qualified for the maximum amount each year, totaling $36 million per company for the six year span of the law.
A 2003 law20 extended the credit from 2005 through the end of 2017. Furthermore, the extension included a larger credit, valued at a maximum of $10 million per year, for a cigarette exporter who added 800 jobs in 2004 – an obvious nod to RJ Reynolds who at the time was planning to merge with Brown and Williamson (B&W), with B&W planning on relocating between 800 and 1,000 jobs to an existing North Carolina facility. The extension and new credit could result in tax breaks totaling $126 million for R.J. Reynolds and $78 million for Phillip Morris. 21
On a similar note, Philip Morris was also awarded a $1 million grant from the One North Carolina Fund in 2004.