Raleigh, NC – In a 2015 Fox News interview, Charles Koch, the chairman of Koch Industries, said, “Well, corporate welfare I think is a disaster for this, this country. It’s crippling our economy. It is contributing to a permanent underclass and corrupting the business community.”
Mr. Koch correctly assessed corporate welfare programs, which involve government policies and financial incentives designed to provide assistance and benefits to specific corporations or industries, often to stimulate economic development or job creation. The primary example of a corporate welfare program in North Carolina is the Job Development Investment Grant (JDIG) program, conducted by the state Department of Commerce.
In recent years, JDIG has been scrutinized, and for good reason. While JDIG was initially conceived as a tool to attract and retain businesses, recent examples have raised questions about its effectiveness and the wisdom of its continuation. Given North Carolina’s already strong position as a business-friendly state, exemplified by its repeated ranking as CNBC’s “Top State for Business,” it is time for state lawmakers to consider sunsetting the JDIG program.
JDIG, as a performance-based incentive program, was intended to provide cash grants to companies that create jobs and invest in the state. The idea was to encourage economic growth, but recent events have exposed the program’s inherent flaws and the need for reevaluation.
Critics argue that the JDIG program, as it stands, allows unelected bureaucrats at the state Department of Commerce to pick winners and losers in the state’s economy. Recent examples of involved companies struggling financially or to meet their job-creation goals reveal the inherent difficulty in accurately predicting the economy’s future.
One glaring example is the case of Allstate, a major insurance company that entered into a JDIG agreement in 2017. The company pledged to create over 2,200 jobs in Charlotte by 2020. However, the rapid expansion of remote work rendered this in-person job creation requirement impractical. As a result, the state’s Economic Investment Committee agreed to end the incentives agreement with Allstate. This case highlights the unpredictability of the business landscape and the challenges of holding companies to strict performance targets.
Similarly, VinFast’s foray into North Carolina has raised concerns. While the Vietnamese automaker promised to create 7,500 jobs and invest $4 billion in the state, it has faced delays and procedural issues, pushing back the start of its operations until 2025. The promised benefits are substantial, but the uncertainties surrounding VinFast’s timeline and the use of state funds to support the project underscore the risks associated with JDIG agreements.
First, Merry Oaks Baptist Church, a 135-year-old institution, faces displacement due to a new access road planned for VinFast’s factory. This situation highlights the ethical dilemma of using the state’s power of eminent domain to make way for a private company’s convenience, adding a moral dimension to the controversy. Furthermore, the recent dip in VinFast’s stock price, falling below its initial valuation of $10 per share and losing nearly 22% of its market value in a single day, is another red flag. This volatility in the company’s stock market performance suggests uncertainty and may undermine the promised economic benefits for North Carolina, casting doubts on the viability of the JDIG agreement with VinFast. These combined issues underscore the potential risks and drawbacks of relying on such agreements to drive economic development in the state.
The 2014 case of Toyota’s decision to choose Texas over North Carolina for a North American headquarters highlights the challenges our state faces in attracting major corporations due to differences in public policies. The significant difference in incentive offers, with North Carolina offering $100 million compared to the $42 million offered by Texas, was mainly that the Lone Star State has no corporate or personal income tax.
Continuing the path of tax reform, including the phase-out of the North Carolina corporate income tax, and a future move to repeal the franchise tax, would be a more appropriate policy direction. Such reforms can stimulate economic growth, create jobs, and enhance the state’s overall business climate, without relying solely on costly incentive packages that may not guarantee success in the highly competitive landscape of corporate relocations.
North Carolina’s standing as a top state for business is not dependent on corporate incentives. The state offers a skilled workforce, access to capital, a competitive tax environment, and a robust infrastructure that naturally attracts businesses. In this context, JDIG may be more of a gamble than a necessity. The Old North State no longer needs such incentives to attract and retain companies. It is time for state lawmakers to consider sunsetting the JDIG program and reallocating staff time resources to areas that will significantly and sustainably impact the state’s economic growth and prosperity.
If it’s simply a matter of politicians needing to cut ribbons, then the John Locke Foundation will be willing to make a significant in-kind donation to state lawmakers in the form of a delivery of scissors and ribbons.
Donald Bryson is CEO of the John Locke Foundation.