N.C. Economic Stimulus and Job Creation Act

House Bill 1734 (ratified on Oct 4, 2002) Creates the

Job Development Investment Grant Program

What is the Job Development Grant Program?

• An economic development tool designed to recruit and retain significant business and industrial projects. Modeled on programs in other states that compete with North Carolina for new and expanding companies.

• Others have a similar tool - currently being used by at least 15 other states, including Georgia, Kentucky, New Jersey and South Carolina, to compete for new industrial projects and expansions.

• Compete with other states - available on a targeted basis only to companies that are at substantial risk of locating significant operations in other states.

• Based on new employee income tax - eligible companies receive grants back from the state based on a portion of personal income withholding taxes paid for specific new jobs that they agree to create. Grants are available up to 15 companies a year, paid over a period of 12 years and cannot exceed 75% of withholdings from the jobs created by the specific company.

• Annual Cap on costs - total amount of the grants agreed to each year may not exceed $10 million for the year in which the agreements are entered into.

• The law sunsets the program - the programs ability to enter into agreements is sunset on January 1, 2005. (existing agreements begun before that date are valid for the life of the agreement with the company – up to 12 years).

How Does It Work?

• Application: Companies considering locating or expanding in North Carolina can apply to a five member Economic Investment Committee, composed of the Secretary of Commerce, Secretary of Revenue, the State Budget Director and two other appointees, one each from the Speaker of the House and the President Pro Tempore of Senate.

• Basic Eligibility Criteria: To apply, a company must:
• Be establishing or expanding a facility in an eligible industry sector. Retail operations and professional sports teams are excluded.
• Intend to create a base number of new jobs.
• Provide information to Committee to verify that benefits of the project to the state would appropriately outweigh costs.
• Pay a fee of $5000.

• Committee Evaluation: The application is evaluated by the Committee on the following criteria:
• Compatibility with the state’s economic development goals (including economic impact, strategic importance, quality of jobs, quality of industry and project, environmental impact)
• Whether project is at substantial risk of locating elsewhere.
• Whether this incentive is necessary to secure project for North Carolina.
• Whether the economic benefits of project outweigh its costs to the state.

• Committee Proposal: If the Committee finds the application appropriate for funding, it then proposes terms for a Community Investment Agreement under which the state would extend job development grant funding to the company for specific investments.
• The proposal would identify
• The number of new jobs and level of investment required for the company to secure grant funding under the program.
• The amount of grant funds available annually and the number of years for which they would be available.
• The time frame required for creating the jobs and investment.
• The proposal would specify the contractual terms under which the funds would be extended.

• Negotiation: To the extent negotiation is required to reach acceptable terms, the committee and the company would negotiate terms of a Community Investment Agreement. The Committee will determine the appropriate grant amount up to 75% of state personal income tax withholding for new jobs (reduced by one-fourth in Tier 4 and 5 counties - see Rural Infrastructure below). Some of the criteria the Committee will factor in the percentage for the funding are:
• The number of new jobs and their duration
• The total investment by the company
• The contribution to long-term economic growth in NC
• The extent it uses existing infrastructure and whether it is located in a development zone
• The number of positions filled by residents of a development zone

• Performance: The company would not be entitled to receive any benefits until specified performance criteria are met. Grant amounts would be calculated on a "per job" basis for a period no longer than 12 years.

• Tracking: The State would track performance to ensure that terms of Community Investment Agreements are met.

Special Funding Vehicle for Rural Infrastructure

• In more prosperous counties (Tier 4 and 5 counties), 25% of the total amount for which a company is eligible will be withheld and transferred to the Utility Account for Rural Infrastructure.

• The Industrial Development Fund’s Utility Account for Rural Infrastructure is available to Tier 1, 2 and 3 counties for infrastructure – water, sewer, gas, telecom and broadband and electrical distribution.

• This aspect of the program reduces the benefits to companies locating in more prosperous areas and transfers a portion of the income tax withholding from new jobs to develop infrastructure in less prosperous areas of the state. This is similar to the program in South Carolina where 45% of the incentive funds generated in wealthier areas are set aside for poorer areas.

What is the Fiscal Impact?

• This state program is described as "self-funding" (based on the premise that it targets new jobs that otherwise would not have located in NC).

• The state’s liability is limited by the requirement that agreements entered into any one year may not exceed a total annual liability of more than $10 million and may not exceed 12 years (total potential state liability of $360 million over the next 12 years).

• There would be no direct costs to local governments – and may actually relieve some of the incentive burden on locals since the state will be a better economic development partner for locals. A more effective state incentive program could be a major boost to local and regional economic development efforts. There is the potential for a net gain in local revenue since property taxes, franchise taxes and sales taxes would be generated by new companies.

Further information or details should be available at the N.C. Dept. of Commerce at (919) 733-4151 or http://www.nccommerce.com/