North Carolina Puts the Brakes on Subsidy Spending but Moves Ahead on Privatization

August 25, 2014

For the past decade, North Carolina has spent heavily on subsidies, abandoning its previous economic stinginess. In an encouraging new reversal, the Tar Heel State is returning to its old ways. In a just completed short session, the state legislature took two important steps to limit giveaways: it ended one of the country’s biggest film tax credit programs and it defeated a proposal by Gov. Pat McCrory and Secretary of Commerce Sharon Decker to create a deal-closing slush fund. The defeat of the fund also meant the rejection of an expansion of several existing subsidy programs and a special deal for a paper mill.

Not everything coming out of the session was positive. Lawmakers moved ahead with an ill-conceived plan to privatize job recruitment functions of the state’s Commerce Department. The plan was approved despite warnings of problems with similar quasi-public agencies across the country and despite revelations by the N.C. Policy Watch that the Partnership’s CEO lacks experience in economic development and led his company into bankruptcy.

It was the second attempt by the Governor and Commerce Secretary to pass this bill. During the previous legislative session, a similar proposal failed when an amendment that would lift the state moratorium on hydraulic fracturing was added to the bill (the North Carolina chapter in our Creating Scandals Instead of Jobs study has more details on that plan).

The elimination of the film tax credit does not mean that movie producers are being denied all assistance. Replacing the tax credit, which last year cost the state $61 million, is a grant program that is limited to $10 million a year and caps the subsidy amount available to a production at $5 million. Michigan, Iowa and most recently Florida decided that subsidizing movie productions is not a wise investment of public money and eliminated their film subsidy programs entirely.

During the last week of the session, the Governor and the Secretary of Commerce also pushed a package of economic development bills. One of the proposals would have created a special $20 million subsidy fund to lure big projects. However, lawmakers on both sides of the political spectrum were uncomfortable with this “walking-around” money. Some Representatives voted against the bill because they were afraid that the lack of oversight would weaken the state’s control over subsidies (North Carolina has been one of the better states in attaching clawbacks to subsidy deals and disclosing information on the deals).

It was not the first time Gov. McCrory and Secretary Decker tried to create a slush fund. A similar proposal failed the previous legislative session, along with the Commerce privatization bill.

The failed economic development package also killed provisions that would have expanded the Job Development Investment Grant (JDIG) program, one of the most widely used subsidy programs in North Carolina funded by workers’ personal income tax withholdings. The lawmakers also rejected $12 million for Evergreen Packaging’s paper mill in Haywood County. The company is required by the Environmental Protection Agency to replace its old coal-fired boilers. The public financial support would pay for almost one-fourth of the replacement costs.

Gov. McCrory might be calling the legislature for a special session on subsidies before the year ends. Hopefully, lawmakers will stick to their decision to limit the state’s subsidy giveaways.