Good afternoon and welcome to the senate finance committee. We are looking forward to presentation today so want to go ahead and get started. I'm sure there will be lots of questions we want to have time for that at the end. So while others trickle in let me first extend appreciation to sergeant at arms staff Dale Hall and Matt Urban. Dale but I don't see Matt he's around. Standing by the door. And to our pages Regina Weikert Spring Lake, Senator Ron Rabin. Someone from Charlotte who's handwriting looks like mine who's with Senator Michaux, would you like to tell me is it Gish Bore? Okay I was close thank you. Calin Mcraw from Greensboro Senator Robison. And Nicholas Odo, did I pronounce that right? Adam, thank you from Wake Forest Senator Barefoot. Nicholas I suggest you spell your name that way if your going to pronounce it that way. If that's okay. [SPEAKER CHANGES] Mr. Chairman. [SPEAKER CHANGES] Now having done that. [SPEAKER CHANGES] Mr. Chairman, I just think we ought to point out that two of our pages are from Germany and [SPEAKER CHANGES] Oh that why you did spell it, thank you. [SPEAKER CHANGES] I'd like to welcome us. Welkommen. [SPEAKER CHANGES] Presenting today is going to be our secretary of commerce, secretary John Scavala, secretary Scavala when you are ready the floor is yours. And welcome sir. [SPEAKER CHANGES] Thank you for having me and for those senators who remembered to wear a green tie today especially Senator Apodaca very Irish name I forgot completely. Well I'm glad to hear it. [SPEAKER CHANGES] What about you state senator? [SPEAKER CHANGES] Listen when both our names end in a vowel we got trouble. Well I'm going to start with a curse word. Incentives. It tends to engender feelings on both sides of everything. And I am here today specifically to talk about the JDIG program which is our most important tool for recruitment and retainment. And there's not question there is a wide array of understanding on how the JDIG program works. I was getting calls last night up until ten thirty from people who I thought had a profound understanding of the program and they really did not. And I'm also here at the request of your president who suggested I meet with you. And this was probably a very good forum to discuss this issue with the finance committee. So thank you for having me. JDIG stands for job investment development grant, JDIG. And the name itself puts us into a hole right out of the shoot. And I'll tell you why. Everybody assumes that a JDIG award is like a college scholarship. And let's just assume that you have recruited the greatest high school basketball player in the state to your school. And he or she is going to transform that program. And the scholarship or grant in aid that that student athlete receives is effectively guaranteed in advance. You get tuition, you get room, you get board, you get books, you get meals. And let's presume that athlete never gets off the bench in four years of college. Did not deliver or produce as expected. That probably wasn't a very good investment by the institution and if it's a states
So you can make the argument that every taxpayer in the state contributed toward that grant and aid and that's what everybody assumes the JDIG program is. It's the way it's reported, the way it's understood and especially in the last several weeks I've had numerous conversations with people who basically believe that. They also believe that all 100 counties contribute to the welfare of the few counties where JDIG awards reside and they also believe that the small towns are disadvantaged over the big cities. That's the assumption. Let's go through how the program really works. We are attempting to change the name of the program to the Jobs Growth Reimbursement Opportunity because in reality every JDIG award is nothing more than a reimbursement plan after the fact. It is paid to companies bringing new jobs to the state or creating new jobs that could exit the state that we otherwise would not have and only under that criteria is any award even considered. So we're getting something we never had. Now everyone hears, and here's the real misnomer in the program, everyone hears this 75/25% number. A JDIG award is calculated based on an estimate of the new tax revenue created by the new employees in the state. They pay state income tax. So an estimate is made of the amount of income tax that they are going to pay. A JDIG is an award for a period of 12 years, so when you see the original announcement of the award it looks large but you have to divide that number by 12 so the best and largest example is Metropolitan Life. $125 million award for 26,000 employees spread between Wake and Mecklenberg Counties, roughly $10 million a year for 12 years. Happens. In order to garner that $10 million award the economic model must show that more than $10 million will be paid by those 26,000 new employees into the treasury of the state of North Carolina. Now the award can range from 10% to 75% and in this particular case it was a 75% award so everyone presumes that that consumes 100% of the money we receive and in fact that's not the case because here is the second 75% that nobody seems to be aware of, that in calculating the award from 10 to 75% the 75% awarded is 75% of 75% and I know that sounds confusing but let me put some math around it. In order to get a $10 million JDIG, you've got to produce $13.5 million in revenue to the state. So everybody presumes that we give 75% to the company and 25% goes into the utility fund which can be used only, not used in the top 20 counties only in the bottom 80 but nobody understands that it's a percentage of an already diminished percentage. There is always net dollars to the state. So let's take our Metropolitan Life example
In order to get a $10 million JDIG award for 12 years, the company had to produce $13.5 million in revenue to the state of North Carolina. 75% of 13.5 is $10 million. The second 75% is divided between a refund to the company, a reimbursement to the company, and to the utility fund. So if you boil the numbers down, it's 13.5 million gross revenue to the state, 7.5 million revenue to metropolitan life, and $2.5 million in revenue to the utilities fund. So effectively, of the $13.5 million, only seven and a half is refunded or reimbursed to the company based on the 2,600 jobs actually created, because other component of the program is that the money is only paid in arrears. The company does not receive the money for 12 to 18 months after the jobs are actually created. So we get the money in, a portion of it is reimbursed to the company. Every program stands on its own. I have heard that small towns support big towns. In this program, it is not the case. Every program stands on its own and is a net contributor to the state treasury. If it's not a net contributor, they do not get the awards. The awards range in size from 10 to 75% with the expectation that the closer to the 75% range is for more rural and small towns versus the big cities. There's a concerted effort to try to generate more opportunity in the small towns. Doesn't always work that way, but any thought of taking a disproportionate proceed or a disproportionate allocation to the small communities doesn't work, because the money will not force companies to make a decision to go where they don't wanna go. Our big cities are competing with Atlanta and Memphis and Nashville and Richmond and Dallas. The market is gonna decide where companies go. But the market's also going to decide if we are able to lure an original equipment manufacturer, aerospace, automobile. They are gonna go tot he small towns, because it's the nature of the market. That's where they are going to want to go. If you look at the total data since 2003, since the beginning of the program, this program has taken in $500 million. It's returned $150 million to the companies participating, and it's put $50 million into the utility fund to the benefit of 80 counties in the state. So in all cases, it's money we did not have. In all cases, it must meet the economic test of returning net dollars to the treasury. Apply the dual 75% test. One is 75% of the total dollars received by the treasury, and that 75% get rewards, part to the utility fund and part back to the company. So at the end of the day, the actual amount recovered by metropolitan life was more in the 57% to 60% range, not 100% of the award. It is not scholarship. It returns dollars to the treasury. [SPEAKER CHANGES] Mister chairman. [SPEAKER CHANGES] Senator Brown, a question? [SPEAKER CHANGES] I'd like to ask the secretary a question if I could. Mister Secretary, I think most of us in this room understand the JDIG
program and I do appreciate you explaining it. And I guess the reason I wanted to stop you there is because of the reference I guess to most of the money going to a couple of counties and how you can't control that. I think the problem, I think everyone understands how the program works but I think the problem most of us are trying to wrap our arms around is when you help create and I'll just choose, I'll just pick a number. When you help a JDIG project in Wake or in Mcklenberg county that may create a hundred fifty, two hundred jobs. Okay? And I would compare that to a JDIG program in Halifax county that creates fifty jobs. [SPEAKER CHANGES] Okay. [SPEAKER CHANGES] The impact of that fifty job program in Halifax would be much more dynamic than the one hundred fifty two hundred job program you would create in Wake or Mcklenberg county just because of the environment of the counties. [SPEAKER CHANGES] Agree. [SPEAKER CHANGES] And yet we continuously see the money going to these couple counties. And it's not how the money is allocated that's the problem. It's the job creation that's the problem throughout the state. And I think most of us understand that most companies would like to be in the metropolitan areas I don't think anyone can argue that. But I look at maybe what South Carolina has done bringing industry all across their state. They've done a great job of that and yet we continue to have our concentration in two particular areas. And I guess my argument to you will be if you can find a way to bring me fifty jobs in Jones county that is a huge economic impact to that county. A whole lot more so than a two hundred job company here in Wake county. Plus the other piece is some of these other counties are having to, because they're smaller project because that's what they can attract are having to pretty much on a local basis come up with plans to create a fifteen or twenty or thirty job industry coming into their areas. They don't get any tax advantages. They don't get any kind of help from the state. And the counties are out there on their own in a lot of sense fighting for those jobs. So I think the argument most of us has on the two county piece it's not that their not good programs, they are. I think the argument is that we're not getting out there trying to locate some companies maybe even smaller in some of these rural areas where it makes a huge impact. A fifty job company in this rural area is huge in those areas. It can change the dynamics in those counties considerably. And that's the argument it's not about how the money I think we understand it's new money. We understand that. But what we've got to change I think concentration is how do we get into these distressed areas that truly need help. [SPEAKER CHANGES] Senator I agree with you fully. Let's if can remember I should have jotted it down, let's take it one at a time. Let's start with South Carolina. Calling itself the beast of the southeast in manufacturing. What has South Carolina done for the last twenty, twenty five years? It's gone after original equipment manufacturers. They're more small town jobs with lots of people that tend to grow on themselves. We are the only state as you know senator in the southeast that does not have an automobile manufacturer. We now have four mega sites in the state that are capable of accommodating a manufacturer. That would transform small town North Carolina. Fifty jobs is huge. The JDIG program is probably not the most conducive to those kinds of jobs it's probably the program we want to call job grow capital. Which is the one North Carolina program. Smaller amounts of money targeted at smaller opportunities to help them invest in the infrastructure, the equipment, the people they need paid in over a one to five year period. There are programs for that. That's funded at about twenty eight million dollars over the biennium
eighteen million a year and that program has been invaluable. We just saw Sanderson farms in Robison county, eleven hundred jobs that was a one North Carolina award of about a million dollars. Now, to really focus on your question, what can we do to try to get more jobs in these areas. The bifurcation of the partnership in October has given us a new set of tools to be a little bit different in the way we market the state. Tourism national marketing international marketing is now in the public private partnership. I have had numerous meetings already about the fact that as the marketing arm of the department of commerce we need to start being proactive in the kind of jobs we seek out. My sense is the department of commerce has always been reactive when the telephone rang. And we need to start being proactive especially targeting those kinds of industries that can create large numbers of jobs in our smaller communities. The one that most obviously comes to mind is food packaging. We are a huge agricultural state and we need to start going at, Ohio owns that market and as commissioner Trackler says we have no shame in stealing. [SPEAKER CHANGES] Mr. Chairman if I could just follow up. [SPEAKER CHANGES] Certainly, certainly. [SPEAKER CHANGES] I think the statute says a JDIG program in a tier one county is ten jobs or above. Now I know the department might be considering more. [SPEAKER CHANGES] We have about a hundred fifty cut off. [SPEAKER CHANGES] But I think a hundred and fifty [SPEAKER CHANGES] I'm sorry a hundred and fifty in a tier three. Right, tier three it's much much smaller for the tier one. [SPEAKER CHANGES] Tier one is ten and I guess my argument would be is the scenario I mentioned to you about thirty jobs or whatever according to the statute qualifies for JDIG. And so. [SPEAKER CHANGES] Here's the other problem. Here's the other problem. In addition to the dual seventy five percent rule we also have a sixty five hundred dollar cut off rule. And basically that says if your in a high paying area only sixty five percent of your taxes paid to the state of North Carolina count toward the calculation of the program. Which means that if someone is paying fifty thousand a year in the state treasury as a employee that excess doesn't count and is also a net contributor to the coffers. The problem is as you get into more rural areas the jobs don't pay enough to create a return on investment to the state. Cause if your making thirty thousand dollars a year there's a real chance you not paying state income tax. So if we want to have a program candidly like film and I don't want to get into another dirty word topic. But the film incentive program is a net loser to the state. We collect four we pay out five. The arbitrage isn't good. The arbitrage on JDIG always creates a net win to the state. And that's why one North Carolina where jobs grow capital is the program to use in those situations. We try to award JDIG every time we possibly can in order to make it at least break even to the state. So it's all a function of compensation. [SPEAKER CHANGES] Thank you sir. Senator Apodaca did I see your hand up? [SPEAKER CHANGES] Sure Mr. Chairman thank you. ?? you mentioned the PPP refresh my memory in how they participate in this process. Are they strictly marketing or do they hand out any incentive money? [SPEAKER CHANGES] No, the PPP is the marketing arm center and then once the way I articulate it is they are like the starry eyed young world beater who's supposed to find all these deals out there and every deal is a good deal. And they're supposed to bring them back to the department of commerce to evaluate and see what the economic merits of the opportunity happens to be. So they do not, they simply are the marketing arm and they prepare the project to be approved number one by commerce and two by the EIC the economic investment commission. [SPEAKER CHANGES] Follow up. Mr. Chairman. [SPEAKER CHANGES] Follow up sir. [SPEAKER CHANGES] How would you grade it so far? How is that working? [SPEAKER CHANGES] So far? Since it started in October and effectively in January since Chris Chung arrived. A+ [SPEAKER CHANGES] One last follow up.
Mr. Secretary, I was reading in a newspaper the other day, and I can't remember which paper it was, about a PPP not releasing their records and I thought we were pretty specific in our legislation that records would be public. Can you comment on that? [SPEAKER CHANGES] Only having been here two months, I can tell you what I know. The idea was to make sure that appropriate records were released but not to impair the ability of the state to recruit future companies. Because two things happen, number one if all the proposed awards are made public, it sets a new bar for other people looking for awards, and then number two it also has people who have received awards coming back questioning, "Why didn't I get that or why did he get that and I didn't?" So it creates an awful lot of confusion in the recruiting world to give that information out. [SPEAKER CHANGES] Senator Rucho. [SPEAKER CHANGES] Thank you- [SPEAKER CHANGES] We will follow the statute, whatever, my broad-based understanding is that it does create a lot of noise out there that, "You got this and he didn't," and people are very upset, or- [SPEAKER CHANGES] I'm used to that. [SPEAKER CHANGES] Yeah, well I understand, but also because companies coming to the state say, "I want, minimally, this," and there's a lot of factors that go in to making the determination. [SPEAKER CHANGES] But following up on that. [SPEAKER CHANGES] Oh, following up on the follow-up, sir. [SPEAKER CHANGES] This is sunshine week and I'd certainly like to get out in the sunshine but, that being said, we need to, you know. [SPEAKER CHANGES] We are following the statute. [SPEAKER CHANGES] Okay. [SPEAKER CHANGES] Senator Rucho. [SPEAKER CHANGES] Thank you, Mr. Chairman. Mr. Secretary, your presentation on the JDIG was very favorable in your thoughts. I have a couple of points, I think one being is that each of those people, let's look at MetLife, 2,300 people in the state of- [SPEAKER CHANGES] 2,600, I think, 2,600 and $125 million. [SPEAKER CHANGES] Very good, out of those, how many were North Carolinians that got that job that the state of North Carolina invested $125 million into? If that is indeed one of the metrics in us trying to use incentives to create jobs to put North Carolinians back to work. [SPEAKER CHANGES] The way I look at that is if it was a North Carolina job, obviously it was a new job. I don't have any idea how many were imported from out-of-state, but they all become tax payers. Anybody coming to the state who wasn't here before paying taxes at least contributes. [SPEAKER CHANGES] Follow-up, so therefore we're paying incentive money to create taxpayers, or rather than hiring North Carolinians- [SPEAKER CHANGES] Senator, I don't know the numbers. [SPEAKER CHANGES] Okay, follow-up question, sir. [SPEAKER CHANGES] Yes, sir. [SPEAKER CHANGES] Under the circumstances, there are a lot of other insurance companies in the state of North Carolina that are good corporate citizens, they pay their taxes, their employees pay their personal income taxes, how do you justify, whether it be the insurance company competitor or any other person, that you bring a company in from out of the state of North Carolina, you offer them incentive money, JDIG money or whatever, and you ask the other businesses that exist here to pay for those different companies coming in, sometimes their own competitor? [SPEAKER CHANGES] Senator, the jobs created by Metropolitan coming to North Carolina created net dollars to the treasury, the other companies aren't paying for that. MetLife contributed more to the treasury than it received in incentives. [SPEAKER CHANGES] Follow-up, Mr. Secretary, there is also a need for new roads, there's also a need for new prisons, there are also need for new educational facilities. Let me assure you, the amount of money that you're talking about coming in from the withholding is minuscule compared to the capital expenses that come forward. [SPEAKER CHANGES] And those 2,600 people also pay property tax and they buy things and they pay sales tax. They are citizens. [SPEAKER CHANGES] Follow-up. [SPEAKER CHANGES] Follow-up. [SPEAKER CHANGES] Follow-up. Okay, now let's look for a second- [SPEAKER CHANGES] Senator Rucho, you two have the floor. [SPEAKER CHANGES] We're going to do it that way. Okay. It's sunshine week. Go ahead. [SPEAKER CHANGES] Mr. Secretary, we had what I would consider an excellent presentation by Brent Lane the other day describing the incentive programs and talking about the different options, JDIG being one of them, and he talked about a couple of issues, specifically return on investment as far as the money that we give for the withholding in those cases. And as a matter of fact, when you talk between 10 and 75, how many times have you ever given anything, and not you, the Department of Commerce, giving
Anything less than 75% of the withholding knowing that that's the top limit. [SPEAKER CHANGES] The average is 57%. [SPEAKER CHANGES] Okay. Then let's talk about the success of the JDIG program if we may. In 19, excuse me, in 2014, North Carolina created roughly 114,500 jobs. They projected with the JDIG 5,776 and they actually got 1,950. How can you spend all of that JDIG money to create 1950 jobs when 114,000 of them were created without any of that incentive money? [SPEAKER CHANGES] You don't, you don't spend all that money, because it's a look back. Every year, you only reimburse based on the actual number of jobs created. Every year for 12 years. [SPEAKER CHANGES] Follow up? [SPEAKER CHANGES] If they only create 1,000 jobs, they only get reimbursed for 1,000 jobs. [SPEAKER CHANGES] Follow up. [SPEAKER CHANGES] Mister secretary, under the circumstances, we didn't spend any money and we got 100% of the taxpayers' money on the 114,000 jobs that we created. Actually supporting organic growth, for example, any, we have had 450,000 small businesses in the state of North Carolina. If 10% of them create one new job, that's 45,000 brand new jobs without spending one penny of incentive money. It comes from the fact that we've lowered taxes and we've made it a better business environment. Wouldn't you think that's a better way than going with, without incentives? [SPEAKER CHANGES] I think it's one of the ways I think the incentive program is absolutely necessary because we have to have it to be competitive. Every other state in the Southeast is using taxes, regulatory facility, and incentives. If we don't want to be competitive, we shouldn't have an incentive program. If we want to be competitive, we need to have it. [SPEAKER CHANGES] Mister chairman? [SPEAKER CHANGES] You may follow up. [SPEAKER CHANGES] Just a last, just a last point. And I'll, and I'll just talk to you. One of the factors that kind of makes me scratch my head, the but for criteria. And I think what that really means is that you say, Bob Rucho, you come here, or you're already here in North Carolina, in Charlotte, and if you sign this contract with me that says but for, I would be going to South Carolina unless you give me some incentive money to keep me here, how effective is that but for in really determining whether that company was going to be here to begin with, or are they just sandbagging us and taking our money? [SPEAKER CHANGES] My sense after two months, Senator, is it is effective. We have three opportunities right now that are looking for JDIG awards in the next seven days, maybe sooner, and I will tell you assuredly I am convinced they will not come to North Carolina if we don't make an award. One of the cases is a but for, but for this award, I'm gonna take 175 jobs and move them to another location that I already have out of state, or if I receive the award, I'm gonna bring 100 jobs to town. So I am very convinced that the but for test is real and it works. [SPEAKER CHANGES] One more, yes sir. [SPEAKER CHANGES] Just that the evidence really doesn't show that, mister secretary. [SPEAKER CHANGES] Thank you. Senator Tillman. [SPEAKER CHANGES] I believe Senator Rucho had a girlfriend one time that said, yes I will, but, but for. I got a bus to catch. But for, I've had that promise, I know what you're talking about. Who is your Senator? [SPEAKER CHANGES] You are, Senator. [SPEAKER CHANGES] Okay, I just wanna get that clear before we go any further. [SPEAKER CHANGES] Do you have a follow up, Senator? [SPEAKER CHANGES] I've got a question. I've got a real question, now. Mister secretary, I know you and you know me. Now that may be good, it may not be, but I've got a simple question. Rucho was walking all over this question that I've been wanting, wanting to ask you for a long time. We have tax structures and we've done a lot to reform our tax structures, which make our business climate go up to the top tier in the nation now, and I think that's gonna attract a lot of jobs. And we've done some other reform with unemployment and so forth. That's helped. But if you had a choice, and I don't want a both on this one, JDIG grants or tax reform and lowering the rate, spreading the base, that type of thing. As you know, I had a constituent that made $40 million last year. Now, he told me it took him 41 to make it. No, no, it wasn't you, and it wasn't even in Pinehurst. It was up in Level Cross. But anyway, if we cut him from, if we cut him 2 percentage points on his personal income tax on $40 million, that's a bunch of jobs, and he's doing that very thing right now, expanding a business. You got a choice between JDIG grants and tax reform that affects everybody
There's no--there's no gimmicks in that. You just pay what the rate is. Which would you, which would you favor? SPEAKER CHANGES We are getting to a very favorable tax structure in this state. There is no question. But today, maybe long-term the answer is tax, but today, because of the competitive environment in the Southeast, I have to go with the incentive program. SPEAKER CHANGES One follow up. SPEAKER CHANGES Follow up. SPEAKER CHANGES I'm hoping that one of them's in Randolph County. I'll say no more. You don't have to answer that! SPEAKER CHANGES Senator Wells. SPEAKER CHANGES Thank you for being here, Secretary. You miss dinner yet? No, that wasn't the question. We've talked about--we have talked about, and you and previous Secretaries of Commerce have given us elaborate financial models of what kind of return we get on our incentive dollars. But every time I've heard those, they're in a vacuum, and it's assuming we don't do anything else with the dollars. So following up some of the conversation, do you have specific modeling to compare JDIG, JMAC, whatever, whatever incentives programs, versus specific tax reform. For instance, manufacturers in this state are being double-taxed on labor, and double-taxed on investment. And they're just going along with it, there's no politicians cutting ribbons there, they just plug along creating jobs, and have been for 30 or 50 or 100 years. Do we know, can we--do you have a hard comparison on incentives versus moving to, say, a single-sales apportionment factor? SPEAKER CHANGES Senator, my understanding of single sales is everybody wants it, and my answer is that everybody wants to go to heaven but nobody wants to die to get there. I think the House, the Senate, and the governor all support single-sales apportionment. But the problem is the revenue loss between the time you flip the switch and the time you fully implement it is significant. And I don't have a hard number. I've heard between $100 and $180 million. So if we can figure out a way to get to heaven without dying, I think everybody's in favor of that. But remember, you articulated a group of people who are paying twice. If you switch it the other way, there's a different group of people who are going to be paying more. It doesn't simply lower the tax for all the taxpayers. Those that benefit--there are others, significant players in the state, who will be hurt by it. So unfortunately, it's not an easy answer. I think everybody would love to get there, but it's going to take some time to figure out how. SPEAKER CHANGES Thank you, Mr. Secretary. Senator ??, following up. SPEAKER CHANGES Mr. Secretary, on the single sales factor. It appears--it's only $103 million if was done immediately over three or four years it would be significantly less to accomplish that. But if you look at the map and all of the states in the Southeast that presently have it--South Carolina, Georgia, I think Virginia has some modified version of it--are we not at a competitive disadvantage to those states? I think we just lost a plant to South Carolina, a corporate entity that would have benefitted from sales tax--a single sales-factor apportionment--because of the fact that we didn't have it and they did. And that was a manufacturing facility. SPEAKER CHANGES I don't know about manufacturing. I know a jobs--a corporate headquarters we lost to Georgia that would have benefitted by it. I don't know about the manufacturing one. SPEAKER CHANGES Follow up? SPEAKER CHANGES Follow up. SPEAKER CHANGES But to answer your question, I don't think anybody disagrees. I had a meeting with Senator Berger and Speaker Moore and the governor this week, and we all agreed, we'd love to get there. The question is how. It's going to take time to vet that process. SPEAKER CHANGES To use your own words, as far as during the transition period, you need to have JDIG. Well, this transition period means that we really need to have single sales factor if we're going to be a competitive environment. Wouldn't we? SPEAKER CHANGES In the long term. Not in the short term. Not anything that is currently pending is going to be impaired because House Bill 17 suggests that we continue the billion-dollar investment for single source. SPEAKER CHANGES I'm not the only person--I'm sure other people have had a number of large corporations come into my office that have been making large investments in the state. A lot of other businesses just like--and not one of them--?? came in, and a couple of others--but we have put our large businesses that have invested in employees and invested
In property at risk because they're paying a higher tax and are no longer competitive because of the fact that North Carolina has not moved in a single ??. How can we keep doing that to our existing businesses that hired North Carolinians and own vast numbers of buildings and land here? [SPEAKER CHANGES] Senator, you mentioned RJR. I think the current statute was done because RJR wanted it that way in 1984. Well, my research indicates that it was for RJR. [SPEAKER CHANGES] Thank you. Senator Daniel? [SPEAKER CHANGES] Thank you mister chairman and mister secretary. I wanted to follow up a bit on Senator Brown's thinking about rural areas, and when I'm in forums at home with the chamber of commerce, one of the questions they always bring up is how do we keep our kids from going to Carolina and NC State and staying in Raleigh, how do we get people to come back? And, and when you concentrate 83% of your, your economic development investment in the Triangle in Mecklenberg, I think you're only exacerbating that problem. And I know the argument is that wlel, we're gonna send all the money to Wake, Mecklenberg, and Durham, and then we're gonna slice off a little bit of it and put it in the utility account, and that's supposed to be enough to create economic development in rural areas. So my question is, do you have any evidence that the utility account is actually being transformative in any real way, in any, in rural areas? If so, what are some examples of that, because in my district at least I haven't seen that that has been the case. [SPEAKER CHANGES] I know it's being used. I know $39 million of it has been spent around the state of the 50 that's in there. The general assembly took $11 million of it back last year for whatever purposes, but it is absolutely being deployed, and there's another question that needs to be asked about the utility account and the JDIG program. And I've had people say to me, I've never had a JDIG awarded in my county, but the question is, were any JDIG awards offered? And the company chose not to come for whatever reason. I think there's a significant number of those. I don't know if we've tracked them historically. I do know of a number of counties that have had offers but not acceptances, which also is an additional indicator of the fact that we need these incentive programs, because they left anyway. How are we gonna solve this with the kids going off, every state, every city, every place in the United States has the same problem. If you look at the state of Missouri, I had the opportunity to talk to Chris Chung about it, 80% of the people in Missouri live in St. Louis and Kansas City. They too are trying to figure out how to get people back into the smaller towns. The market is speaking, and we've got to listen to the market, because as long as we are not having the small towns support the big towns the way the program works, the market is speaking. There is one thing that I'm very bullish on that can help the rural communities, and that is broadband coast to coast. We need to get broadband into the rural areas in this state, and I've got a plan for it, I've got a program for it. I am doing everything I can, because that, along with, NC competes package is another provision that historically has been known as crowdfunding that we've changed to PACES, providing access to capital for entrepreneurs and small businesses. If we can create a PACES program to allow small businesses of any variety, not just technology, and entrepreneurs to stay home and have broadband access including the capital and the I2J, there will be great reason to start your business in small towns because it's cheaper. [SPEAKER CHANGES] Thank you, sir. [SPEAKER CHANGES] Follow up? [SPEAKER CHANGES] Quick, yes sir. [SPEAKER CHANGES] Thank you mister secretary. So I guess to follow up on my question, does the department, if you give $100 million award to a Wake county company, 20 million over time should go into the utility account. Has the department tracked utility account job creation in rural counties, or is it just? [SPEAKER CHANGES] That's a good question. I don't know if Stewart Dickenson is here from my department. He might be able to answer that. I'm not sure they have ever tracked it, Senator. [SPEAKER CHANGES] Are, are you requesting that Senator? [SPEAKER CHANGES] Well, I think if we are spending money. [SPEAKER CHANGES] I might have an answer. [SPEAKER CHANGES] Okay. It might be nice to know if we're getting anything for our money. [SPEAKER CHANGES] We, we have an answer in the back of the room. Thank you, we, we do have an, we ask for you to identify yourself please, sir. [SPEAKER CHANGES] Stewart Dickenson, director of the commerce finance center. [SPEAKER CHANGES] Is your mic on? I can't tell. [SPEAKER CHANGES] Yes. We do
Track that, Senator, and. Push? [SPEAKER CHANGES] It's on. [SPEAKER CHANGES] We do track that, and we can get you that report. The utility fund is a very flexible fund. It's also used in counties that are getting ready for economic development and doesn't require jobs. To bring water and sewer and basic infrastructure to areas in those counties so that they can attract jobs. [SPEAKER CHANGES] Thank you, sir. I have Senator Apodaca, then Senator Brock, and then Senator McInnis. [SPEAKER CHANGES] Mister secretary, in all fairness, though, neglected to thank you at the beginning for what you and the Governor and the rest of the folks did for the new company coming into Henderson County the week before last. We do appreciate that. I believe we did that with one North Carolina money. [SPEAKER CHANGES] We did that with flexibility, Senator. [SPEAKER CHANGES] Thank you. Good. [SPEAKER CHANGES] Flexibility to make it happen. [SPEAKER CHANGES] I'm all about flexibility, mister secretary, look at me. Mr. Flexibility here, but we've had a long break since last August, I believe, when we took up the famous 1224 which I remind you was passed easily out of the Senate and died an ugly death somewhere else. We don't know where it went. Somewhere in South America, I think. But anyway, could you tell us the difference between that bill and, is it, House bill 17, 117. Do you know the difference between those two bills? [SPEAKER CHANGES] I do not. I understand there were a lot of ornaments added to the Christmas tree in 1224. This bill is fairly simple. This has three, four key components relative to incentives. One is right now we're out of business. The world knows it. There is nobody in the world that doesn't realize that North Carolina doesn't have a program. The first is to add $15 million this year to the program so people will understand we're seriously back in business. Two, extend the sunset date to 2020 so people don't have to think in terms of what's coming next year, because we already had the 1224 experience last session, and we need to get back into the game in a big way. Three, we want to extend single source sales to tier three counties because if anybody coming into a tier three county and making a billion dollar investment we probably want in the state. And four, there was a $20 million catalyst fund that was appropriated last time around, and there seemed to be some issue with that that it was a little too free wheeling at the discretion of the secretary, so we've asked to put that into the site infrastructure fund which has some rules around it to give us a little bit of flexibility. Now, there have been two addition. The fuel tax in Charlotte and the data centers, but that's it. It's very simple. [SPEAKER CHANGES] Thank you sir. [SPEAKER CHANGES] That's what passed the House. [SPEAKER CHANGES] Senator McInnis. [SPEAKER CHANGES] Thank you mister secretary, and I appreciate you being with us today. I know you live down in Moore County and that of course ?? two of my counties, both of those being in the super tier one of the bottom of the barrel. [SPEAKER CHANGES] Senator, I understand. [SPEAKER CHANGES] Sanderson Farms just came, of course, to Rutherford County and those are lower paying jobs than the rules require. Is that correct in my understanding that that's the reason there was no JDIG money put in that and it was all one North Carolina fund? [SPEAKER CHANGES] No, there was no JDIG money. We couldn't have given them a JDIG if they wanted it, because we don't have any money, but back to Senator Brown's question, those were jobs in the $30,000 range. Those jobs probably wouldn't have contributed net dollars to the state coffers, because probably most of those people don't pay state tax. [SPEAKER CHANGES] Follow up. [SPEAKER CHANGES] Follow up. [SPEAKER CHANGES] And that, mister secretary, is the point of my question. We would love to have some 10 or 11 or $12 an hour jobs in Scotland county and Richmond and Anson county because that would give us a start, because we got 10% unemployment and of course Scotland county now has the distinction of being the poorest county in North Carolina. Richmond and Anson right in there with us. So is there any program or any arrow in your bag, in your quiver, if you will, that would help us get some 9 or 10 or $11 an hour starter jobs for a workforce that's not necessarily technically astute. That's, that's what we need and we really need it sooner than later. [SPEAKER CHANGES] Let me, let me expand on that a little bit. Just before the announcement in Rutherford County, there was also an announcement in Polk county for about 400 jobs with Butterball Turkey. They too, were low paying jobs.
And there was some concern that oh, everybody's gonna get upset because these are only $30,000 jobs. The number one asked question from the 150 people that were there was how soon can I apply? And there were two remarkable examples at that, at that announcement. Two gentlemen were introduced. One was the new plant manager of the, of the program in Polk County, and the other was his boss, who was the plant manager of three Butterball plants. All three of them had started as hourly employees in the plant. So simply because they start there doesn't mean they're gonna end up there, and Senator, I'm with you all the way, but I can say 1,100 jobs in Rutherford County is a good start. [SPEAKER CHANGES] Thank you, thank you, Senator. Senator Brock. [SPEAKER CHANGES] Thank you mister chairman. I just wanted a product placement shot for a good North Carolina company here, Chair One, but John, Happy Anniversary of two months. But we know the, the problems in the past with the Department of Commerce with giving incentives to companies that did not want incentives, and we also look at the data of the JDIG program, and the success rate is just not there as far as what was promised to the legislative body. What I'm looking at is what will you do in the Department of Commerce to make sure that we have those victories? What changes will you make as far as look at the data, recruit the companies that will have the biggest impact in our areas that need help, as Senator McInnis just said. And also which ones will stay here, because that's the full implementation of the JDIG program was to make sure they're here, full employment, and stay here and not be wooed by another state. They can give an incentive package and they'll be up and gone in a few years. [SPEAKER CHANGES] Senator, you're exactly correct. The problem we face is that people are smart. They understand that they can play one against the other, and at what point do you take the risk that they're serious or not serious? It's a tough call, and remember 50% of these companies are using third party consultants who really know what's going on and are also compensated by the amount of the incentive package that they can get. So the odds are kind of stacked against us. At what point in time do you say, go ahead and move on out. I don't believe you're gonna do it. [SPEAKER CHANGES] Thank you sir. Do you have a follow up? [SPEAKER CHANGES] Not right now. [SPEAKER CHANGES] Okay, thank you, Senator McKissick, and ladies and gentlemen, we will take Senator McKissick's and one more question, and I will say but for session, we would stay here and hear all of the questions. Senator McKissick. [SPEAKER CHANGES] Mister secretary, two questions. First, if you look at overall, the performance of the JDIG program, it looks as if historically, the state has not been very good at times in really identifying what I call the winners and losers in terms of deciding which firms to make JDIG awards to because not all the jobs that were anticipated have come to fruition. Do you have any ideas about the way criteria could be improved so that we see a higher success rate in terms of the jobs being projected and jobs that are promised versus jobs that are actually created within the window of time that's specified? [SPEAKER CHANGES] Senator, I think we always win. If someone forecast 1000 job creation, and they get $1 million JDIG, and they only create 400 jobs, they don't get $1 million JDIG. They get something considerably less based on actual jobs created, so in my mind, they're giving us five dollars, we're giving them three back for a period of time, but there's always two left in the treasury. So I'm not sure that it isn't an infinite return on investment if we didn't otherwise have the job. Now, I'll agree with Senator Rucho, organic growth is the cheapest. If you have a company getting more business out of current client is the cheapest thing to do rather than spending marketing dollars. But it's always not the case. But, to your question, we are always creating net wealth to the treasury based on the way the award is calculated. [SPEAKER CHANGES] Quick follow up, if I could, mister chair. [SPEAKER CHANGES] Quickly please. [SPEAKER CHANGES] I guess the thing which I'm trying to get a better grip over is we've seen so many projections of job growth, and I agree that ultimately we don't pay out money that does not come in, theoretically, but what can we do to make sure that the projections which are being made by these firms, and obviously there are firms that are qualified for JDIG and get the benefit, but others that apparently do not. And
I don't know what that ratio is because that information never becomes truly available as far as I'm concerned, and I have not seen that. But I'm trying to see what we can do to make certain that when those projections are made, the forecasts are made, the announcements are made that not, ultimately we don't become a net loser because the way the program works you can't, but that we actually achieve the success which is articulated. And then there's a second phase to this, all these jobs we're talking about now are based upon anticipated revenues that are coming in from employees and, as you acknowledged, those employees may be coming from out of state. What can we do to incentivize or create opportunities for people to actually hire current North Carolinians that may be out there unemployed or underemployed, to take those jobs, as opposed to simply relying upon importing people, not that we don't want them, we do, but I also want to see those that are unemployed or underemployed get jobs first. [SPEAKER CHANGES] Senator, I guess the only thing that comes to mind, until we become central planners, which I don't believe in, I'm not sure anyone can answer the question because the market is going to decide. An employer can estimate 1,000 jobs and a recession could occur. There are a lot of reasons that they don't hit their forecast. The number, by the way, is about 40%, we pay about 40%. Just because we pay out 40% doesn't mean it's a failure. As far as I'm concerned, that's 40% new jobs we did not have, so it's always a net winner. At some point in time the market is ultimately going to tell us how they run their company. [SPEAKER CHANGES] Thank you. Senator Rucho, if you would please make an announcement. [SPEAKER CHANGES] Yeah, just an announcement, Wednesday's meeting, [??] Asset Sales, will be discussed only in the Finance tomorrow and there may be an additional bill on the calendar. You can pay close attention to it but we meet tomorrow at 1:00. [SPEAKER CHANGES] Secretary Skvarla, thank you, we certainly appreciate your answering the questions. Committee members, thank you and, again, but for session we would stay here and carry on and answer all of the questions. Thank you.