- North Carolina is trailing other states because it has not adopted a plan for regular evaluation of tax incentives.
- The state has produced high-quality one-time studies of some incentives.
- An evaluation process could provide information on the results of both tax incentives and the cash grants that have become a larger part of the state’s economic development portfolio in recent years.
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North Carolina has proved that it is capable of producing high-quality tax incentive evaluations; however, these have been one-time studies. The state lacks a regular process for measuring the results of its incentives.
In 2013, for example, the General Assembly’s Fiscal Research Division studied the state’s film tax credit at a legislator’s request. The evaluation included a rigorous assessment of the program’s economic impact. It used economic modeling to estimate to what extent film productions in North Carolina would have located elsewhere without the incentive. It also compared the results of the film tax credit to an alternative scenario in which the money had been used for a broad-based business tax cut and found that the tax cut would have led to better economic results.a
The evaluation was part of a yearslong debate over the merits of the program. Ultimately, lawmakers changed the film tax credit to a cash grant and scaled it back somewhat—though they still approved $60 million for it in the two-year budget adopted in 2015.b The state has also allowed several other tax incentives to end in recent years, instead shifting the state’s economic development portfolio toward cash incentives such as grants and loans.c For example, the Job Development Investment Grant, a cash program, is now one of the state’s largest incentives.d This shift could be relevant if lawmakers look to design an evaluation process. Other states, such as Florida and Oklahoma, have designed processes to study both cash and tax incentives in order to have information on a broad range of economic development programs.e
Evaluations would be valuable to help provide North Carolina lawmakers with timely information on their incentives. For example, for 20 years the state has divided counties into tiers to try to direct benefits—from incentives and other programs—to the most distressed areas of the state. A 2015 legislative staff study, however, found that the tier system was flawed and recommended eliminating it.f A regular evaluation process could help North Carolina identify that type of subtle defect in incentive programs, so that lawmakers could improve the effectiveness of the state’s economic development efforts.
- Patrick McHugh, North Carolina Legislative Services Office, to state Senator Robert Rucho and Jim Blaine, chief of staff, office of North Carolina Senate president pro tem, memorandum, April 9, 2013, http://wwwcache.wral.com/asset/news/state/nccapitol/2013/08/16/12784762 /201308161256.pdf.
- Lauren K. Ohnesorge, “Lights! Camera! Action! — N.C. Film Industry to Get $60M Boost,” Charlotte Business Journal, Sept. 15, 2015, http://www.bizjournals.com/charlotte/news/2015/09/15/lights-camera-action-n-c-film-industry-to-get-60m.html.
- Amanda Hoyle, “Drowning Under N.C.’s $524 Million Tax Credit Tab,” Triangle Business Journal, May 13, 2016, http://www.bizjournals.com/triangle/print-edition/2016/05/13/drowning-under-n-c-s-524-million-tax-credit-tab.html.
- North Carolina Department of Commerce, “Summary of Projections and Recommendations” (March 17, 2016), https://www.nccommerce.com/Portals/0/Incentives/JDIG-Funding-Study-(3-17-16)v2.pdf.
- Florida Stat. Ann. § 288.0001, http://www.leg.state.fl.us/statutes/index.cfm?App_mode=Display_Statute&Search_ String=&URL=0200-0299/0288/Sections/0288.0001.html; Oklahoma Stat. § 62-7001 to 7005, http://webserver1.lsb.state.ok.us/OK_Statutes/CompleteTitles/os62.rtf.
- Program Evaluation Division, North Carolina General Assembly, “North Carolina Should Discontinue the Economic Development Tiers System and Reexamine Strategies to Assist Communities With Chronic Economic Distress” (Dec. 14, 2015), http://www.ncleg.net/PED/Reports/documents/EDTiers/ ED_Tiers_Report.pdf.