One of the first major bills to pass either chamber of the General Assembly this year was H 117, NC Competes Act. The bill included substantial changes to several economic development programs, including some to the Jobs Development Investment Grant (JDIG) Program. The bill cleared the House of Representatives on March 5, 2015 – a mere nine days after it was filed. However, the House and Senate did not reach a compromise on the bill until September 18, 2015, and the bill didn’t become law until signed by the Governor on September 30, 2015.
JDIG is one of the State’s major economic development incentive programs. While often mistaken for a tax credit or other tax incentive, JDIG is actually a discretionary grant program that was created in 2002. Some of the confusion lies in the fact that the amount of a grant is based on a percentage of personal income tax withholdings generated by new jobs created by the business that receives the grant. Under JDIG, a business enters into an agreement with the State with respect to an economic development project. The agreement specifies, among other things, the number of new jobs to be created, the salary ranges for those jobs, and the capital investment the business will make. Under the agreement, the State agrees to make grant payments to the business over a number of years. Those grant payments are based on a percentage of personal income tax withholdings generated by the new positions created.
During the 2015 Regular Session, the General Assembly made some significant changes to the program. Perhaps more interesting, the Senate had proposed more sweeping changes that were not enacted. What follows is a brief description of the major changes that were enacted and major changes that were proposed but not enacted.
- Expiration date. Prior to the enactment of H 117, authorization to enter into new agreements under the JDIG Program was set to expire as of January 1, 2016. This act extended that authorization until January 1, 2019.
- Generally speaking, the Economic Investment Committee (the group responsible for entering into JDIG grant agreements) is limited in the number of agreements into which it can enter each year. Prior to the enactment of H 117, the maximum amount of availability in any single calendar year was $15 million. No agreement could be entered into that, when considered together with other existing agreements awarded during a single calendar year, could cause the State’s potential total annual liability for grants awarded in a single calendar year to exceed this amount. Special legislation has been enacted on several occasions over the past 13 years that allowed the Committee more flexibility with respect to this cap within a limited time frame. This was the case with the period from 2013-2015. This act made several changes:
- The act provided an additional $5 million in availability for the period ending December 31, 2015. This amount could be increased to $20 million if there is a high-yield project during that time.
- The act increased the cap from $15 million annually to $20 million annually going forward. This amount could be increased to $35 million in a year in which there was a high-yield project.
- The act set a limit so that no more than one-half of the available funding could be committed within the first six months of the calendar year, unless there was a high-yield project.
- High-yield projects. Defined a high-yield project as one in which the business must invest at least $500 million in private funds and create at least 1,750 eligible positions. The Committee has more flexibility with respect to drafting agreements for high-yield projects and there is an automatic increase in available funding if there is a high-yield project.
Proposed, but not enacted, changes:
- Geographic limitations. S 338, Economic Development/Tax Modifications, and S 526, Job Creation and Tax Relief Act of 2015, would have placed limits on the percentage of funds that could be allocated to projects in “major-market communities.” Major-market community was defined as a county in which the average weekly wage for all insured private employers in the county is one of the three highest in the State. This would have included Durham, Mecklenburg, and Wake Counties. Not coincidentally, those counties have also received the largest share of the potential allocation of funds under the JDIG program. These bills would have limited the amount of funds that could be allocated to projects in these three counties to a percentage. The percentage that could be allocated to all projects in any one of these counties would be no more than the twice the percentage of the State’s population that resided in that county. Thus, projects in Mecklenburg County and projects in Wake County could be allocated no more than 20% of the available funds each (each of those counties represents roughly 10% of the State’s population). Projects in Durham County could be allocated no more than 6% of the available funds (Durham County represents roughly 3% of the State’s population). Durham County, the home of the Research Triangle Park, would have been particularly affected by this provision as it has a much smaller population than the other two counties but had a comparable amount of allocations of JDIG funding over the first 13 years of the program.
- Wage standards. S 338 and S 526 would have also reinstituted wage standards with respect to the JDIG Program. When the program was originally created in 2002, it included a requirement that the new jobs pay wages that exceeded a standard based on the prevailing wage rate in the area. The wage standard was later eliminated. These bills would have reinstituted that wage standard at higher levels than before its repeal.
It’s safe to say that at the end of the 2015 Regular Session many economic developers, particularly those from the two largest metropolitan areas, were left breathing a sigh of relief. The enactment of H 117 ensured an extension of the program and an increase in availability. In addition, the more controversial provisions that had been proposed earlier were left on the table. However, given continuing concerns about the rural-urban divide in North Carolina, developers would be wise to keep an eye out for future proposals that place geographic limitations on the JDIG Program.