The Charlotte Observer

January 12, 1996

Firms pledge jobs; NC doesn't check

Taylor Batten, Staff Writer

Copyright © 1996, The Charlotte Observer

From December 1993 to June 1995, the N.C. Commerce Department gave about $70 million in incentives to 53 companies that promised to create 8,485 jobs.

Today, Commerce officials don't know how many jobs the companies have created. The department set up no oversight system to confirm that the companies fulfilled their commitments.

Doing so ``hadn't occurred to me. It should've occurred to someone along about now,'' said Bob Goodale, the agency's deputy secretary. ``We hadn't talked about it until you and I just talked about it.''

Since the numbers exist only in confidential files at the N.C. Employment Security Commission, it's impossible to know how many jobs the companies have created. But in at least some cases, they have fallen short. In one instance, a company took at least $300,000 to create 300 jobs, but went out of business a few months later. The state didn't get its money back.

The lack of oversight angers critics.

``If the goal is to create jobs, you have to wonder why no one tracks how many are created over how many are promised,'' said John Hood, vice president of the John Locke Foundation in Raleigh, a conservative think tank.

``I don't mean to be disrespectful of anyone, but the fact of the matter is creating jobs is not the goal of these programs. The goals of these programs are to create job announcements.''

Commerce Secretary Dave Phillips said he had his finance director, Bruce Strickland, call companies to check job counts a year ago. But he took no notes and filed no memos. ``It wasn't a formal thing,'' Phillips said.

The problem exists only for incentives given between Dec. 21, 1993, and June 30, 1995. Under pressure from legislators and other critics, Commerce last July began paying companies only after they create the jobs, not before. But that leaves about $70 million for which the state has no oversight system.

This week, in response to The Observer's inquiries, Commerce officials said they would adopt a new policy. They will send letters next week to the 53 companies in question, asking them to report the number of jobs they've created to the agency, which would then make them public. The companies don't have to comply, since the only legal requirement is that they report jobs confidentially to the ESC. Commerce could have gotten the ESC numbers, but no one ever asked. Goodale also said that if the Commerce Department finds companies that have created substantially fewer jobs than promised, the agency could invoke a clause in the incentives contract to seek repayment of some of the money.

``It's time for an audit and a progress report,'' Goodale said.

That would be hard for companies to swallow.

``If that were to come to pass, it would be a challenge for us to come up with an appropriate response,'' said Ed Harrington, human resources manager at Owens-Brigam, which received $770,000 in incentives in December 1993. ``It would be a very unpleasant experience.''

Owens-Brigam, based in Morganton, promised 150 new jobs in Avery County, south of Boone, within three years. Harrington says the company employs around 85, and that it might add a handful of workers before next December's deadline, but won't come near the target. Most companies agree to create the jobs within three years after receiving the incentives.

Harrington said his company didn't mislead Commerce officials. It's just difficult, he said, to predict how many jobs will be created. That may be true for many of the companies that received incentives, many observers say.

Some of the 53 have done what they promised. Sea Land Service, which got $600,000 from the governor's Industrial Recruitment Competitive Fund and the same amount from Charlotte-area sources, has created the 600 jobs it promised.

But some other companies have fallen short:

* Seffi Industries received $300,000 from the governor's fund, and at least that much from Sampson County east of Fayetteville, before going out of business a few months later.

* Furniture-maker This End Up received $230,000 from the governor's fund and other incentives for a new plant in Harnett County north of Fayetteville that would employ 200. It then closed a Raleigh plant where 150 worked.

* Quaker Oats received $98,000 from the fund for a new plant near Asheville that would create 98 jobs. But it then closed another N.C. plant where 70 people worked.

``I think the department needs to be on top of it more. If a company fails to create all the jobs they said they would, they should pay part of the money back,'' said House Speaker Harold Brubaker, R-Randolph.

Gov. Jim Hunt said: ``I'm sure we do need to have a better system for checking. I don't know exactly what the numbers are. We don't have staff sitting around with the telephones, calling every day to check. Our job is to get companies here. The companies are coming, I know that.''

Incentives come from so many sources - road improvements from the Transportation Department are one example - that it's nearly impossible to total them all. But Goodale said the governor's fund typically represents about 15 percent to 20 percent of the total the state gives a company. That would place the total for the 53 companies at $60 million to $80 million.

A state report compiled total incentives for 18 of the 53 companies, but not the others. The state gave $23.5 million to the 18. If the others received similar amounts, which Goodale said was likely, the state money for all 53 would total $69.3 million.

The state's stepped-up efforts at policing job creation may eventually be moot.

The N.C. Supreme Court will hear arguments next month in a case that could fundamentally alter the way state and local governments recruit businesses. Forsyth County Superior Court Judge Julius Rousseau ruled in August that a state statute that allows incentives is unconstitutional. The high court could take away recruiters' most powerful tool. The lawsuit, filed by Winston-Salem lawyer William Maready, challenges the use of incentives by local governments, but the high court's ruling could affect the state's programs as well.

******* CORRECTION*******

February 4, 1996

An Associated Press story in the News & Observer on Feb. 4 dealing with economic incentives provided by the state to companies that create jobs in North Carolina contained some significant errors. In addition, the story was out of date by the time it was published by the N&O, more than two weeks after it was produced by the AP. The story implied that 53 companies had received a combined $70 million in incentives from the State Commerce Department in the period from December 1993 to June 1995. According to the Commerce Department, the correct figure is $10.6 million. The story gave an incorrect title for Bob Goodale, who is deputy secretary of Commerce. The story erroneously said that Owen-Brigham, a manufacturer of anesthesia and respiratory products, had created fewer jobs than it promised at its factory in Avery County in exchange for the state incentives. A quotation from an Owens-Brigham official appearing to support that conclusion was taken out of context, according to the company. Owens-Brigham General Manager J. Michael Bridges said the factory now employs 118 people, considerably more that the 25 it promised to hire under the terms of the incentive agreement. Finally, the story said that the Commerce Department will be sending letters to companies that received the incentives in an effort to determine whether they have honored their job-creation commitments. By the time the story appeared in the N&O, the letters had already been sent.

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