The Charlotte Observer

May 14, 1994

The mystery of phantom jobs
For companies that fail to come through on job promises, North Carolina could make incentives disappear too

Jack Betts, Staff Writer

Copyright © 1994, The Charlotte Observer

RALEIGH - One of the perquisites of being governor of North Carolina is taking credit for the good things that happen - particularly the number of new jobs coming to the state. It's a racket, with dazzling but misleading numbers that may be wildly out of whack with reality.

For as long as anyone can remember - dating perhaps to the days of Gov. Luther Hodges, who specialized in industrial recruiting from 1954-1961 - governors have made frequent announcements of how many jobs they've attracted to the state. Almost every one has basked in the glory of landing more new jobs than his predecessor. The state ranks consistently near the top in annual rankings of overall new investment and jobs created.


Ugly little fiction

But there's an ugly little fiction involved: Maybe half the announced jobs - sometimes a little more, sometimes a little less - actually are created.

Nearly a decade ago the N.C. Center for Public Policy Research set out to document the facts in a report headlined, ``Phantom Jobs: New Studies Find Department of Commerce Data to Be Misleading.''

The results were startling, and an N.C. State University study prepared for the Martin administration reinforced the center's conclusions: a lot of jobs that governors claim to have created are actually ``phantom jobs'' - jobs that never are created, for a variety of reasons having to do with competition, bankruptcies and general economic conditions.

Specifically, the center's 1985 study reported that about 61 percent of the new jobs announced from 1978-1984 (most of the first two Hunt administrations) ``actually do exist.'' Its research went on, ``We do believe that the deception of economic growth in terms of jobs available is significant to the citizens of North Carolina.''

The N.C. State study covered 1971-1980, including part of the Scott administration, all of the Holshouser administration and the first Hunt administration. It found that only 47 percent of the announced jobs were actually created by 1985.

In their defense, governors usually argue that the number of announced jobs is a simple economic indicator that grossly understates overall job growth. For every job announced, others will be created by the economic ripple effect. And while some announced jobs never come to fruition, many other jobs the state never counted on are also created.

The General Assembly last year touched on the phantom jobs question when it debated Gov. Jim Hunt's request for an Industrial Development Competitive Fund. The $5 million fund was set up to cinch the deal on new and expanding industry by providing a grant of up to $1,000 per job created to be used for buying or installing new equipment, making repairs or improvements to buildings and extending utility services.

But the legislature did not require companies receiving the money to give it back if they failed to provide the announced number of jobs. Instead, it left it to the Commerce Department to write the rules governing penalties for failure to follow through on all its promises. The department's guidelines say a company ``may be responsible for repayment of part of or the entire grant award'' if its investment or employment targets are not met.

Which brings up an interesting question: At what point will the department try to get the taxpayers' money back when a company fails to provide all the jobs it promised to deliver? Assistant Secretary Leo Tilley says the department will move promptly to recover its money when a company fails to keep its word. Only in cases of bankruptcy or other extreme conditions would the state not seek to recover its money, he says.

Last week, the state announced that the Industrial Development Competitive Fund had attracted 22 companies to build new or expanded facilities here. Those companies would create 4,363 new jobs, including 2,103 in nine economically distressed counties.

The report sounded rosy. In exchange for the state's investment of a little less than $3.5 million - or about $802 per job, the companies would invest more than $276 million in the state.


Seeking repayment of grants

It seems likely that the companies recruited under the competitive fund will have a better record at attaining employment targets than those surveyed for the two 1985 studies. For one thing, the companies recruited with the fund's help agreed in writing to provide those jobs instead of simply announcing plans to create a certain number of jobs. And the department makes it clear that it will seek repayment of the grants, says Tilley.

But there are no formal guarantees on either side. And if the pattern of the two 1985 studies applies in the current marketplace, some of the state's 4,363 new jobs announced as having been attracted by the competitive fund may turn into modern-day phantom jobs. Who knows where that might lead, but one possibility is legislative unhappiness - and suggestions that the assembly consider offering phantom incentives to companies that want public subsidies but don't perform up to snuff.

Jack Betts is an Observer associate editor based in Raleigh.

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All rights reserved. No part of this article may be reproduced, translated, or transmitted in any form or by any means without permission in writing from the Charlotte Observer.

Copyright © 1994, The Charlotte Observer.

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