December 29, 2021 – North Carolina’s 39-year, $846+ million subsidy to Apple for a new corporate campus in the Research Triangle Park has been selected as the “Worst Economic Development Deal of the Year” for 2021 by the Center for Economic Accountability.
This award recognizes a state or municipal government subsidy of a private company in the name of “economic development” that goes further than any other that year to exemplify the massive wastefulness and ineffectiveness of state government subsidy programs. With an annual estimated price tag across the country of $95 billion – enough to fully fund the eleven smallest state budgets combined, or more than three times the total price tag of the federal government’s farm subsidy programs – state and municipal government economic development subsidies have grown in recent years into an increasing burden on taxpayers and a growing danger to states’ ability to fund basic public services and protect their long-term fiscal health.
Apple’s deal in North Carolina stands out for the way in which a state’s elected officials claimed that this massive public subsidy was necessary to attract the project to the state, despite the Research Triangle’s clear competitive advantages in business-critical site selection factors.
“As with all truly bad subsidies, North Carolina’s elected officials gave a big company a giant pile of money to do what that company was already going to do anyway,” said John Mozena, president of the Center for Economic Accountability (CEA). “A billion dollars is a lot of money for North Carolina’s taxpayers and communities, because that’s a billion dollars’ worth of public services not being funded. But for a company like Apple, which reported more than a billion dollars a day in revenues this past year, it isn’t anywhere near enough money to move the needle on a major site selection decision.”
The CEA awards the Worst Economic Development Deal of the Year as part of its independent and nonpartisan mission to advance economic opportunity for all by promoting transparency, accountability and free-market-based reform of state and local economic development initiatives across America. Previous winners include the General Motors/LG Chem joint venture battery plant in Lordstown, Ohio in 2020, the Charlotte Panthers’ team offices and practice facility move to Rock Hill, SC in 2019 and Amazon’s “HQ2” in 2018.
North Carolina’s subsidies for Apple stood out in five key factors:
A giant price tag
North Carolina’s Apple subsidy has a headline cost of as much as $846 million over the next 39 years, based primarily on a grant program that allows the company to effectively keep 90% of eligible employees’ state income tax withholding. The average tax revenue loss to the state will be more than $21 million per year. (For context, $21 million a year is more than the state spends on workforce-building programs such as technology solutions and distance learning programs through its community college system.)
With other local subsidies attached, including a 30-year 50% property tax abatement from Wake County, the final price tag for Apple in North Carolina could easily end up at more than a billion dollars. It is the largest subsidy deal in the state’s history, overshadowing the $387 million awarded to Centene Corp. just the previous year.
Unrealistic “competition” claims
Representatives of North Carolina’s Department of Commerce claimed the subsidy was necessary because they were competing primarily with Ohio for Apple’s facility. They were required by law to say this — as with most states, North Carolina state statutes only allow the Department of Commerce to provide subsidies if the project would otherwise go to some other state.
But how truly competitive are Ohio and North Carolina for tech firms, especially on the key factor of workforce? According to the Computing Technology Industry Association’s “Cyberstates 2021” report on the national IT labor market, the Raleigh metro area ranks seventh in the nation for density of tech workforce, while no metro area in Ohio ranked higher than 36th. Similarly, the Brookings Institution’s “Geography of AI” report in 2021 noted that Raleigh is an “early adopter” region for the kind of artificial intelligence research and development that Apple said would feature prominently in its Research Triangle campus. No region in Ohio shared that distinction.
Few – if any—independent rankings put any Ohio metro area on similar footing with the Research Triangle when it comes to key tech industry site selection factors. For independent observers, this looks less like an actual competition and more like something bureaucrats had to say to nominally comply with state laws designed to limit wasteful corporate welfare.
Disconnection from actual site selection factors
While a significant majority of economic development subsidies are wasted on companies that would be making the same decision without government funding, independent research confirms that some subsidies do occasionally move the needle. That’s why, to qualify for the Worst Economic Development Deal of the Year, critical site selection factors need to be so clearly in favor of the deal that the subsidy is obviously unnecessary. That’s true in this case, as the Research Triangle is one of the nation’s hotter regions for tech industry growth. It ranks highly in business-critical site selection factors like a high-tech workforce, good quality of life, proximity to universities, a sane regulatory environment and solid infrastructure quality.
For instance, Raleigh ranks sixth in the nation in Arizona State’s “Doing Business North America” ease-of-doing-business rankings, with neighboring Durham coming in second. North Carolina ranks fourth in top marginal corporate tax rate in the American Legislative Exchange Council’s “Rich States, Poor States” 2021 report, and comes in fifth overall out of all 50 states in Economic Outlook Rank in the same report. The American Society of Civil Engineers’ 2021 “Report Card for America’s Infrastructure” ranked North Carolina 21st, above average and well above East Coast regional competitors such as South Carolina (36th), Virginia (39th), Maryland (38th) and West Virginia (50th).
Ridiculous economic impact predictions
In order to qualify for Worst Economic Development Deal of the Year, a project’s economic impact projections need to exemplify Mark Twain’s famous adage that there are “lies, damned lies and statistics.”
In a press release, Apple said, “When up and running, Apple’s investments are expected to generate over $1.5 billion in economic benefits annually for North Carolina.” This means that, on average, each of the 3,000 employees in Apple’s Research Triangle facility is effectively expected to generate $500,000 in GDP per capita.
That would make each worker more than nine times as productive as the Raleigh region’s current workforce, where GDP per capita peaked at $54,398 in 2017 according to the Federal Reserve. Even in Silicon Valley, where a third of the workforce is in similar tech-industry roles, GDP per capita only reached $128,000 in 2017. If the entire workforce of the Raleigh metro area were to be as productive as Apple apparently projects its employees to be, the Research Triangle would have an economy larger than major countries such as South Africa, Finland, Romania, Portugal or New Zealand, or more than three times larger than oil-rich Kuwait.
Even leaving aside the specifics of “insanely great” employees, the reality is that no rigorous research study would ever claim to be able to project a single project’s economic impact out that far. The most common tools for this kind of economic impact modeling have, at best, a five-year window of reasonable reliability. Extending those projections 30 to 40 years into the future is closer to science fiction than economics.
When Steve Jobs and Steve Wozniak founded Apple Computer on April Fool’s Day of 1976, there’s no way that an “economic impact” projection could have looked 45 years into the future and predicted what role their startup would play in their local, state or national economies. The same holds true today in North Carolina.
A giant corporate recipient
Apple has more money than North Carolina does. There’s nothing wrong with being a big business, but when it comes to who’s subsidizing whom it’s important to take relative resources into account. In FY2021, the entire state budget was $56 billion. Meanwhile, Apple’s total annual sales for 2021 were $365.8 billion.
In fact, Apple could have funded North Carolina’s entire state budget out of its $94.7 billion in net profits for the year and still had more than $38 billion left over to distribute to its shareholders.
The bigger a company is, the less chance there is that a state or local government subsidy will be capable of influencing the business case for a site selection decision, and the greater the chance that it’s being done so that elected officials can take credit with voters for “creating jobs.”
About the Center for Economic Accountability
The Center for Economic Accountability (CEA) is a nonpartisan and independent 501(c)(3) nonprofit that works to advance economic opportunity for all by promoting transparency, accountability and free-market-based reform of state and local economic development initiatives across America. Headquartered in Michigan, the CEA was founded in 2018. For more information, visit https://economicaccountability.org/.
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