Sep 26, 2022 - Business

North Carolina’s tax incentives model doesn’t work when employees can work from anywhere

Courtesy of Centene

A number of companies that promised big growth in the Carolinas have reneged on economic incentives deals recently as their employees opt to work from home.

  • Driving the news: Centene is the most recent, canceling its plans for a regional headquarters in Charlotte this summer. In exchange for creating up to 3,200 jobs here, Centene would’ve received $450 million in state and local incentives.

State of play: North Carolina’s state and local governments only pay out incentives if companies meet their hiring goals.

Why it matters: Economic incentives fueled North Carolina’s rebound from the collapse of the textile industry in the late 20th century. They helped diversify the state’s economy after the Great Recession, too, drawing in companies like Honeywell and Apple over the years.

  • But these days, because of the pandemic, many employees can work from anywhere — calling into question how the state’s incentives model will work in the future or what type of companies it pursues.
  • Remote work could force economic developers to change their thinking on recruitment, Tony Copeland, former N.C. commerce secretary, tells Axios.

What’s happening: Several site consultants who spoke with Axios say office-based projects in their pipelines have slowed as companies rethink their footprints. But demand for new manufacturing space — workplaces where employees need to be present to do their jobs — remains strong.

  • The pullbacks also come as the economy has slumped due to inflation and rising interest rates.

Between the lines: Another recent example is Dentsply Sirona, the dental equipment manufacturer that canceled its incentives deal with North Carolina in March 2021 because, in part, the pandemic increased “the ability to effectively work remotely,” per CBJ. In exchange for $3.9 million, the company originally said it would create 320 jobs in Ballantyne over three years.

  • Similarly, Robinhood, which had said it’d add 389 new jobs in Charlotte in exchange for about $4 million in state and local incentives, will close its Uptown office. Its workers who remain here will begin working under the company’s “work from anywhere model.”
  • In Raleigh, Advance Auto Parts and Arch Capital canceled incentives agreements with the state, citing remote work as a factor.
  • IHS Markit, a financial analytics provider, canceled an incentive agreement to grow in Raleigh, citing “changes in work patterns” that are “likely to persist for the foreseeable future.”

What they’re saying: “Even today, I am getting calls from companies exploring, perhaps, locating dozens of executives in North Carolina — but their whole salesforce would be remote and not North Carolina taxpayers,” Copeland said. “It’s just changed the way you look at it.”

Still, Copeland said it would be a mistake to not recruit companies whose workers don’t need to be in an office.

  • “We don’t know how this is actually going to shake out,” he said. “It appears it will never be the same as before, so far as everybody working all the time in an office, but we don’t know that for sure.”
  • “We should never stop going after knowledge-based industries. We should learn to evolve (our recruitment) with them,” Copeland added. That could mean changing the incentive structure of JDIGs — “but I don’t really know what (that change) is right now.”

The intrigue: A new theory emerging is that cities should focus on investing in the infrastructure and quality of life improvements that would make them more attractive to remote workers who can live anywhere.

  • “Economic development organizations need to be spending a lot more time thinking about how to recruit the workforce, because the companies are going to come where the workforce is,” said Didi Caldwell, president of Greenville,S.C.-based Global Location Strategies.
  • “If you don’t already have a talent recruitment strategy, then you are way behind the eight ball.”

Previously, Caldwell added, communities with economic development organizations used to spend 80% of their time recruiting companies to come to them.

  • “Things have completely changed now. I think economic development organizations need to be spending a lot more time thinking about how to recruit the workforce, because the companies are going to come where the workforce is,” she said.

The other side: The Centene situation doesn’t necessarily underscore a broader problem with how North Carolina recruits white-collar workers, according to Charlotte city councilman Tariq Bokhari, who also runs the Carolina Fintech Hub.

Instead, Bokhari cites a change in leadership at Centene and the company’s efforts to trim costs.
The leader who spearheaded the local expansion was Michael Neidorff, who died last spring after a lengthy illness.

  • Bokhari blamed industry trends for the loss of companies like Robinhood. “It’s a brutal market for them and everyone in that space. They’re having to make these cost cuts,” he said.

Zoom out: With the widespread adoption of hybrid work, companies of all kinds have to rethink the size and feel of their corporate headquarters.

  • That could mean a smaller physical corporate footprint, but one that’s highly sophisticated — tech-enabled, a sleek design and close proximity to amenities, says Peter Miscovich, executive managing director of strategy and innovation at JLL.
  • Amazon, for instance, paused construction on a tower in Nashville, while it figures out a balance between remote and in-office work.

“Corporate headquarters of 2025 or 2030 will look very different from the headquarters of 2005,” Miscovich says.

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