RALEIGH- The state of North Carolina and local governments in Chatham County will be forking over a lot of money in tax incentives to bring Vietnam-based VinFast’s electric vehicle manufacturing plant to the state. But an economic formula used to analyze such business recruitment deals says the return should be in the billions for NC.
According to the so-called “Walden Model,” the VinFast project over the life of the 32-year agreement will have an:
- Estimated increase in NC GDP (gross domestic product) of $71.6B
- Estimated increase in NC NSR (net state revenues) of $596M
The immediate impact on the regional economy in terms of payroll with be “by more than $383 million every year,” according to Goy. Roy Cooper.
What the $4B VinFast plant means for the Triangle – and the state
The “Walden Model” is named after retired NC State University economist Dr. Michael Walden.
Here’s how it works, according to Walden:
“The ‘Walden Model’ does a cost-benefit analysis for the use of state incentives. All forms of rebates and tax reductions are considered. The goal is to develop an estimate of the net benefit to the state of using the incentives to attract the firm.
“It uses standard economic development formulas to estimate both direct impacts on income and employment from the locating firm, as well as ‘downstream’ impacts from suppliers as well as consumer spending derived from new worker income.
“I developed the model twenty years ago upon a request from the state (There was no compensation to me for this work – it was considered part of my outreach assistance to the state).
“The General Assembly had passed a bill requiring such a benefit/cost analysis.”
Walden said that since the “model is the property of the State Commerce Department” he is “not a liberty to provide any details.”
The incentives for what was labeled “Project Blue” by the North Carolina Department of Commerce are substantial.
A contract signed between VinFast and the state’s Economic Investment Committee (which is part of the NC Department of Commerce) requires the company to hire at least 6,000 workers at an average wage of just over $50,000 and invest some $4 billion in order to qualify for the incentives. That’s according to the oral briefing given to EIC members in a conference call Tuesday to give the deal final approval.
The incentives include:
- A Job Development Investment Grant, which actually is a rebate on state income tax withheld from employees, of $316 million over 32 years if job creation targets are met
- A state appropriation up to $450 million, to cover site preparations, road improvements, and additional water and sewer infrastructure.
- Community college training worth $38 million
- Golden Leaf Foundation grant of $50 million
- And $400 million in incentives from Chatham County
Govt. Cooper’s breakdown
In announcing the deal, Cooper explained the incentives and how they will work:
“VinFast’s project in the state, which will officially be executed through a newly formed company, will be facilitated in part by a Transformative Job Development Investment Grant (JDIG) approved by the state’s Economic Investment Committee earlier today.
“VinFast’s project is estimated to grow the state’s economy by at least $71.59 billion over 32 years, the time period when the grant could be active. Using a formula that takes into account the new tax revenues generated by the new jobs, as well as a company investment of $4 billion, the JDIG agreement authorizes the potential reimbursement to the company of up to $316.1 million, paid over a time period of 32 years.
“Like all grants from the JDIG program, any state payments only occur following performance verification each year by the departments of Commerce and Revenue that the company has met its incremental job creation and investment targets.
“VinFast’s JDIG agreement calls for moving as much as $36.6 million into the state’s Industrial Development Fund – Utility Account. The Utility Account helps rural communities anywhere in the state finance necessary infrastructure upgrades to attract future business.
“The state also anticipates providing additional support to the project by means of a state appropriation of as much as $450 million, to cover site preparations, road improvements, and additional water and sewer infrastructure.
“Salaries for the new jobs will vary by position, but taken together will average $51,096, increasing the regional payroll by more than $383 million every year. The Chatham County average annual wage currently stands at $41,638.”