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What’s Leading Manufacturers to the Carolinas?

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There has been a dramatic increase in manufacturing capital investment in North Carolina and South Carolina over the last couple of decades. Companies in the aerospace, automotive, advanced materials (such as plastics and composites), food processing and agri-business industries have driven much of that investment, including international companies opening their first U.S. locations. Today, there remains a tremendous appetite among economic development professionals at the state and local levels to help manufacturers establish new facilities or expand their current footprint.

As manufacturers are contemplating an expansion project, there are a number of factors to consider in determining whether the Carolinas make sense. Overall costs to the company are an important part of that, including taxes, utility rates, real estate, and workforce and business incentives. But what has become even more critical for many manufacturers as of late is the availability of skilled labor, as well as the proximity of the site to both their supply chain and their customers. In making a well-judged site selection decision for the location that creates the best opportunity for a company, there are local nuances that should not be overlooked.

Clusters of Supply Chains and Pro-Business Policies

One of the primary reasons that manufacturers have continued to increase investments in the Carolinas has been the location of their supply chains. As a variety of manufacturing suppliers and customers have established plants or built out their logistics operations here, it has accelerated the need for other manufacturers that were part of that supply chain to look into this geography. For example, in the automotive industry, just-in-sequence and just-in-time production platforms as well as building supplier redundancy in the supply chain are essential corporate strategies to ensure reliability and quick to market strategies. Being able to quickly source components and raw materials has become critical as tier suppliers and OEMs are increasingly demanding faster delivery. The result can be a significant advantage for manufacturers who are part of a geographic cluster, particularly those in the automotive industry in the Carolinas.

In addition, both states have adopted pro-business policies, lowered the costs to operate in comparison to the rest of the country, and undertaken specific legislative initiatives to improve the tax environment and minimize the amount of regulatory programs that would otherwise encumber manufacturing companies. For example, there is a sense of urgency at environmental agencies to prioritize economic development projects with the understanding that manufacturers may need expedited treatment because of the speed in which they have to get into production and bring product to market.

Attaining an air permit, wastewater permit, or other type of permit from an environmental agency can be a major long-lead item for projects in many parts of the country. While that can certainly still be a challenge in the Carolinas depending on the project’s specifics, staff within the Department of Environmental Quality in North Carolina and the Department of Health and Environmental Control in South Carolina recognize the importance of economic development and will work to expedite the review and, if approved, issuance of critical path permits.

The states have also worked to keep companies’ costs down. Over the past three years, North Carolina has reduced its corporate tax rate to one of the lowest in the nation. South Carolina was already a leader in this category and has kept its corporate rate low through the use of targeted state income tax credits. And in terms of total employee compensation, the region that includes the Carolinas is one of the least expensive to do business, according to data from the U.S. Bureau of Labor Statistics.

Both states have also been intentional about helping manufacturers access the skilled workers they need to be successful. Economic development officials have maintained a focus on assessing local workforces and providing training, in-kind contributions such as training space, proven industry standard training modules, and cash contributions to support manufacturers’ workforce training needs. Many European manufacturers are familiar with apprenticeship programs, and the Carolinas have supported the growth of these and other types of skills initiatives. The states have provided funding for these programs and helped coordinate them with manufacturers, high schools, and community colleges. In some cases, state economic developers, a manufacturer or group of manufacturers, and a community college or even a high school have teamed up to customize a new skills initiative to help meet the needs of a project.

Aggressive Incentive Packages

Customer proximity, the availability of suppliers and the other business factors noted above are the elements needed to get a manufacturer close to yes. Beyond that, what has helped North Carolina and South Carolina seal the deal is that the states have put together very aggressive incentive programs. Provided that the project is competitive – if a company is going to likely spend a few million dollars in capital investment and create a couple dozen new job positions in either state – then there is a strong likelihood that the company will be able to not only qualify for statutory incentives but also negotiate a broader package with discretionary incentives from state and local communities, as well as local utilities.

The broader package could include, as a few examples, availability of reduced costs or potentially even land that can be donated or reduced below market price, special leasing arrangements for manufacturers at county-owned facilities, certain employee withholding tax grants or rebates, cash grants offered by the state, and discounted utility rates, which can be especially valuable for energy-intensive industry.

Furthermore, lawmakers in each state keep an eye on the overall competitiveness of their incentive packages and adjust them when necessary. For example, South Carolina recently adopted legislation that more than tripled the size of income tax credits for new job creation in its most economically distressed counties. Those income tax credits are now worth $25,000 per job created, up from $8,000 previously. In addition, say the already existing incentive programs don’t necessarily fit the nature, size, and scope of a large project: historically, the legislative bodies of those states have been open to supporting bills that might cater to such a project.

The overall package can get even better with the addition of federal tax credits. If the site of the new or expanded facility is in a rural or low-income area, it likely could qualify for the new Opportunity Zone program or the New Markets Tax Credit program. There is also a federal credit for rehabilitating historic structures. Depending on the exact nature of the project, some of these federal credits can be stacked on top of state and local credits to recover a significant portion of a company’s investment costs.

Navigating the Local Nuances

With virtually all of the factors described above, there can be local nuances to work through that vary between North Carolina and South Carolina – and even between different counties within the same state. It can be easy to miss details without the help of legal and economic development professionals who know the landscape. Simply put, it’s not a process a manufacturer can necessarily replicate from, say, Michigan to South Carolina.

By getting help from professionals on the ground in the Carolinas, manufacturers can better understand how the process runs, which issues will be important to address politically, and what tools in the economic development toolbox are available for their project. That kind of assistance is especially important with larger projects, where there is potential for richer incentive packages. State incentive programs have different time and investment requirements, so lining up the packages of several states can be like comparing apples and oranges. But with the right local guidance, companies can determine the combination of incentives and other factors that will work best for their project.

In fact, how localized and individual the process is should be viewed as an opportunity – state and local economic development officials in the Carolinas are often willing to make adjustments in order to attract investment. By partnering with local counsel, manufacturers can effectively gauge whether that opportunity is the right one for them.

Sam Moses is a corporate and economic development attorney who co-leads Parker Poe’s Manufacturing & Distribution Industry Team. He can be reached at sammoses@parkerpoe.com. Claire Hall is an attorney in Parker Poe’s Manufacturing & Distribution Team. She can be reached at clairehall@parkerpoe.com.

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