Economic outlook.

• Position: Interview

BNC: Has the incentive program been a waste of money?

Lane: No, it hasn't We entered a new era of economic-development competition in the '90s when incentives were extraordinarily useful. North Carolina didn't want to do incentives--we had to because everybody around us was using them. But the state's portfolio of economic incentives was developed for the economy of the early '90s. That economy has changed, so we need to look at our existing portfolio and see how it should be changed.

What are incentives supposed to do?

You'll get a different answer from almost everybody. But we had a very good bipartisan committee of about 20 legislators. They boiled it down to three primary factors. One was job creation--not just any jobs but higher-wage jobs. Second was an emphasis on job creation in distressed areas where the market isn't immediately responding to opportunities. The third was: Have we improved the North Carolina economy's competitiveness?

How do you measure that?

First, you have to have a significant number of jobs. Second, they have to be high-quality. Third, you've got to have an effect beyond the company that's receiving incentives. If you're going to invest in a relative handful of firms, they have to be transformative in some way.

They have to draw other companies to the state?

Absolutely. Or it can be geographical. A company moving into Mecklenburg County would have a smaller impact than a similarly sized one moving into a distressed rural area.

What did you find the tax credits were doing?

What we found was the popular perception of our incentives doesn't match the reality. Very little of the tax credits are directly related to job creation. Most are for investments in machinery and other equipment. Those credits, which are more than two-thirds of the total, are not even indirectly associated with job creation. On a net basis, they're associated with job loss. The vast majority of incentives are to companies that are shedding jobs. If your expectation is that your incented companies are adding jobs, then you're failing. If you want to incent companies in distressed areas, you're failing. The tax credits go overwhelmingly to the well-off counties.

Sometimes the state gives incentives not to create but to keep jobs.

People sort of backtrack a bit. "We also want to help these companies remain competitive." Or, "Now we want to retain jobs." Then you get into a hospice development. "We want to slow the rate at which these companies...