Open Source: North Carolina’s creative incentive

I’m Brian Gordon, tech reporter for The News & Observer, and this is Open Source, a weekly newsletter on business, labor and technology in North Carolina.

I spent part of this week reviewing emails from North Carolina officials discussing their recruitment of Wolfspeed, the Durham-based chip manufacturer that in September announced it would build a new $5 billion factory in Chatham County.

The emails were obtained via a public records request.

An annoyingly number of the messages concerned who would attend the Sept. 9 announcement ceremony at the Executive Mansion. Those I skimmed. But a few emails seemed pretty illuminating. They appeared to show a shift in how North Carolina incentives major economic projects.

Here’s how:

The “creative option”

In early June, Beth Friedrich, an economic policy adviser for House Speaker Tim Moore, asked state Commerce Department officials if there was a way the General Assembly could set aside more money for Project Hibernian, the nickname given to the prospective Wolfspeed facility.

At the time, the company was considering sites in North Carolina and New York.

How much the state could offer Wolfspeed was bound by the Walden Model, a cost-benefit equation developed by N.C. State economist Michael Walden to ensure any incentive deal leaves the state in a net-positive financial position.

Wolfspeed projected its new factory would create 1,802 jobs. At that job figure, the Walden Model calculated Project Hibernian warranted a $180 million grant. Any more, Commerce officials explained, and the project would risk “running negative over the life of the grant.”

Because this benefit materializes through payroll tax breaks, state taxpayers are theoretically protected if the company doesn’t reach its initial hiring goals (as is often the case). At worst, it’s a “no harm, no foul” situation. At best, the state lands a major economic driver that will strengthen surrounding communities for decades to come.

But the General Assembly seemed to believe Wolfspeed could deliver more benefits (i.e. more jobs) than what the model captured.

Responding to Friedrich’s inquiry about funding beyond the model, Commerce’s finance director Mark Poole offered a solution: The General Assembly could appropriate money not to Wolfspeed, but to the site the company would use:

• “The language would be project agnostic while recognizing the importance of the mega site to the state’s economic recruitment efforts,” Poole wrote to Friedrich and Brian Fork (Senate Leader Phil Berger’s chief of staff) in a June 2 email. “This would allow the model to essentially ignore these funds as it considers specific projects with the understanding these funds were going to be invested regardless of whether a company recruitment was involved.”

• Reviewing a draft of Poole’s email, North Carolina Commerce Secretary Machelle Baker Sanders complimented Poole for presenting a “creative option that may accommodate Hibernian while keeping the state’s best interests in play.”

A month later, the state set aside $57.5 million to reimburse a chip manufacturing project for its future site costs in Chatham County.

Using a similar template, the General Assembly also appropriated $450 million for another Chatham megasite where the automaker VinFast plans to enter. Neither company’s name appeared in the budget.

“You haven’t recently seen these types of appropriations from the General Assembly,” Friedrich told me in July. Neither she nor the Commerce Department responded to my questions for this piece by an initial Thursday deadline.

So what’s the takeaway?

Looking at it one way, it seems this additional upfront spending introduces a new risk to North Carolina taxpayers. The state is putting more money toward projects before the companies that benefit ever create a single job. Things seem to be moving beyond the “no harm, no foul” model.

But state officials argue that upgrading these fallow megasites with essential services like water and sewer benefits North Carolina no matter which company fills them. For if Wolfspeed or VinFast never come to Chatham, worst-case scenarios, the improved sites will help lure other economic fish, they say.

North Carolina hasn’t struggled to nab big-time firms recently: Apple, Toyota, Boom Supersonic, etc. But perhaps Wolfspeed would have picked New York if the additional site funding hadn’t materialized.

Which way do you see it?

Fun fact, public records edition: Wolfspeed CEO Gregg Lowe invited Gov. Roy Cooper to drive his luxury electric car on the day of the announcement ceremony. The vehicle is a Lucid Air, which looks like a sweet — if expensive —ride.

Bandwidth’s no good, very bad stock day

• The Raleigh tech firm Bandwidth had a rough time on Wall Street yesterday with its stock diving more than 25%. An underwhelming revenue forecast was to blame. But the company remains upbeat.

• And another Bandwidth fact involving 25%: At the end of 2022, a quarter of Bandwidth employees had been at the company for a year or less. Bandwidth attributed this to the high attrition seen across the tech industry in recent years during the “great resignation.”

• But Bandwidth has also maintained a firm return-to-office policy, and it hasn’t been shy about pointing staff to the door if they don’t wish to comply.

In North Carolina, labor history is Black history

• I got to peak into the archives of Black Workers for Justice, which since forming in 1981 has organized and advocated for workers across Central and Eastern North Carolina.

• In a large closet in Raleigh, the group stores reams of documents, financial records, newspaper clippings and petitions. Only South Carolina is less unionized than North Carolina, but the archives showed Black workers and organizers sparked changes even if the unions weren’t formed.

• For example, look up the Raleigh Sanitation strike in the 2000s.

Short-stuff: A source code crime

• A federal jury on Tuesday found a Texas man guilty of trying to “ruin the life” of a North Carolina victim by, in part, publicly posting source code the victim had spent six years creating. The jury determined the code was worth millions.

National Tech Happenings

• Big tech can breathe easier: Section 230, which grants social media companies legal protections from what is posted on their platforms, was thought to be in danger as the Supreme Court hears a case about whether Google bears responsibility for an infamous terrorist attack. But the justices don’t appear inclined to strike it down.

• This AI bot needs a better lawyer: The U.S. Copyright Office told Reuters that images in a graphic novel that were created by an artificial intelligence program would not be copyright protected.

• China is no ChatGPT fan. Keeping with artificial intelligence, the powerful, scholarly, potentially creepy language program ChatGPT is now even harder to access in China.

Thanks for reading.

This story was produced with financial support from a coalition of partners led by Innovate Raleigh as part of an independent journalism fellowship program. The N&O maintains full editorial control of the work.

Open Source

Do you enjoy Triangle tech news? Subscribe to Open Source, The News & Observer's weekly technology newsletter and look for it in your inbox every Friday morning. Sign up here.