RALEIGH – The state of North Carolina and local governments in Chatham County will spend a lot of money on tax incentives to bring Vietnam-based VinFast’s electric vehicle manufacturing facility to the state. But an economic formula used to analyze such business recruitment deals says the ROI for NC should be in the billions.
According to the so-called “Walden Model”, the VinFast project will have the following over the term of the 32-year agreement:
- Estimated NC GDP (Gross Domestic Product) increase of $71.6 billion
- Estimated NC NSR (net government revenue) increase of $596 million
The immediate impact on the regional economy related to payroll is “more than $383 million each year,” according to Goy. Roy Cooper.
What the $4 billion VinFast facility means for the Triangle — and the state
The “Walden Model” is named after retired economist Dr. Michael Walden of NC State University.
According to Walden, this is how it works:
“The ‘Walden Model’ creates a cost-benefit analysis for the use of government incentives. All forms of rebates and tax reductions are taken into account. The goal is to develop an estimate of the net benefit to the government of using the incentives to attract the firm.
“It uses standard economic development formulas to estimate both the direct income and employment impact of the site company and the ‘downstream’ impact of the suppliers and consumer spending resulting from the income of the new workers.
“I developed the model twenty years ago at the request of the state (I was not paid for this work – it was considered part of my outreach support to the state).
“The General Assembly had passed a bill calling for such a cost-benefit analysis.”
Walden said that since the “model is owned by the State Commerce Department,” he was “not at liberty to provide details.”
The costs
The incentives for what the North Carolina Department of Commerce has dubbed “Project Blue” are significant.
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 to invest around $4 billion to grow the qualifying incentives. That’s according to the verbal briefing given to EIC members in a conference call on Tuesday to give final approval to the deal.
Incentives include:
- A job development investment grant that is actually a rebate on workers’ $316 million in state income tax withholdings over 32 years if job creation goals are met
- A federal grant of up to $450 million for site preparation, road improvements, and additional water and wastewater infrastructure.
- $38 million community college education
- $50 million Golden Leaf Foundation grant
- And $400 million in incentives from Chatham County
Governor Cooper’s collapse
In announcing the deal, Cooper explained the incentives and how they will work:
“VinFast’s project in the state, officially operated by a startup company, is facilitated in part by a Transformative Job Development Investment Grant (JDIG) approved today by the state’s Economic Investment Committee.
“It is estimated that VinFast’s project will increase the state’s economy by at least $71.59 billion over 32 years, the period that the grant could be active. Using a formula that takes into account the new tax revenue generated by the new jobs and a $4 billion corporate investment, the JDIG agreement authorizes potential reimbursement to the company of up to $316.1 million over a Paid period of 32 years.
“Like all grants under the JDIG program, government payments are made only after annual performance verification by the Departments of Commerce and Treasury that the company has met its incremental job creation and investment goals.
“VinFast’s JDIG agreement provides for up to $36.6 million to be contributed to the state’s Industrial Development Fund – Utility Account. The utility account helps rural communities across the state fund necessary infrastructure upgrades to attract future businesses.
“The state also anticipates providing up to $450 million in additional government funding to the project to cover site preparation, road improvements, and additional water and wastewater infrastructure.
“Salaries for the new jobs will vary by position, but collectively they will average $51,096, adding more than $383 million to the regional payroll each year. Chatham County’s median annual salary is currently $41,638.”