McCrory offers bleak assessment of state economy

Governor-elect says remedies may not be popular

jfrank@newsobserver.comJanuary 2, 2013 

— With the campaign behind him, Gov.-elect Pat McCrory gave a somber assessment of the state’s economy on Wednesday and warned that the fix would not make everyone happy.

“We have some problems,” McCrory told business leaders at an economic forum in Durham. “The fact of the matter is our brand of incredible economic prosperity has been diminished a little bit here in North Carolina. ... We have to own up to it.”

McCrory, who takes the oath Saturday, listed a handful of controversial decisions he must confront in his first days – such as implementing the federal health care law, paying for the state’s $2.5 billion unemployment insurance debt and finding a way to revive an economy with the fifth highest unemployment in the nation.

The former Charlotte mayor’s tone sounded similar to the less-than-optimistic economic forecasts for 2013 offered by experts at the conference, which was sponsored by the N.C. Chamber and the N.C. Bankers Association.

John Connaughton, an economist at UNC-Charlotte, said he expects 1.8 percent growth in state gross domestic product in 2013. David Carroll, an senior executive vice president at Wells Fargo in Charlotte, gave a similarly modest number – 1.5 percent.

“What we are looking at is a slow start to the year that will tick up by the end of the year,” Connaughton said, expressing more hope about growth in 2014.

Outgoing Commerce Secretary Keith Crisco, who attended the forum, said North Carolina is coming off its best year in terms of job creation since Democratic Gov. Bev Perdue took office. “We’ve got a good momentum going,” he said.

But Connaughton put North Carolina’s current economy in darker terms, saying the state recovered just 44 percent of the jobs it lost in the recession, which is less than the national average, and fell from 27th to 37th in per capita income in the last dozen years.

“We have almost ignored how badly our state has done,” he said.

McCrory made the state’s economic troubles central to his 2012 campaign, but offered a positive vision with a “Carolina Comeback” slogan. He set a goal to lower the state’s unemployment below South Carolina’s by 2014 – a task economists suggest is overly optimistic. North Carolina’s rate was 9.1 percent in November compared to 8.3 percent in South Carolina.

The governor-elect’s more sober tone on Wednesday, Connaughton said, is a reflection of the circumstances. “He’s realistic,” the professor said. “He knows the challenges coming.”

One solution McCrory offered to help resurrect the state’s economy was an overhaul of the state tax code.

Repeating lines from the campaign trail, he said a lower corporate income tax and personal income tax would make the state more competitive when it comes to luring industry to relocate. He declined again to give specifics on his proposal and tackling such an issue will prove difficult given failed efforts in years past. But McCrory sounded ready for a fight.

“Let me send all of you a message because this is not going to be an easy battle with an easy solution,” he said, directly admonishing lobbyists who may try to undo his ideas. “It’s going to step on everyone’s toes a little bit.”

At the same time, a more pressing issue may take priority when McCrory assumes office. The state owes the federal government nearly $3 billion – money it borrowed to pay for the first 26 weeks of unemployment benefits. McCrory said after the forum that he doesn’t know if the state will accept additional federal loans, or reject them as others have done in the past.

Lew Ebert, the president of the N.C. Chamber, said business owners are now paying higher unemployment taxes to help pay off the debt. The chamber favors a Republican legislative plan to curtail benefits for jobless workers and wants to the state to issue bonds to pay the debt.

“It’s the most immediate challenge to job creation,” Ebert said.

He ranks the tax cuts lower on the list of importance and expressed pessimism that McCrory and the GOP legislature would deliver on the issue – a major campaign promise. “The idea of dramatically changing the tax code and making the budget work is going to be difficult,” he said.

Larry Barbour, the president of North State Bank and one of the business leaders in the audience, said he is hopeful about the coming year. And he is encouraged by the new administration, saying McCrory “knows more about business than any governor in a long time.

“This is the first time in several years that we’re excited about our options in the new year,” Barbour said. “We aren’t home free, but we are seeing more advantages emerging.”

Frank: 919-829-4698

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