Rob Christensen

Legislators tinkering under state’s economic hood

The image I have of North Carolina’s legislature is of a bunch of weekend “mechanics” standing around under the hood, taking out parts, yanking wires. One prays that when they are finished, the state’s economic engine will still work.

There seem to be a lot of people worried that it won’t.

Since winning a majority of the legislature in 2010, the Republican majority has been overhauling just about everything – from economic policy to taxes to regulation. Making the state more job-friendly, they say.

But is that really so?

The complaints have been growing that the legislature has been making things worse – not better.

The complaints are coming in from everywhere.

Consider:

▪ Commerce Secretary John Skvarla, a conservative Republican, said in February that North Carolina lost its bid for a Volvo manufacturing plant in part because the legislature hasn’t approved more jobs incentive funding. South Carolina landed a new $500 million plant near Charleston that will employ up to 4,000 people. Gov. Pat McCrory has been lobbying to get an appropriate amount of incentives funding.

▪ Last weekend, Wake County manager Jim Hartmann said on the Carolina Business Review TV program: “In Wake County we’ve got 60 projects under review and in discussion right now. Some of these are very sizeable. ... I think some of the projects have actually gone elsewhere because the state was not in a position to come to the table.” Added Dena Diorio, the Mecklenburg County manager: “Clearly, if you want to compete with South Carolina, you have to have more money, really to be in the game. That is really important.”

▪ Last week, Ernie Pearson, president of the N.C. Economic Developers Association, long active in GOP politics, said Senate plans to phase out economic incentives would not work in the real world. “I can tell you, and give you my word, we are losing projects in this state that are impactful in jobs, impactful in capital investment,” Pearson told the House Appropriations Committee, according to The Insider. Natalie English of the Charlotte Chamber of Commerce said a company is considering moving its corporate headquarters to Charlotte and investing $300 million in a separate North Carolina location but it will likely not happen without state incentives.

▪ Grover Norquist, president of Americans for Tax Reform, who likes much of what the legislature has done, thinks the Senate plan to apply the sales tax to advertising would be “an unmitigated disaster.” He said Florida tried it and the state lost $100 million in advertising revenue to other states.

▪ Much of the film industry has left the state, heading to South Carolina and Georgia, after the legislature ended the roughly $60 million tax credit for making movies. The $10 million grant program that replaced it hasn’t kept the film industry here. Film companies previously spent $170 million in the Wilmington area alone.

▪ An estimated $1.5 billion in private investments were brought into the state to help transform historic factories, hospitals, storefronts and so on since 1998 as a result of the state historic tax credit program. The legislature let the historic tax credit lapse. McCrory has been pushing hard to get it restored, and the House has voted to restore it. It is now in the Senate’s hands, and uncertain.

▪ The $13.6 million in annual state funding for the N.C. Biotechnology Center would be killed under the Senate budget. The center helps fund startups and research across the state. North Carolina has 60,000 people working in the life sciences industry. The House has voted to continue funding.

▪ At a time when unemployment in North Carolina has risen four straight months, the Senate is considering eliminating 8,500 teacher aides, in what would be the largest layoff in state history.

▪ While the legislature is concerned about getting jobs into rural areas, it killed the state’s regional economic development partnerships, four of seven of which mainly served rural or small town North Carolina, and folded the N.C. Rural Center into the Department of Commerce.

▪ The legislature has essentially frozen funding of the University of North Carolina system at pre-2008 recession levels. State funding for UNC has risen from $2.6 billion in 2007-08 to an expected $2.7 billion in 2015-16. “You can say whatever you want to about the university system, (that) there’s waste and you don’t like their politics,” Fred Eshelman, a Wilmington pharmaceutical executive and major Republican donor, said last year. “It doesn’t change the fact that, in my view, it’s the biggest economic engine we have in this state.”

Arguing the other side

There are, of course, arguments, for all these positions.

The legislature doesn’t want to give preference to one industry over another; or to an incoming industry over an existing industry. It prefers lowering overall tax rates as opposed to giving preferences. It is ideologically skeptical of public/private partnerships, and devalues public enterprises in general.

But the legislature is taking a gamble in some instances. There is little evidence that their prescriptions have worked elsewhere or are working here.

While it is true that North Carolina has climbed out of the great recession, its 5.8 percent unemployment rate in June was still above the national average of 5.3 percent. North Carolina was about on par with its neighbors – Virginia (4.9 percent), South Carolina (6.6 percent) Tennessee (5.7 percent) and Georgia (6.1 percent.)

As it tinkers with the state’s economic engine, we may hope that the legislature knows what it is doing. The future of the state is riding on it.

  Comments