Dean Barber

On Murderers’ Row: Economic Development at Risk in North Carolina

In Corporate Site Selection and Economic Development on August 23, 2015 at 1:59 am

North Carolina has a lot going for it. It has mountains in the west and seashore in the east, making it the sixth-most visited state in the country.

It has two of the fastest growing metro areas in the country, that of Charlotte and Raleigh/Durham, which combined have accounted for nearly 60 percent of North Carolina’s job growth since the recession.

From old, North Carolina has tobacco, textiles and furniture, still hanging in there, with even new capital investment projects happening.

From new, it has experienced a flood of tech jobs, much of which has been prompted by Research Triangle and the concentration of topnotch universities and companies nearby.

Raleigh, currently home to more than 400 startups, has seen a 23 percent increase in IT jobs in the first half of this year.

Now I have been to North Carolina many times, both on business and pleasure, and I always left impressed with the growth and potential for more growth that I have witnessed there.

Of course, I like economic growth, which is partly why I live in Texas. (See last week’s blog, Armadillo’s Revenge.)

An All-Star Team in Turrmoil

But back to North Carolina, which has been given practically all-star status in economic development circles, proportional to that of the University of North Carolina’s basketball program.

To believe that all is well with economic development in the Tar Heel State, however, would be wrong. The truth is, things are a bit in turmoil there right now.

I started hearing murmurs of discontent, among both economic developers and site selection consultants, more than a year ago in the midst of a transition from a traditional state-run commerce department to a public-private partnership for industry recruitment.

Now this is somewhat understandable, as there is a part of human nature that does not like change. I get that. But when other site selection consultants were telling me of telephone calls not being returned, well, that’s not a good sign.

To be fair, I no longer believe this non-responsive scenario to hold true. The newly-created Economic Development Partnership of North Carolina may have got off to a shaky start, but it is now headed by a consummate professional, Chris Chung, of late of the Missouri Partnership, who above all believes in customer service.

Economic Developers Speaking Out

But you know things are not all hunky dory when Chris, along with other top economic developers in the state, are coming out with public statements that they are concerned about the competitive position that North Carolina finds itself.

They know too well that they are living with a manufactured crisis, made possible by a state legislature dogged by Tea Party activists. More on that later.

Said one fellow site selection consultant in an email exchange last week with me on North Carolina: “Difficult environment to do deals.” He added, “I know Chris is doing the best he can.”

Last week, the North Carolina House rejected a Senate version of an economic development bill, which would have increased annual financing for the Job Development Investment Grant (JDIG) program, truly the mainstay for the state’s incentive package.

JDIG’s Empty Till

The bill will now go to conference, where state lawmakers should, if they have a modicum of common sense, agree to a compromise bill, thereby funding the program.

JDIG is a discretionary incentive that provides sustained annual grants to new and expanding businesses measured against a percentage of withholding taxes paid by new employees.

The immediate problem is that JDIG is currently tapped out, as in there is no more money in the till. And that naturally has economic developers in the state very antsy, as they should be.

The N.C. Economic Developers Association back in May called on legislators to raise the cap on JDIG and extend it for five years beyond its sunset deadline of 2016.

“Without these types of programs, North Carolina and the economic developers across the state will operate at a disadvantage,” says Ernie Pearson, NCEDA president.

Ronnie Bryant, president and CEO of the 16-county Charlotte Regional Partnership, has not been pleased with the turn of events and has made his views known.

He said the Senate version, which caps JDIG at $20 million annually and adds $5 million to the current fiscal year, represents a watered-down compromise “that could potentially hamper business development.”

“I am among many regional and statewide economic-development officials, including John Skvarla, secretary of the North Carolina Department of Commerce, who have stated that JDIG shouldn’t be restricted by caps or a sunset date,” Bryant wrote in his weekly blog.

“This sends mixed messages to companies that are considering moving or expanding here.”

Defending Incentives

For his part, Skvalra, who has called JDIG “North Carolina’s flagship business recruitment tool,” has had to defend the idea that job-creation incentives do not constitute corporate welfare, which is never a good sign.

“Any number of considerations can lead a company to us – or away from us. Good sites, reliable infrastructure and talented workers get us to the finish line. Meaningful financial programs like JDIG and One N.C. put us across the finish line. Clearly, all these factors are important,” Skvalra wrote in a recent guest editorial for The Fayetteville Observer.

“But the absence of clarity regarding JDIG’s future erodes confidence in North Carolina as a destination for new jobs and investment. As the global economy moves ahead, most companies cannot afford to wait. Some have already taken their expansion plans to competing states.”

One of those competing states, neighboring South Carolina, is clearly on a roll. That state won two automotive assembly plants this year alone, when Mercedes-Benz announced in March and Volvo announced in May future factories to be built near Charleston.

Still No Auto Assembly Plant

Volvo had looked at three sites in North Carolina but passed, apparently viewing the overall incentive package being offered as not being particularly worthy. (Georgia was the second choice behind South Carolina.)

Unlike many states in the Southeast, most notably South Carolina, Tennessee, Kentucky, Georgia, Alabama and Mississippi, North Carolina has yet to win its first automotive assembly plant. It remains a stated goal for Chung.

(Jaguar Land Rover, which was reportedly considering North Carolina as a possible location for a new auto plant, has decided not to build in North America.)

Now I have tried in my past writings to avoid the political realm, as that is one sure-fire way to turn people off. I hope my readers can neither identify me as an R or a D, as I do not see myself as either.

Still, politics and economic development are so intertwined, so dependent on one another, that I must tiptoe into this arena, ever so reluctantly.

A Governor’s Feud

The bottom line is that politics are why economic development in North Carolina is having a difficult time of it right now, although I do expect the ship to be righted eventually.

It should be noted that legislators have yet to deliver a budget for the fiscal year that started July 1, the longest stalemate in 13 years.  The state is now operating under a temporary measure that allows it to spend money without a budget.

Knowledgeable observers tell me that the root of the problem is the rise of the Tea Party, particularly in the Senate.

On issue after issue, Gov. Pat McCrory, has been in a fight with the Senate almost since he took office in 2013. In rejecting Medicaid expansion under Obamacare and protecting opponents of gay marriage, the Legislature has forged ahead without him, sometimes overriding his vetoes.

That tattered relationship did not improve when Gov. McCrory criticized the Senate over a plan that would allocate more sales taxes collected in urban centers to rural areas.

This battle between anti-government Tea Party supporters and business-oriented Republicans, pitting urban against rural, is certainly not exclusive to North Carolina. Similar rifts have occurred in other states to be sure.

To Unilaterally Disarm is Not an Option

But in North Carolina, this political fight has resulted in economic development being held hostage. And, mind you, this is happening in a state in the Southeast, where economic development, is played hard and fast, much like its college football.

In an interview last month with the Charlotte Business Journal, Chris Chung acknowledged that North Carolina is at a “competitive disadvantage” with other Southeastern states.

“If we want to unilaterally disarm while the rest of our competitors continue to offer these tools, I really worry about our risk that we fall behind,” he said.

“We’re on murderers’ row when it comes to competition.”

I couldn’t have said it any better. I’ll see you down the road.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a location advisory and economic development consulting firm. OUR NEW ADDRESS is 2736 Golfing Green Drive, Dallas, Texas 75234. Dean can be reached at dbarber@barberadvisors.com or at 972-767-9518. If you liked what you read here, invite him to speak at your next meeting.

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