House budget better than Senate on economic development, still falls short of what’s needed


As long as North Carolina’s overall job creation remains anemic and rural regions continue to lag behind the rest of the state, it will be critical to adequately invest in proven economic development strategies like increasing small business lending, supporting development in economically-distressed communities, and strengthening the nexus between cutting edge research and innovative industrial development in key sectors. These are many of the types of investments that made North Carolina a leader in innovative economic development over the past 30 years.

Although significantly less supportive of these efforts than in past years, the House budget proposal for FY 2014-2015 does a better job of funding the state’s most effective economic development investments than does the Senate proposal, which relies on largely unproven strategies like fracking.

Both proposals are ultimately constrained by the continued commitment to tax cuts that primarily benefit the wealthy and profitable corporations that are also unlikely to deliver on the job creation promises that their proponents have made.

In the years since 2011, the General Assembly has largely dismantled much of the state’s most innovative economic development efforts. It eliminated the nationally-acclaimed rural development entity—the N.C. Rural Economic Development Center, dramatically scaled back investments in the biotech sector, abolished the state’s regional economic development planning partnerships, and eliminated state support for 13 nonprofits performing community-based economic development in the state’s most distressed communities. Both budgets continue this long-term trend of dismantling North Carolina’s system—the House just restores some of the lost investments.

The state agency tasked with supporting economic growth and directing the state’s economic development strategy is the Department Commerce, the budget for which also includes Commerce-State Aid, the portion that directs state spending to designated nonprofits working on community-based job creation efforts.

The House budget spends more in both these areas than the Senate budget does, appropriating $3.5 million more for Commerce and $4.5 million more for State Aid. It should be noted, however, that even the House budget for State Aid still includes the 60 percent spending cut enacted in last year’s budget. So while the House budget represents some improvement from last year’s historic disinvestment in community economic development, it’s really just a drop in the bucket in terms of reinvesting in the state’s ability to support job creation.

Within these budget totals, several specific investments make the contrast across the House and Senate proposals in economic development even more apparent:

The House keeps the Low-Resources Community Grant Program. As part of the creation of the new Division of Rural Economic Development last year, lawmakers agreed to create a $2.5 million Limited Resource Communities grant program intended to support economic development specifically in designated low-resource communities (e.g., the poorest 40 counties in the state). The Senate budget calls for eliminating this grant program altogether, while the House version keeps the program in existence with a 50 percent reduction to total funding levels of $1.25 million.

If the Senate is allowed the eliminate the program, it is unclear how the Commerce Department will continue to direct economic development planning and support efforts to economically distressed rural regions.

The House increases funding for small business lending through an additional appropriation for the Support Center. Funded out of the Commerce-State Aid budget, the Support Center is a statewide nonprofit and Community Development Financial Institution (CDFI) that provides small business loans and financial training to start-ups and existing businesses, especially those businesses that have been unable to access traditional sources of capital through conventional bank loans.

While the Senate provides no funding to help these small businesses access credit, the House budget appropriates an additional $1 million in one-time funds for Support Center activities that are critically important for helping small businesses access the capital they need to grow and create jobs.

The House increases support for the N.C. Biotechnology Center. Created in 1984, the Biotech Center has played an instrumental role in building the state’s biotech sector from scratch, which in turn has transformed the Research Triangle region into one of the most competitive areas in the world for this fast-growing, high-wage industry. The Center serves as the statewide hub for commercializing life-science technologies into marketable applications by linking academic, business, civic and policy leaders to ensure state policies advance growth in the sector, supporting job training programs for current businesses and biotech businesses of the future, and helping boost emerging industries with technical assistance and lending.

Over the past several years, the legislature has enacted deep cuts to Biotech Center funding, which led to a significant reduction in the organization’s ability to promote this industry. The cuts were so deep, in fact, that the Center was forced to eliminate its world-recognized workforce training programs, a curious outcome for an administration that repeatedly stressed a commitment to job training. In a positive step, the House partly reversed some of these cuts through a one-time increase of $3.6 million in their budget proposal. The Senate, on the other hand, failed to increase funding for the Center, undermining the ability of the organization to promote these critical economic development activities.

The Senate takes a largely untested approach to job creation by proposing new subsidies for the fracking industry. The Senate budget proposal appropriates more than $1.2 million to subsidize the fracking industry, despite the overwhelming evidence that shale gas reserves in North Carolina are too low to justify significant private or public investment. Indeed, the very fact that the Senate feels the need to subsidize the types of exploratory drilling usually conducted by the private sector makes clear how weak the business case for fracking in North Carolina really is. In contrast to the Senate proposal, the House doesn’t attempt to subsidize fracking, but rather provides $176,000 to develop a regulatory regime in case private companies decide to engage in fracking.

North Carolina has seen historic dismantlement of many of its most innovative economic development efforts. The House budget takes some small steps forward in reversing these disinvestments—and certainly provides a better approach than the untested proposals in the Senate—but still falls far short of what the state needs to do in order to create jobs and ensure that the state’s economic growth benefits everyone across North Carolina.

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