Falling Behind in NC, NC Budget and Tax Center

Starved of capital, small businesses in rural NC are fading away

Roanoke Riverwalk along Plymouth, NC photo credit: J Stephen Conn via Flickr

Along the Roanoke River, economic developers and policymakers in Martin County were not strategically planning a pitch to land Amazon’s HQ, nor were they particularly confident that they could lure Apple to the quaint streets of Williamston. Local leaders have long embraced the fact that their economies depended not on the big splash of major retailers, but the formation, retention, and expansion of small businesses. It is in this context that the NC Rural Center’s report on Small Business Dynamism in North Carolina, detailing the long term decline of business formation in rural North Carolina, is particularly distressing.

In an effort to grasp the implications of a slower recovery in rural North Carolina, the report reveals that “dynamism” — defined as economic vitality spurred by new firm creation, increased employment growth, wage growth, and labor mobility — has faded steadily outside of urban and suburban counties. According to the NC Rural Center, between 2005 and 2015 rural counties have lost 4,289, or 7 percent, of their very small firms. These, according to the center’s definition, are firms with less than 10 employees — the heart and soul of economies like Martin County. This is starkly different than the increase urban counties saw during the same 10 years. The six core metro counties added 5,534 (+9%) firms with fewer than 10 employees. After the Great Recession, small businesses grew rapidly in urban counties, seeing an increase of 3,180 (+5%) firms with 10 employees or less, while rural counties lost 2,657 (-5%).

While the report argues that there are a number of potential reasons for the decline of businesses with fewer than 10 employees in rural NC, it identifies access to capital as a primary contributor. Access to capital is a vital part of any firm’s ability to “get started, keep going, and grow,” but particularly so for small firms. In an effort to explain the increasing scarcity of commercial lending, the report points to the loss of local bank branches (252 from 2010 to 2015), which hit rural North Carolina especially hard. The net reduction of five rural bank branch closures for every one urban closure has created a desperate shortage of commercial loan officers in places least positioned to withstand such a shock. These officers are best situated to understand the nuances of the local market and work directly with rural small business communities to provide financing tailored to fit their needs.

Predictably, lending declines emerged. The report revealed that from 2005 to 2010, rural small business lending decreased by 53 percent, or $1.4 billion dollars, in North Carolina. In the five years after the Great Recession (2010 -2015), urban counties only saw a 1 percent decrease in small business lending. However, rural counties continued to experience steep declines, a loss of $218 million dollars, or 17 percent. Rural Eastern N.C. business communities faced the economic shocks brought by hurricanes Matthew (2016) and Florence (2018), starved of capital for the past decade. Innovative minds in rural Western N.C. are finding it difficult to finance the transition of old manufacturing operations to ventures suited for their community and a 21st-century economy.

This report offers undeniable evidence that a “tax cut only” policy will not provide the support necessary to reverse the trends that are undermining the formation, growth, and retention of small businesses throughout rural North Carolina. Special attention needs to be devoted to solving the challenges around access to capital so that the state’s brightest minds and ideas can prosper in their beloved communities.

Read the report here.

 

NC Budget and Tax Center

Latest job numbers reveal the regional winners and losers in the NC economy

Last month’s labor market data show a trend of steady growth in urban North Carolina while rural parts of the state are recovering much more slowly. This marked growth in metropolitan statistical areas such as Charlotte-Concord-Gastonia and Raleigh buoy the state’s number of employed and are driving down the collective unemployment rate. However, according to April’s labor market data, the state’s concentrated showers of growth have not rained prosperity on all.

There are seven metropolitan and five micropolitan statistical areas that have seen double-digit employment growth since the start of the Great Recession. Most of these statistical areas are clustered along urban corridors and have apparently benefited from being part of connected economies. Conversely, there are seven isolated micropolitan statistical areas that have not recovered from the downturn. They have seen their employment levels decrease by double digits since December of 2007. Forty-five counties have lost a total of 67,000 jobs since the beginning of the Great Recession. As many of these counties are situated in the state’s coastal plain, higher temperatures and a warmer Atlantic Ocean make it more likely that destruction from stronger and more frequent hurricanes will create recurring economic shocks that further confound recovery.

Here are a couple of indicators illustrating some of the dramatically different regional outcomes:

  • Metro and Micro employment growth: Raleigh (33%), Charlotte-Concord-Gastonia (29%), Oxford (24%), Wilmington (22%), Durham-Chapel-Hill (20%), Boone (19%), Asheville (18%), Burlington (18%), Pinehurst-Southern Pines (16%), Greenville (14%), Dunn (12%), and Brevard (10%) all have seen double-digit employment growth since December of 2007.
  • Employment loss: Seven micropolitan statistical areas have lost jobs since the beginning of the Great Recession. Henderson, Lumberton, Wilson, Roanoke Rapids, Laurinburg, Rockingham, and Forest City have seen their employment decrease by double-digit percentages.  Forest City, in Western N.C., fared the worst, losing 17 percent of their jobs since December of 2007. However, the other six micro areas are clustered in the Sandhills and northeastern North Carolina, areas prone to damage from late-year hurricanes which create compounding challenges for economic recovery.

The bottom line: Our collective prosperity in North Carolina is inexorably tied to everyone; from the fishermen off the Outer Banks to schoolchildren in Robeson County. Tax cuts will not solve the economic challenges that require proper investment in infrastructure and resilience-based policy that prepare us for shocks, both economic and natural, that are likely to visit our state.

For charts showing numbers for all counties and micro/metro areas and for county-level data downloads, visit www.ncjustice.org/LaborMarket.

For more context on the economic choices facing North Carolina, check out the Budget & Tax Center’s weekly Prosperity Watch report.

William Munn is a Policy Analyst with the Budget & Tax Center, a project of the NC Justice Center.

Falling Behind in NC, NC Budget and Tax Center

March local labor market reveals diverging paths to prosperity

Commonly cited labor market figures like the statewide unemployment rate often mask the damage that climate-driven natural disasters, ineffective tax policy, and one-shoe-fits-all economic development has wreaked upon rural corridors in North Carolina. Since the beginning of the Great Recession, the number of the state’s employed has grown by approximately 577,500, but most of that growth has been concentrated in urban N.C.; just 10 counties have accounted for 505,000 of the jobs gained — or over 90 percent of the net state employment growth since the start of the recession. At the same time, 45 counties that are primarily in eastern North Carolina have lost nearly 77,000 jobs since December of 2007, revealing deeply troubling trends which challenge the state’s broader recovery narrative.

Solely focusing on North Carolina’s positive economic measures as proxy diagnoses for the state’s overall economic health is a dangerous game to play. Too many leaders are ignoring pretty alarming regional economic outcomes to prop up tax-cut theory. Doing so risks isolating and denying pathways to prosperity for swaths of the state.

Here are a couple of indicators illustrating differential regional outcomes:

  • Job growth is too concentrated: March’s labor market data show that with more than 400,000 jobs created, just five counties (Mecklenburg, Wake, Durham, Union, and Cabarrus) have accounted for almost three-quarters of the state’s total job growth (577,550) since the start of the Great Recession. Rounding out the top ten counties were Buncombe, Johnston, New Hanover, Forsyth, and Guilford, adding almost 100,000 jobs since December of 2007.
  • Forty-five counties lost jobs since December 2007: Since the beginning of the Great Recession, 45 counties have lost jobs, many in eastern North Carolina. Robeson, Randolph, Wilson, Rutherford, and Sampson counties have lost the most jobs since 2007, a collective 26,000 job decline. March’s data also revealed 27 “double whammy” counties, those that have lost jobs since the Great Recession while also losing jobs year-over-year.
  • Micro-power: The story in North Carolina’s smaller cities also reveals disparate economic performance over the past decade and in the past year. Some micropolitan areas, like Oxford and Boone, have demonstrated strong economic growth over the past decade, and in the past year. They have added jobs to their regions by a rate of 24 and 17 percent respectively since 2007. These two northern N.C. micros also have maintained consistently lower unemployment rates than the state average over the past two years. This is remarkable, given they do not appear to be explicitly buoyed by major metropolitan economies. Regional neighbors Henderson and North Wilkesboro do not share the same kind of economic prosperity. Both micropolitan areas, while sharing local characteristics with Oxford and Boone, have lost jobs since the start of the Great Recession and year-over-year.

 

Falling Behind in NC, NC Budget and Tax Center, Poverty and Policy Matters

February labor market data: Rural NC needs lots of love

Since February of 2017, North Carolina’s unemployment rate has fallen from 5 percent to 4.2 percent. But the lower unemployment rate, with its frequent fluctuations, simply reflects the prosperity of urban centers of the state and masks the struggles of rural North Carolina, where in many places things are worse than before the Great Recession.

February’s labor market data showed that more than half of the state’s counties have unemployment rates higher than the state average. Of these 57 counties, 36 are concentrated in rural Eastern North Carolina. This means that 63 percent of the counties with unemployment rates higher than the state average are clustered in the eastern part of the state.

NC counties (orange) with unemployment rates higher than state average (Feb 2019)

A more in-depth look into February’s labor market release shows that since the beginning of the Great Recession, 28 Eastern N.C. counties lost approximately 50,000 jobs, or 8 percent of their collective employment. This is a starkly different reality from Wake and Mecklenburg counties, whose employment has increased 33 and 36 percent respectively since December of 2007. There were 21 Double Whammy counties in February — those who have fewer jobs presently than at the beginning of the Great Recession and have also lost jobs year-over-year. A particularly startling example of this is Washington County, which lost 3 percent of its jobs since February 2018 but almost 30 percent from the start of the Great Recession. It is evident that things are not headed in the right direction.

(Above) 28 eastern N.C. counties that have lost 50,000 jobs (8%) collectively since the Great Recession

It is clear from analysis of the labor market over time that rural North Carolina is not recovering from economic and natural shocks, and state lawmakers need to invest in policies to help these communities, not in tax cuts that mostly help the wealthy and large corporations. It is far past time we focus on an economic strategy that supports a full recovery for families throughout all of the state’s communities.

2018 Fiscal Year State Budget, NC Budget and Tax Center

Budget could make it harder for communities to revitalize

Buried in the minutiae of the budget, is language that could cut some communities off from the funds they need to revitalize. The provision in question would force some struggling communities to come up with their own funds if they hope to secure federal grants for community redevelopment. Many of the communities are already on the economic knife-edge, and would likely lose out on needed funds if the provision passes.

In North Carolina, the Community Development Block Grant (CDBG) program has been considered one of the most effective and flexible economic development tools for local communities, addressing a host of needs ranging from affordable housing to business creation and retention. The program’s focus on citizen participation and goal of explicitly benefiting low to moderate-income households have helped boost communities statewide.

However, changes proposed to G.S. 143B-437.0 concerning (CDBG)  would drop language that currently include 16 counties (Jones, Clay, Perquimans, Chowan, Swain, Mitchell, Yancey, Montgomery, Ashe, Cherokee, Macon, Yadkin, Pasquotank, Person, Jackson, and McDowell) amongst the most distressed counties (as defined by G.S. 143B-437.08) not requiring a 25% percent local funding match. While not the 25 most distressed counties in North Carolina, these 16 counties were exempted from the funding match to encourage revitalization in areas that feature populations less than 50,000 and poverty levels more than 19%. There is no question that these 16 communities, mostly isolated from urban centers, face struggles similar to the 25 most distressed in North Carolina, struggles that unmatched CDBG funding could help address. In fact, seven of the sixteen counties (Jones, Clay, Mitchell, Yancey, Montgomery, Ashe, and Cherokee) received CDBG funds between July of 2016 and June of 2017, totaling $4,495,027 for projects ranging from sewer and water infrastructure improvements in Murphy to building uplift in Hayesville. According to this proposed change, similar awards in the future would require 25% percent or $1.1 million to be contributed from those counties.  This is an unnecessary burden that could force local governments to pass on opportunities for revitalization.

 

 

 

Moreover, this provision could come back to haunt local communities during the next recession. The existing statue recognizes that many rural communities need help when economic downturns occur, which is why the existing language would allow small rural counties with elevated levels of poverty to access CDBG funds without a local match regardless of whether they rank in as one of the 25 most distressed. If the current proposal goes through, many more rural communities could be scrambling to find local matching funds precisely when their coffers are being drained by the next recession.