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.

 

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.

Falling Behind in NC, NC Budget and Tax Center, Raising the Bar 2015

Senate tax plan would continue down a path to nowhere

A tax plan state Senate leaders presented this week would promote neither shared economic opportunity nor prosperity across North Carolina. Far from it.

The proposal would cost more than $1 billion in annual revenue loss as the tax plan continues down the path of handing out more costly tax cuts to large, profitable corporations at the expense of everyday North Carolinians. This approach won’t restore the state’s economy to a sound footing.

The proposed tax plan does nothing about persistent stagnant wages, an uneven economic recovery in which all gains are going to the wealthiest North Carolinians, and the lack of economic and job growth in many parts of the state. Senate leaders would pay for only a portion of the income tax cuts by having North Carolinians pay more in sales taxes, which hit people making relatively low incomes the hardest. And the state would continue to walk away from its responsibility to make much-needed investments in our public schools, public colleges and universities, repair the state’s eroding infrastructure, and other building blocks of a strong economy.

Key aspects of the Senate tax plan stand out as strong reasons why its adoption would fail to promote broad prosperity.

  • The proposal’s reduction of the personal income tax rate to 5.5 percent from 5.75 percent has no benefits to the state’s economy or its competitiveness. At the cost of much-needed public revenue, the tax rate cut won’t drive significant job creation, motivate businesses or people to locate in North Carolina or encourage local investment. Not only do income tax rates affect these factors negligibly, if at all, North Carolina’s personal income tax rate is already in line with the region’s, falling in the middle among southeast states.
  • While putting a limit on how much in itemized deductions a taxpayer can claim is good policy, using the added revenue this produces to reduce tax rates isn’t. Because this proposal would place all itemized deductions—mortgage interest, charitable contributions, medical expenses, etc.—under the cap, it creates greater equity in the treatment of taxpayers. Capping itemized deductions reduces revenue loss from these deductions and helps address inequities in the tax code, as wealthier taxpayers typically benefit more from deductions.
  • Increasing the standard deduction is a wasteful way to address the problem of too many North Carolinians struggling to make ends meet because it deprives the state of much-needed public resources that could boost public investments that promote economic growth. A better way to help hard-working taxpayers keep more of what they earn is to adopt a strong refundable state EITC to help offset not only income taxes, but sales and property taxes that fall hardest on those with lower incomes.

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Falling Behind in NC, NC Budget and Tax Center, Poverty and Income Data 2013, Poverty and Policy Matters

Increasing income inequality not a recipe for an economy that works for all

New data released by the US Census highlight the pervasiveness of poverty nationally and in North Carolina. In 2013, one in six North Carolinians lived below the federal poverty rate – less than $24,000 a year for a family of four and  $12,000 a year for an individual. For communities of color, the poverty rate is far worse: 32.5 percent for Latinos, 28.9 percent for American Indians, and 28 percent for African Americans.

These daunting poverty rates highlight that far too many individuals and families across the state face economic hardship. The persistence of poverty has been accompanied by a rise in income inequality, which poses consequential implications for the overall economy and North Carolina’s state economy. The bulk of economic gains from the ongoing economic recovery have flowed to a small group of high-income earners. In the first three years of the economic recovery, the top 1 percent of income earners captured 95 percent of the income gains nationally. Here in North Carolina, income for the top 1 percent of income earners in the state grew by 6.2 percent from 2009 to 2011 while the bottom 99 percent saw their income decline by 2.9 percent. The latest US Census data show that this early post recovery trend is likely to hold. By 2013, the top 20 percent of households in North Carolina captured more than half of all income earned by all households in the state (see graphic below). Read more