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NC Budget and Tax Center

We keep hearing that North Carolina’s economy is turning around. But while it’s true that we’re slowly making progress in replacing the jobs lost during the Great Recession, the bad news is that the overwhelming majority of these new jobs just don’t pay enough to make ends meet. In fact, many don’t pay enough to keep workers out of poverty, despite working full time. Check out the latest Prosperity Watch for details.

NC Budget and Tax Center

Sharon DeckerThe unfortunate quest to privatize the state’s business recruitment and job creation efforts took a big step forward yesterday, when the Senate agreed to a House proposal creating a new nonprofit partnership to oversee much of the state’s economic development efforts.

This misguided proposal is a bad deal for North Carolina taxpayers, businesses, and workers—schemes for privatizing economic development have repeatedly proven to be ineffective at job creation, wasteful of taxpayer dollars, and prone to financial mismanagement, conflicts of interest and pay-to-play incentive granting, and the inability to raise private funds in many of the states where they’ve been tried.

The only good news is that the General Assembly finally ended up supporting the House-passed measure, which includes somewhat better taxpayer protections than the original Senate measure.

Perhaps most importantly, the House bill did not include a new incentive program for the film industry, an extra policy tacked onto the Senate version two weeks ago. Given ongoing controversy over the effectiveness of film incentives, the Commerce privatization bill was just not the appropriate place for creating an entirely new incentive program.

A second important improvement over the original Senate measure involves the inclusion of new ethics rules. While the Senate suggested allowing the new nonprofit to develop and implement its own code of ethics—potentially creating legal loopholes for problematic ethical behavior—the final House bill requires that all board members, officers, and staff members remain subject to the existing state ethics act, just like all other state appointees and employees. This will protect taxpayers from the kinds of ethics scandals that have plagued other states’ privatization efforts, as in Wisconsin, Florida, and Texas.

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NC Budget and Tax Center

AF-Jobs

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.

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NC Budget and Tax Center

North Carolina’s economic development efforts took a turn for the worse last night, when the Senate passed a bill that privatizes the state’s business recruitment, retention, and development activities. A similar proposal will likely pass the House today, and while the lower chamber’s privatization plan is marginally better than the Senate’s scheme, both leave a lot to be desired in terms of ensuring more effective job creation and protecting taxpayer dollars.

Privatizing job creation efforts is hardly a new idea, although it’s proven to generate more scandals than results in the sixteen states that have experimented with this approach. According to the General Assembly’s own Fiscal Research Division, the kinds of economic development public private partnerships envisioned in the House and Senate bills haven’t proven themselves any more effective at boosting job creation in the states that adopted them than in those states that simply kept their job recruiting efforts inside agencies of state government.   At the same time, FRD and other researchers have found that these privatization schemes have been marked by financial mismanagement (Wisconsin), conflicts of interest and pay-to-play incentive-granting (Texas and Florida), and the inability to raise private funds, leaving taxpayers on the hook (Missouri).

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NC Budget and Tax Center

This is the 6th post of a Budget and Tax Center blog series on public services and programs that face cuts in the budget process or have been underfunded in past years. See the other posts here.

If the Senate budget passes this year, rural communities are going to be living through a nightmare. Despite promises by the McCrory administration to support economic development in rural North Carolina, the budget passed by the state Senate last week continues long-term disinvestment in the very initiatives that rural communities need in order to create jobs and grow their local economies.

For most of the past 30 years, the state’s primary actor in promoting economic development in the state’s 85 rural counties was the N.C. Rural Economic Development Center. Incorporated as a state-charted nonprofit in the late 1980s, the Rural Center used a mix of state funding and private fundraising to support a range of rural development work—everything from small town revitalization efforts and building rehabilitation grants, to small business lending and workforce training programs.

Over the past three years, however, the legislature has significantly reduced state investment in these important activities, undermining the state’s ability to promote job creation and economic revitalization in rural communities, many of which are still grappling with long-term decline in manufacturing. Even in the darkest period of the Great Recession in FY 2009, the state strongly supported these efforts by funding the Rural Center at $24 million. Unfortunately, the new legislative majority in 2011 significantly reduced support for rural development, cutting the Rural Center’s budget down to $16 million.

Then, in last year’s budget, the General Assembly eliminated all state funding for the Rural Center, instead opting to move some of these operations into a newly-created Division of Rural Economic Development in the N.C. Department of Commerce. As part of this move, the legislature reduced state funding for rural development even further, from $16 million in FY 2012-13 for the old Rural Center down to just $13.8 million in FY 2013-14 for the new Rural Development Division, of which $2.5 million was dedicated to a newly created 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). And the damage to rural development extends beyond the dollar reductions—the new division simply doesn’t carry out many of the specialized initiatives once conducted by the Rural Center: the state no longer supports small business lending in rural areas, targeted rural workforce development, or small town revitalization efforts.

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