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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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NC Budget and Tax Center

Three counties get 56 percent of total incentive dollars

The money North Carolina spends on incentives to grow businesses and create jobs overwhelmingly favors the state’s most wealthy urban areas at the expense of the state’s most distressed—often rural—areas that need the most help, according to a report released yesterday by the Budget & Tax Center.

The state has five major incentive programs that were originally created to target business development resources to economically distressed and rural areas in the state. These programs are known as the OneNC Fund, the Job Development Investment Grant (JDIG), the Jobs Maintenance and Capital Fund, the Industrial Development Fund (IDF), and the IDF-Utility Fund. Unfortunately, the programs have not lived up to their promise and have invested more of these resources in the 20 wealthiest counties (designated Tier 3 counties by the Department of Commerce) than in the poorest 40 counties (designated Tier 1), the report finds.

Specifically, the report looks at the incentive awards made by these five programs from 2007 to 2013 and finds the following mismatches in investment:

North Carolina has awarded more than triple the amount of incentive dollars to projects in the wealthiest twenty counties than projects in the state’s 40 most distressed counties. If the state were truly targeting economic development resources to the regions that need it most, we would have spent more in the counties that are most distressed and need investment the most. Unfortunately, we see the opposite. The Department of Commerce has granted more than $840 million through its major incentive programs, and $592 million—more than 70 percent of the money—went to the state’s least distressed, Tier 3 counties.

The state‘s incentive projects promised to create or retain two jobs in the 20 wealthiest counties in the state for every one job promised to the 40 poorest counties. Given that the distressed Tier 1 counties are the most in need of jobs, effectively targeted incentive programs would attempt to deliver more jobs to these counties than to the wealthier Tier 3 counties. Yet the opposite is happening—the state has implemented incentive projects that promised to create almost 90,000 jobs in the state’s least distressed counties, more than double the 42,235 jobs promised to the most distressed Tier 1 counties.

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NC Budget and Tax Center

Disparities in economic opportunity for North Carolina’s workers have persisted for generations, including the last few decades when the state’s economy transformed away from manufacturing employment and toward service employment. These disparities have grown since the Great Recession, according to a newly released State of Working North Carolina report. Although the downturn’s economic pain was pervasive, it was not spread evenly throughout the state. The new report shows that some communities and regions were harder hit than others and continue to struggle with high unemployment and few opportunities for growth.

There are multiple storylines to this “tale of two economies” reality. One is the rural and urban divide. Read More

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A jury could decide this afternoon if former state Rep. Stephen LaRoque stole $300,000 from federally-funded non-profits he ran or if the money was his to begin with.

Convictions on the more than dozen charges LaRoque faces could mean a maximum 90-year prison sentence.

“This case is about a simple money grap,” said Dennis Duffy, the federal prosecutor in the case, to jurors.

LaRoque

LaRoque

LaRoque’s attorney, Joe Cheshire, disagreed, saying, “”If he did, then all the money he took was his own money.”

LaRoque, 49, a Kinston Republican who stepped down from the House of Representatives following his July 2012 indictment, is accused of dipping into the bank accounts of two U.S. Department of Agriculture economic development groups to fund extravagant purchases like expensive jewelry and a Greenville ice skating rink business.

LaRoque founded both of the economic development groups, East Carolina Development Company and Piedmont Development Company, and took in nearly $2 million in compensation since 1997. The groups had taken in received $8 million in USDA loans as part of an anti-poverty program that loaned out money to small businesses in struggling rural areas.

Prosecutors contend that LaRoque saw the non-profits as his own companies, stacked the boards with his immediate family members and illegally used the federally-sourced funds to buy two cars, a house, a Greenville ice skating rink, expensive jewelry and replica Faberge eggs.

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NC Budget and Tax Center

In the latest issue of Prosperity Watch, we take a look at the differences in poverty rates from county to county across the state, with special emphasis on comparing poverty in rural North Carolina and the state’s urban counties. For more details, see the latest issue of Prosperity Watch.