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Fri July 26, 2013
How Good Is North Carolina’s Business Climate?
It depends on what you consider good for business. If you head to the North Carolina Department of Commerce’s website, you can see many of the positive rankings North Carolina has received from business media outlets: No. 1 Best Business Climate from Site Selection in 2012, No. 4 Best State for Business by Forbes in 2012, No. 4 America’s Top States for Business by CNBC in 2012. Most of the organizations doing the ranking look at a similar group of factors, although they each give those factors different weight in their decisions.
The North Carolina General Assembly passed a range of bills this year that could affect many of the factors that are taken into account by those ranking the state’s business climate. The tax reform package, which Governor Pat McCrory signed into law on July 23, creates fundamental changes to the state’s tax code.
“Because of this package, job creators will think about relocating to our great state,” Gov. McCrory said at the signing.
But taxes are just one of many factors taken into account by businesses considering the move to North Carolina. Here’s a list of the criteria that go into North Carolina’s business rankings and how they could be affected by new legislation:
- Cost of doing business: This refers to taxes. How much will a company be taxed on new investments and utilities? Individual income and property taxes are also considered. Site Selection, Forbes and CNBC list this as a top factor for their rankings. The new tax reform package reduces personal and corporate income tax and offers higher deductions for mortgage interest and property taxes.
- Workforce: How many people, how well educated and healthy are they, and are there government-sponsored programs in place to train them? Union membership is also considered. The state budget (approved by the General Assembly but not yet signed by Gov. McCrory) cuts education funding by nearly $500 million, including major cuts to k-12 education and the university system. It also eliminates $53 million from the Dept. of Health and Human Services and increases the amount provided to the Department of Commerce, the state agency responsible for job training programs. North Carolina has the lowest rate of union membership in the country.
- Infrastructure: How easy is it to transport your goods to market? How accessible is the work site? Is there a healthy network of roads and airports? Although the state has a healthy network of roads and airports, the tax reform package caps North Carolina’s gas tax, which goes towards the maintenance of roads and bridges. Another bill puts the financial management of Charlotte Douglas International Airport into the hands of a politically-appointed committee, which could affect its operations.
- Regulatory environment: Sometimes called “business friendliness,” this refers to the legal framework and government-imposed regulations that businesses must follow, including environmental and health standards, as well as the ease of obtaining permits. North Carolina has consistently ranked high on this standard for large businesses and corporations, although small businesses rank the state low for the difficulty of licensing procedures. It is unclear how the new budget would affect business permitting and regulation.
- Economic climate: How strong and diverse is the state’s economy? Factors considered in this calculation include unemployment, the real estate market, credit ratings and the state’s economic development strategy and budget deficit or surplus. North Carolina currently has an unemployment rate of 8.8%, the fifth highest in the nation. In addition, federal unemployment benefits were recently eliminated for North Carolinians. The state has a Triple A credit rating from all three major rating agencies. It remains to be seen how the budget will impact these numbers.
While this list includes some of the major factors that contribute to the state’s business climate, there are a range of other factors that also come into play when businesses decide where to land, many of them subjective and immeasurable. In addition, some states that consistently receive poor and middle rankings from Forbes, Site Selection and CNBC—like California and New York—often have the most robust economies.
The new $20.6 billion state budget has been sent to Governor McCrory, who is expected to sign it.
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