How the state budget keeps North Carolina on track as a top state for business…

September 30th, 2023

Thanks for tuning in this Saturday morning. As has been widely touted, North Carolina earned top billing on CNBC’s best states for business ranking two years in a row – a remarkable achievement.

The truth is, many of the measurables that go into business rankings, CNBC and the like, come from the state budget produced by our state legislature. 
 
So this morning we’re going through the state budget, which will become law on Monday, to call out policies and expenditures that haven’t gotten much attention, but that keep the train rolling on critical business climate metrics.
 
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For today’s purposes, we’re tracking a key subset of the categories that CNBC says it uses in its scoring.
 
Infrastructure (North Carolina ranked #16 in 2023)
North Carolina faces the dual challenge of fixing up decades-old infrastructure in rural areas and expanding its infrastructure to accommodate growth. Both are expensive, but the former is a particularly pressing state issue because rural areas no longer have the employment or tax base to afford upkeep.
 
State lawmakers responded with massive investments in the budget. In total, the budget allocates $2 billion for more than 200 local water and wastewater projects across the state.
 
Predictably, some corners tried to paint these critical projects as partisan, claiming the bulk of the work will take place in Republican areas. But that’s not because of some sinister motive: The areas with crumbling infrastructure are rural, and it just so happens that rural areas tend to elect Republicans. What’s the alternative – let rural infrastructure fail because of voter registration figures?
 
The budget also sends $5 billion over the biennium to the State Capital and Infrastructure Fund (SCIF). The SCIF is a pay-as-you-go account that directs cash to paying off debt and funding infrastructure projects.
 
Policymakers demonstrated remarkable foresight and discipline in creating this account several years ago. Over the rest of the decade, as the SCIF pays off old bond debt, a larger proportion of the SCIF’s balance will be available for capital expenditures – and since those expenditures are paid in cash, there is no need to waste money on future bond interest payments. The SCIF is a little-covered budget matter, as we’ve learned the state media has little interest in covering good moves made by the legislature, but it’s hugely impactful to North Carolina’s capital plans.
 
Cost of Doing Business (North Carolina ranked #18 in 2023)
This is a broad category and we could point to a lot of budget items that fit the bill, but for the sake of brevity we’ll focus on one massive change that the media hasn’t covered (yet): environmental permitting reform.
 
The budget, together with House Bill 600, which passed the same day, fences in the Department of Environmental Quality by forcing the agency to make decisions on some environmental permits within 60-90 days of application. The tight turnaround applies to dredging and energy projects.
 
There are two key takeaways here. First, though not a direct response, this provision is related to DEQ’s behavior during the Atlantic Coast Pipeline permitting process. The agency delayed approval for many months, and nobody could quite determine why.
 
Only after the Cooper administration released 20,000 pages of records during a legislative investigation did it become apparent that the administration delayed the permit while pressing Duke Energy to make concessions on an unrelated private contract dispute with solar companies. What’s more, DEQ withheld the permit while the Cooper administration pressed pipeline sponsors for a multi-million dollar “mitigation fund” that Republicans alleged would be used as a slush fund.
 
Viewed in the context of the Atlantic Coast Pipeline controversy, then, this budget provision effectively stops that from happening again.
 
The second takeaway is also pipeline-related: The Mountain Valley Pipeline-Southgate project, which extends natural gas distribution from the Virginia border into central North Carolina, will likely seek permits from DEQ in the coming months. This budget provision means DEQ will not be able to delay a decision indefinitely.
 
How does the pipeline relate to the cost of doing business? North Carolina generates nearly 40% of its electricity from natural gas. There is only one natural gas supply for the entire state right now. If that supply is interrupted, thousands of businesses – especially major manufacturers – would likely see a near-immediate impact, which would create millions of dollars in losses.
 
Workforce (North Carolina ranked #1 in 2023)
North Carolina maintained its position as the top state in business because it ranked #1 for workforce. The state budget tackled this challenge from several different angles.
 
We want to highlight three:

• The state codified the Short-Term Workforce Development Grant Program. The program provides financial aid to students enrolled in a certified workforce development program to obtain credentials for a high paying job.
• The budget completes the state’s $400 million commitment for community colleges, allowing institutes to expand to meet workforce development needs.
• North Carolina decided to expand Medicaid this year through the budget unlocking federal funds. Agree or disagree, the state allocates $320 million partly from that pot of  federal money to boost healthcare workforce training at North Carolina’s community colleges.

Innovation (North Carolina ranked #6 in 2023)
The same day CNBC announced North Carolina as the top state for business in 2023, the outlet featured a special segment on NCInnovation. The story touted NCInnovation as a unique and promising approach to commercialize the research being done at North Carolina’s universities.
 
The state budget allocates $500 million to NCInnovation over the biennium.
 

Kelly King, Chairman of NCInnovation’s Board of Directors and former CEO of Truist Financial Corp. said after the budget was released, “I believe in NCInnovation’s promise, and I’m not alone. Leaders in North Carolina and across the country – people who’ve built commercial enterprises and have deep experience in finance, academia, and industry – say NCInnovation is a national model for translating university research into jobs.
 
Economy (North Carolina ranked #3 in 2023)
The state’s finances are in outrageously good shape. We have a top credit rating. We have billions in reserves in case of a downturn. This year’s budget cuts the personal income tax rate yet again, to 4.5% in 2024 and down to 2.49% if certain revenue triggers are met in the coming years.
 
The budget also provides $107 million for a critical economic development driver: megasite readiness.
 
Throughout 2021 and 2022, major companies announced billions of dollars of investments and thousands of hires – they did so because they could locate at a megasite. Preparing similar sites is a prerequisite for future recruitment efforts.
 
The General Assembly’s ‘Selectsite‘ program will also help identify potential locations for companies on less-than-“mega” sites, those smaller than 1,000 acres. This will be especially impactful in mountainous communities, which do not have 1,000 acres of usable flat space.
 
While nothing is certain, it is clear the new state budget moves North Carolina forward on a number of key issues impacting the business community – and may well position us for the CNBC threepeat next year.