Commercial consideration

The candidates for governor tell how they plan to take care of business
By Ken Otterbourg

With Charlotte the site of a national political convention and this a battleground state in the hotly contested, divisive presidential race, it’s easy to overlook the other campaigns. For North Carolinians, the most important is the contest to choose a new governor. This might not feel like a watershed election, but it is, and here’s why. In the first place, it’s the first time since voters in 1977 allowed governors to seek a second term that an eligible sitting one hasn’t run for (and won) re-election. Second, this is the first election since 1988 in which there’s no chance the winner will come from eastern North Carolina — demographics finally have caught up with politics. And most important, this is the first chance for voters to pick the state’s leader since the recession reordered its economy. Walter Dalton is the Democratic candidate. A lawyer from Rutherfordton, he was a six-term state senator before being elected lieutenant governor in 2008. Best known for legislation creating the state’s early-college program, which allows students to earn college credits or an associate degree while finishing high school, he chaired the Joining Our Businesses and Schools (JOBS) Commission as lieutenant governor. Republican Pat McCrory spent seven terms from 1995 to 2009 as Charlotte’s longest-serving mayor and worked 28 years for Duke Energy Corp., retiring in 2007. In 2008, he lost to Beverly Perdue in the nation’s closest gubernatorial election that year. Governors are called their states’ chief executives for a reason. Like their business counterparts, they need a range of skills. They have to articulate and share a vision for what they want the state to be. They must be able to sweat the details while presiding over a vast, often clumsy bureaucracy. They are cheerleaders, problem solvers and salesmen. They report to shareholders, in this case, the voters. So consider this Business North Carolina’s job interview. We spoke to both Dalton and McCrory, asking about their goals for the state and how they would approach important issues that matter to the business community. Here are their responses, edited for clarity and brevity.

Site Selection magazine consistently ranks this as one of the top states for business, but the Washington, D.C.-based Tax Foundation put our business-tax climate near the bottom: 44th. Which is right?

Dalton: I think there is more support for Site Selection because Forbes magazine has us at No. 4 and CNBC and CEO magazine have us in the top five. It depends on what the criterion is. I do think we perhaps are losing an edge because of the reduction in economic-development money from the legislature this year and some of the cuts to education. We’ve always been very proud of our community-college and university systems, and they help us recruit and retain businesses. Cutting back on that and economic-development money is hurting us as we recruit.

McCrory: It depends on which measures you’re using. Two very good ones that we shouldn’t mess with are our right-to-work status, which is often rated extremely high in those polls, and low electric rates, which in regards to the controversy over the Duke-Progress merger should be our major focus. We must continue to have low electric rates to retain and recruit businesses. But I’m telling you, the brand of North Carolina economic development has been diminished the past five to 10 years. In many ways, we’re living off the past brand, which we can be proud of but haven’t updated in comparison with what our competitors are doing. Our brand now is one of very high personal- and corporate-income taxes and not-favorable regulation, particularly of midsize and smaller companies. I hear this across the state: “They don’t treat us like customers. They treat us like government is our boss.”

Why should the state spend millions on incentives for wealthy companies?

McCrory: We’ve put more emphasis on recruiting new business than trying to get existing businesses to grow and retain their base. I hope to revamp and revitalize the entire incentive process because I think it is dangerously approaching a point — especially with the new upfront cash incentives — that we are making political rather than business decisions in our recruitment of companies.

Dalton: No one likes incentives, but the federal courts have held that they are legal. In the last couple of years, the Republican governor of Virginia went to his legislature for $50 million so he could “compete against China, India and North Carolina.” And South Carolina has been very aggressive. It’s like shopping for a car. You pick out a car — a Ford, a GM or a Toyota — and you ask what the package is, and one is a $2,500 rebate, another is zero-percent financing, and the other says, “We don’t have any incentives.” Well that one is not likely to be selected. It’s a necessary evil. The key is to make sure that we’re recruiting 21st-century jobs that will be sustainable.

Our tax code is based on an economy that no longer exists. What would you do about it?

Dalton: There’s no question we need to modernize the tax code. What I think we need to look at first is how technology has changed things. When I grew up, I bought 45 rpm records and paid sales tax. Now you download music off the Internet. It would not offend me if a sales tax were charged for that downloading. We must look at how technology has eroded the tax code and how to recapture that. We were told several years ago that if 30 states got together and aligned their sales taxes, the federal government would assist in the way those taxes would be collected. Those 30 states have come together. Everyone had agreed on the schedule of sales taxes and what would be taxed, but the federal government has not reacted. It’s not fair that bricks-and-mortar businesses that employ our people here are required to collect that tax, but remote providers who are not adding to our tax base, who are not giving jobs to our people, do not have to collect it. They get a competitive advantage.

McCrory: Most states are going in the direction of implementing plans and reforms less dependent on income tax and corporate tax, taxes on productivity, which I think is the most detrimental tax. If I’m elected, I want to look at plans less dependent on these taxes. I want to reward productivity, not punish it. One thing I recognized in my 14 years as mayor is that when people become successful in North Carolina, many of them change their place of residency to Florida or Texas or Tennessee or Colorado to avoid our high state income tax. Not only does that hurt our financial bottom line in state government, but we’re losing a lot of brain equity. That should be a wake-up signal.

 How does the state fix its problem with unemployment insurance and attain long-term solvency in this program?

McCrory: The first thing we have to do is pay our debt to the federal government — more than $2.8 billion ­— which was mishandled by the last administration. You never accept money without knowing how you are going to pay it back. We did this with the stimulus money, and we did it with unemployment compensation. Paying back this money will be one of the most difficult steps the next governor will have to take. Until we wipe out that debt, we can’t reform the unemployment-compensation policies we have in North Carolina because the feds won’t let us until we do. This is part of the broken leadership and failed government we’ve had the past five years, frankly from the top. Much of the stimulus money was accepted knowing it was only two- to three-year grants. When the money ran out, they acted shocked and surprised and blamed others for the money being gone. We’re going to have to look at everything with regard to our unemployment strategy. We’ve got to use incentives to get people off unemployment compensation and into private-sector jobs that are available or we’re not going to get out of the mess that North Carolina is in. We have the fourth-highest unemployment rate in the country. We have a broken economy and a broken government. We’ve got to fix it, but first we’ve got to face the fact that we do have this problem.

 Dalton: Almost every solution that I have seen has proposed some kind of securitization of that debt. I think we should first bang on the federal government because many of our job losses are due to fast-track legislation that caused a lot of our textile and furniture companies to close. North Carolina got hit so hard because we were so heavy in manufacturing. It relates to federal policies, so I think we ought to bargain a little bit with the federal government. But that said, we then look at some type of securitization. Everybody has to be at the table. We have to get all parties involved and work together to try to come up with a remedy that will be palatable for the state to be able to repay that debt.

What is the state’s role with research and innovation to foster economic development?

Dalton: One of the greatest visions we ever had was the marriage of education, business and research with Research Triangle Park. You incubate that entrepreneurial spirit. You encourage people to innovate and create. New economies are built on innovation and creation and cutting-edge research and new inventions. That’s why it’s so important you foster creative minds, which is what we’ve done at RTP. Forty-five thousand people work there today. Many of those companies have other facilities in rural parts of the state — manufacturing plants or call centers or data centers — that help drive the economy of all of North Carolina. But I think research and fostering that climate for creativity, entrepreneurship and innovation are absolutely key.

 McCrory: Government’s first job in economic development is to provide the necessary infrastructure, especially in four major areas: energy, transportation, water and high-tech communication infrastructure. And we also have to make our state more business friendly with regard to regulations and taxes. What’s unique about Research Triangle Park is that it was a partnership between the public and private sector. The dilemma is it’s a 40-year-old vision, and we can no longer live off something that was done 40 years ago. I want to have an integrated approach where everything we do with regards to our tax policy, our infrastructure policy, our education policy, our economic-development policy has to be integrated with how to grow private-sector jobs.

Should the state abandon its efforts to take over Alcoa Inc.’s dams on the Yadkin River?

McCrory: I’m not ready to answer that question because I have not been given details of the negotiations, but these one-year renewals for Alcoa don’t make sense. We’ve got to come up with a long-term solution. I think there are some great economic opportunities on that river, especially for Stanly and surrounding counties, and I think it’s going to take a strong governor to get this thing off the ground, with or without Alcoa.

Dalton: That’s in the courts now. It seems to me that those dams should be a state asset. Logic seems to dictate that they were  given to Alcoa or contracted to Alcoa because it was coming into North Carolina providing jobs, and now it’s no longer providing those jobs. It seems somewhat illogical to me that the contract would be extended. I don’t know all the legalities, but since Alcoa is not here, it seems to me that the dams should be considered an asset of the state and put to use for the people of North Carolina.

How would you approach the controversy over fracking and energy exploration and production in North Carolina?

Dalton: I would not have vetoed the fracking bill that passed. It calls for a commission to be formed to establish a regulatory framework. But none of that becomes final unless and until the legislature takes further action, so it would have to come back to the General Assembly. Had that bill not passed, we would have been left with nothing in place to protect us. I will tell you that based upon what I heard during the debate a study was cited that said if you fracked all you want in North Carolina it would provide only about six days of national supply of natural gas. No one countered that during the debate. If that is true, the economy will never bring fracking to North Carolina. If it does, it will be probably at least 10 years out. That’s not going to create jobs now, and I question whether it will create jobs in the future. The other thing I would want to see during this interim period is what it would do to the water supply. Fracking requires a tremendous amount of water. So before we proceed, we should make absolutely sure that there is no undue damage to the quality and quantity of water.

McCrory: We wasted four to six years while other states took action in developing regulations and policy and began the recruitment process to get people interested in gas exploration. All we’ve done is form studies, and after that, we’ve formed more studies, and to me that’s not leadership. We should go on a parallel track looking at the states that have done it well, borrow their regulations where it’s been done safely and effectively, while at the same time recruiting energy companies to determine where exploration can occur. But we seem to be doing neither. We seem to be sitting on the sidelines with this.

Why should the business community back you? What experience in that realm informs your action as a public official?

McCrory: I’ve been in the private sector for over 30 years. I’ve never left the private sector. I come from outside state government, and right now, we desperately need someone from outside who can break through the turf battles and power struggles we’ve had inside the Beltline for far too long. We can’t live off our past rankings. We’ve got to create some new rankings. When I look at other governors — Bobby Jindal in Louisiana, Chris Christie in New Jersey, even Bob McDonnell next door in Virginia — they’re taking very assertive and aggressive actions in streamlining state spending, eliminating unnecessary regulation and making tax policy more favorable. We’ve been sitting on the sideline for the past decade living on our brand, and that brand is getting outdated, sad to say.

 Dalton: You can look at my record and see I have produced results with things like the early-college program we have in North Carolina. I have shown I can work with people and pull people together. I worked in banking a short period before going to law school. As a lawyer, I worked with many businesses and was managing partner of my firm. I know business issues. I was a county attorney and state senator and lieutenant governor as we worked to recruit industry. It’s been a tough climate. We were damaged greatly by fast-track federal trade policies, then hit hard by the financial crisis. But we’re beginning to build back. My son says it takes longer to build back than to tear down. If you look
at my record in the Senate, you’ll see it’s business-friendly. I’ve supported some tax reductions, elimination of the food tax, reduction of the corporate tax, co-sponsored the sales-tax holiday and have worked with small-business initiatives as lieutenant governor. I developed a small-business loan fund that we used during hurricane time. But this financial crisis has been far more pervasive than a hurricane.