Standing pat on the 3 R's

The governor scores big with roads, rules and readiness
By John Hood
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By most accounts, Gov. Pat McCrory emerged politically battered and bruised from his first legislative session. His off-the-cuff comments triggered blistering press coverage. His poll numbers fell sharply. The Republican-led General Assembly flicked aside his vetoes as if they were gnats. In his 2012 campaign, McCrory had run on a “Carolina Comeback” theme. The state’s economic woes were the major reason former Gov. Bev Perdue didn’t seek re-election, why McCrory won so handily and why his party expanded its legislative majorities and even won most of the state’s county commissions. Accustomed to stronger-than-average economic growth, North Carolinians were shocked to discover that the Great Recession of 2007-09 had erased a decade of income gains and left their state with one of the nation’s highest unemployment rates. They voted for change.
What they got was a raucous 2013 legislative session of broadsides, protests and controversy over social issues. Did McCrory’s economic agenda fall by the wayside? Some observers make that argument. Here’s one indicator of what they have in mind: A Google News search in mid-August found nearly 6,000 stories mentioning “Pat McCrory” and “voter ID.” Compare that with 4,500 covering “Pat McCrory” and “economy.”
While the governor’s messaging problems are manifest, if you compare his agenda for economic growth with what the General Assembly enacted, he got nearly everything he sought. The session produced dozens of new policies that proponents believe will improve the state economy. Some, such as changes in unemployment insurance and a tax package that cut marginal rates on personal and corporate income while limiting or abolishing dozens of deductions and credits, earned extensive media coverage. But other business-related bills became law without much fuss, sometimes with bipartisan support. For example, only nine of the 170 members of the General Assembly opposed final passage of House Bill 817. It reshaped North Carolina’s transportation budget with a funding formula that puts more emphasis on reducing congestion and creating jobs. House Bill 74, the Regulatory Reform Act of 2013, was more contentious, but four Democrats joined with most Republicans to pass it in the session’s waning days. Only one legislator voted against Senate Bill 14, which strengthened career and technical education in public schools. Call them the three R’s of economic development: roads, rules and readiness for jobs.
As president and chief operating officer of Castle & Cooke North Carolina LLC, Lynne Scott Safrit spends much of her time trying to attract tenants to the North Carolina Research Campus, which it is developing in Kannapolis. When businesses decide where to locate major operations, she says, a key consideration is how long it will take employees to get to work and products to get to market. “Having good roads in areas that are growing is very important for economic development. There should be less politics and a more logical way to put roads where they are most needed.”
That’s the promise of House Bill 817, the first major revision of North Carolina’s transportation budget since the creation of the Highway Trust Fund in 1989. Back then, a bipartisan coalition of legislators worked with Republican Gov. Jim Martin to craft a package that raised the gas tax, redirected revenue from the sales tax on cars from the general fund to transportation and authorized a broad slate of projects that included loops around big cities and four-lane roads throughout most of the state. To bring rural interests on board, the legislation also included hundreds of millions of dollars over time to pave 20,000 miles of secondary roads. From 1990 to 2009, North Carolina’s highway mileage grew 11%, compared with 4% for the nation. New loops and bypasses around Charlotte, Raleigh, Greensboro, Wilmington and other cities alleviated some of the worst bottlenecks. But construction costs were higher, and revenue collections lower, than initially projected. Furthermore, the influence of powerful politicians and special interests continued to deflect scarce gas- and car-tax revenue to projects of dubious merit, delaying completion of long-promised roads in fast-growing communities.
Officials tried corrective action. Under Gov. Mike Easley, the state opened the door to public-private partnerships to build toll roads in high-demand corridors. Perdue made administrative changes and diminished the role of the politically appointed Board of Transportation. North Carolina even began to creep up the national rankings on key measures such as pavement conditions and deficient bridges. Still, lawmakers of both parties became convinced that the funding formula was woefully out of date. The state was paving roads that carry only a few dozen vehicles a day while projects to serve hundreds of vehicles a minute languished down the priority list.
Within weeks of taking office, McCrory proposed his Strategy Mobility Formula, which divided some $1.5 billion in annual transportation spending into three pots. About $600 million — 40% — would be spent on high-priority projects competing statewide solely on the basis of hard measurements of congestion alleviated or jobs created. Another 40% would be divvied up by population among seven large regions, with hard measurements again guiding most decisions. The final 20% would go to the existing 14 highway districts, with elected officials continuing to play a major role and rural reaches getting more money per-mile-driven than cities and suburbs.
The bill got pushback. Rural lawmakers thought 20% was too small a proportion to send directly to districts, while urban legislators worried that nonhighway projects such as mass transit would get short shrift. The 40-40-20 allocation became 40-30-30, earmarking more money for rural areas at the district level, while transit and commuter projects were moved into the regional category. For more than two decades, David Hartgen, professor emeritus of transportation studies at UNC Charlotte, has produced annual evaluations of state highway systems. He has long faulted North Carolina for putting too little emphasis on user data and road maintenance. The new Strategic Mobility Formula and other provisions of the bill, he says, represent “a very significant step forward.”
Speeding up highway projects isn’t the only way to enhance the economy’s circulatory system. Supporters believe the Regulatory Reform Act of 2013 will unclog the arteries of commerce and investment within the private sector. While the sprawling legislation contains dozens of provisions — dealing with scrap-tire collection, building codes, waste lagoons, private wells, landfills and venomous reptiles, to name a few — its core is one for periodic review and sunset of rules. While regulatory reforms in 2011 and 2012 tightened standards for imposing new rules, the 2013 legislation requires state agencies to review existing regulations every 10 years and send their findings to the legislatively appointed Rules Review Commission. If the review isn’t completed, or the commission finds a rule no longer justified, it will automatically expire.
In crafting the review-and-sunset provision, lawmakers relied on recent research about regulatory reform and state economic growth. In 2012, economists Russell Sobel of the College of Charleston and John Dove of Mercer University examined regulatory practices of all 50 states for George Mason University’s Mercatus Center. If the goal is regulatory relief, they found, “the single most important policy in a state is the presence of a sunset provision.” But will regulatory relief boost economic growth in North Carolina? Other research suggests the answer is yes. Of 23 studies published in peer-reviewed journals since 1992, 17 found that lower regulatory burdens were associated with stronger economic performance. The most recent, published in the journal Contemporary Economic Policy, reported that state regulation and other measures of economic freedom had significant effects on both job creation and labor-force participation.
Nathan Batts, senior vice president and counsel of the North Carolina Bankers Association, praises periodic review. “State agency personnel may not be thrilled by new hoops to jump through,” he says, but the provision “will come as a relief to most industries.”
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The third R — job readiness — is the least controversial. Availability of skilled labor is almost always a consideration for companies scouting locations or entrepreneurs deciding where to start businesses. The challenge lies in connecting the demand for job-ready workers with state public policy. While North Carolina has traditionally been one of the country’s most generous funders of public universities — a distinction recent budget cuts haven’t changed much — most workers do not receive, and their jobs do not require, bachelor’s or graduate degrees. They achieve career readiness through high-school studies, community-college courses and on-the-job training. The idea that university degrees are “the only path to a prosperous career is misinformed,” says Gordon Hunt, president of Illuminating Technologies Inc., a Greensboro company with offices in Raleigh, Charlotte, Atlanta and Columbus, Ohio, that hires skilled workers of various educational backgrounds to design, sell and manage lighting systems. “If North Carolina can train workers for jobs that need filling without employers having to recruit from outside the state, we all win,” says Hunt, who is on the state leadership council of the National Federation of Independent Businesses. Batts agrees: “Potential employers want to know that a person can hit the ground running with as short of a learning curve as possible.”
Senate Bill 14 addresses the issue three ways. It authorizes the State Board of Education to restructure high-school diplomas so they signify a graduate is “college ready,” “career ready” or “college and career ready.” It makes it easier for experienced people to teach career and technical skills in public schools without having to take formal education courses. Finally, the bill creates a partnership between public schools and community colleges to encourage vocational education, particularly for engineering and technology fields, by sharing instructors and other resources. In these ways, the legislation offers high-school students not bound for a university campus a clearer program of study — and employers a clearer signal that participating students are ready to work or receive specific job training upon graduation. The result, Hunt says, is “a great improvement in telling those on the vocational path that they are respected, they are appreciated and we want them to thrive in North Carolina.”
If you judge the significance of legislation by how much it raises the temperature of North Carolina politics, then these three bills would never be at the top of anyone’s list for the 2013 session. But if supportive business leaders and policy analysts are right, the changes made this year to transportation, regulation and vocational education could have lasting significance. “Updating the state taxation structure this year was very important to business people, and it pays immediate dividends,” Batts says. But the other initiatives, he adds, will “have a long-run impact on the state’s economy.”