By Jim Carpenter, CCE
Jobs and economic growth are the main issues on the minds of North Carolinians. National polls reveal that 82% of voters say the economy and jobs are their main concerns.
On March 26, North Carolina Chamber of Commerce President Lew Ebert provided Union County Chamber members a blueprint for our state’s recovery from record unemployment and the nation’s worst recession in a generation.
Economy
· The last report shows that the nation’s unemployment rate is still at 10 percent. North Carolina’s is even higher, in excess of 11 percent. Our state has lost more than 250,000 jobs since the start of the recession.
· A recent report by the Employment Security Commission says NC will have to add 4,200 jobs a month for the next 60 months for the labor market to return to where it was in December 2007.
The North Carolina Chamber’s overlying message for lawmakers in the upcoming session will be: do not add to the uncertainty that already exists for job creators; stay away from things that increase the cost of doing business and unnecessary employer mandates.
Budget
Our state’s revenue numbers continue to indicate a shortfall for the current fiscal year. Revenues are likely to fall short of expectations for fiscal year 2010-2011. The General Assembly may need to make adjustments to the budget in the short session. Through February, revenues are $45 million below a $12.1 billion target.
On the surface that does not seem too bad. However, it is entirely attributable to one time money from a Department of Revenue program to resolve outstanding disputes with corporate taxpayers. This effort budgeted to bring in $150 million and actually brought in $422 million – a $272 million surplus. Without this one-time money, the state would be approximately $320 million or 2.6% short of projections.
Sales and net withholding taxes are running below projections. High unemployment and a lack of consumer confidence are hurting revenues. There is some indication that the drop in revenue has flattened out but analysts in the General Assembly are not ready to say they have hit bottom.
With the greatest volatility in the state’s revenues to come with final corporate and personal income tax payments on April 15th – shortfall projections for the fiscal year ending in June are ranging from $500 million to $700 million.
Early in the fiscal year, Governor Perdue instructed state agencies to withhold up to 5% of funds that were appropriated in this budget. The big question is the final shortfall and how close these reversions will come to covering it. The outlook is bleak. For fiscal 2011-2012, the state could face as much as a $3 billion shortfall as federal stimulus funds go away, the temporary tax increases enacted in 2009 expire and Medicaid costs continue to rise.
Unemployment Insurance Debt
Adding to the existing strain on our state’s economy, North Carolina is undergoing a severe funding crisis within our unemployment insurance (UI) system due to our highest unemployment rate in more than 30 years. One of the many unfortunate consequences stemming from this crisis is the fact that our state has borrowed approximately $2 billion from the federal government to pay for unemployment benefits.
Only five states in the country have had to borrow more money for unemployment benefits than North Carolina. To make matters worse, the debt continues to rise every day – with some analysts estimating that we may need to borrow another $2 billion this year for a total of $4 billion.
Interest on the $2 billion debt that North Carolina currently owes the federal government (and whatever amount it grows to) will begin to accrue at the end of this year. While we do not have to begin repayment of the debt now, the solvency of the Unemployment Trust Fund and our growing debt should be an immediate concern to all North Carolinians, employers and employees alike.
As state policymakers begin to consider how to deal with the debt issue and ultimately with the health of the state’s Unemployment Trust Fund, some of the potential solutions that have been mentioned are:
· The federal government / Congress forgives the debt and interest (unlikely)
· The insurance tax on employers increases
· Unemployment benefits decrease
· The state uses revenue from its general fund to address the issue
Tax Reform
The need for tax reform was a hot topic during the 2009 General Assembly session. In the aftermath of last summer’s session, the House and Senate Finance Committees have been meeting to discuss comprehensive tax reform.
In crafting tax policy it is important to avoid taxing investment and production. Doing so discourages both. Tax rates are important but what you tax is equally important.
Businesses need certainty, in both what the tax policy is and in how it is administered and enforced. Uncertainty discourages capital investment.
If the sales tax base is going to be expanded, taxing business to business services should be avoided to the extent possible. This is closely related to the principle of avoiding taxing production. Businesses pay a lot of sales tax today; about 40% of the sales tax collected in NC is paid by business. Indications are that the General Assembly will not be dealing with finalizing any comprehensive tax reform package in the 2010 session but it will likely be a policy issue in the 2011 session.
Environmental Regulation
Businesses need to have some degree of certainty around environmental regulations in order to create jobs and grow the economy. Building a strong economy and protecting the environment are not mutually exclusive. Protecting the environment is a priority for NC employers.
Site specific risk-based remediation for industrial sites is one example of regulatory reform that would help the business community grow the economy and improve the environment. Existing requirements for clean-up of contaminated industrial sites restrict development and prevent productive, environmentally safe use of the land. The North Carolina Department of Environment and Natural Resources (DENR) does not currently have programs that allow for risk based clean-up on industrial sites. However, there are risk based cleanup standards for non-industrial sites.
DENR should establish sensible clean-up standards for industrial sites by implementing site specific risk-based clean-up principals. This would allow contaminated sites to be recycled, re-developed, and placed into productive use. Additionally it would insure protection of public health and the environment, while allowing businesses to create jobs and grow the economy. The NC Chamber will be pushing legislation on this in the short session.
For more information on the NC Chamber’s position on business issues, visit www.ncchamber.net
Jim Carpenter, CCE is president of the Union County Chamber of Commerce
Jill Polk
Member Services Coordinator
Union County Chamber
704/289-4567 x. 10
www.unioncountycoc.com
