State Government

New Yardsticks
The state redefines "economic distress" 
to help counties compete for new industries

By Steve Tuttle

Question: If the economy was so good in North Carolina in 1999 then why has the number of counties considered by the state to be severely economically distressed nearly doubled?

Answer: Legislative politics surrounding the state's premier economic development incentives law, the Bill Lee Act.

The four-year-old law offers the most generous state tax credits and other incentives to new and expanding businesses in the poorest counties and makes the least help available in the richest ones. A new job created in a poor county earns a business a $12,500 tax credit, for example; it's worth just $500 in a well-to-do county. Other state tax credits and incentives are similarly scaled.

Each January the law requires the Commerce Department to reassess economic conditions in all 100 counties and to assign each to one of five tiers, with Tier 1 counties judged the most economically distressed and Tier 5 counties the least distressed.

Thirteen counties fell into the Tier 1 classification in 1999 (Bertie, Edgecombe, Graham, Halifax, Hertford, Hyde, Martin, Northampton, Richmond, Swain, Tyrell, Warren and Washington) but the number jumped to 24 when Commerce announced its rankings for 2000. New to Tier 1 are Alleghany, Ashe, Beaufort, Camden, Cherokee, Clay, Columbus, Jones, Perquimans, Scotland and Yancey counties, not so much because local economic conditions deteriorated last year but because the General Assembly adopted new yardsticks aimed at making it seem that way.

In fact, in a round-about way of bringing home the bacon, three amendments to the Bill Lee Act enacted last summer pushed 24 counties down in the ranking system, making them eligible for more generous business incentives than were available to them last year:

Counties with fewer than 10,000 residents and a poverty rate higher than 16 percent automatically fall into Tier 1. That change affected Alleghany, which was in Tier 2, and Camden, Clay and Jones, which were in Tier 3, a relatively middle-class status.

Counties with fewer than 50,000 residents and a poverty rate above 18 percent automatically drop one tier. Falling to Tier 1 status as a result of that change will be Ashe, Beaufort, Cherokee, Columbus, Perquimans, Scotland and Yancey counties. Retreating from Tier 3 to Tier 2 are Bladen, Hoke, Madison, Pamlico and Pasquotank. Duplin, Greene, Sampson and Watauga counties drop from Tier 4 to Tier 3.

Counties with fewer than 25,000 residents cannot be rated higher than Tier 3. Previously included in Tier 5, the state's most affluent counties, Currituck and Polk counties drop to Tier 3 status as a result of that change, while Dare and Macon move down from Tier 4.

Being rated no higher than Tier 3 has distinct advantages. In addition to a Bill Lee Act tax credit of at least $3,000 for each new job created and a 7 percent tax credit for investments above $200,000 in machinery and equipment, new and expanding businesses in those counties also can claim financial assistance through the state's Industrial Development Fund. That assistance amounts to $5,000 for each new job created, up to $500,000. The money must be used to renovate buildings, to purchase production equipment or to improve infrastructure at new or old sites.

Despite the new yardsticks that tend to push counties down in the rankings, nine moved up a notch. Rutherford climbed from Tier 2 to Tier 3, a change that won't dramatically impact the level of economic incentives available there this year. Brunswick, Gaston, Person and Wilkes moved up from Tier 3 to Tier 4, meaning new and expanding businesses there won't be available for Industrial Development Fund assistance.

Alamance, Catawba, Transylvania and Yadkin counties moved from Tier 4 to Tier 5 and now will be considered among the state's most affluent areas, joining Mecklenburg, Wake, Forsyth and other urban counties as areas considered in least need of state assistance. The tax credit for new jobs in Tier 5 counties is worth $500 and the 7 percent investment tax credit for machinery and equipment only applies to purchases over $1 million.