Press Release

Cut Spending, Business Execs Tell NC

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RALEIGH – Business leaders in North Carolina increasingly think public policy in the state is headed in the wrong direction. That’s according to findings of a newly released survey of state business executives conducted for the Center for Local Innovation, a special project of the Raleigh-based John Locke Foundation.

A majority of the 635 business executives responding to the survey saw the state’s prospects for economic growth as “excellent” or “good,” but this sentiment differed significantly by region. While 73 percent of respondents in the Triangle and 77 percent in the Southeastern region, including Wilmington, rated business prospects as excellent or good, only 42 percent in the Triad and 47 percent in Western North Carolina agreed. The Charlotte region, encompassing both burgeoning Mecklenburg and distressed Piedmont counties, was about evenly split.

The survey asked a series of questions about the business climate and policy issues. CLI mailed it to a list that included business members of North Carolina Citizens for Business and Industry, which acts as the state’s chamber of commerce, as well as members of several local chambers of commerce and business groups. CLI previously conducted surveys of North Carolina business leaders in 2002 and 2004.

As in the previous surveys, two-thirds of responding executives in 2005 said that elected officials should close state and local budget deficits by reducing government spending, not by raising taxes. Executives showed a greater preference this year than in previous years for across-the-board tax reductions to promote economic growth (68 percent) instead of targeted tax incentives (32 percent).

Asked to rank 10 factors according to how much they reduce the state’s economic competitiveness, respondents overwhelmingly put state and local taxes at the top of the list, with an average rank of 2.49. The regulatory burden was second at 3.63, followed by the availability of skilled labor (4) and the education system (4.16).

“Our survey shows that, according to the people who are on the front line of economic growth, the number-one impediment to North Carolina’s competitiveness is our tax burden,” said CLI director Chad Adams. “And they clearly want policymakers to reduce overall tax rates, not carve out special tax breaks for individual firms or industries.”

Additional questions about North Carolina’s regulatory system showed widespread disaffection. More than 80 percent of business leaders agreed that the cost of current regulations exceed their benefits, while a similar percentage said that regulations had become increasingly costly over the past decade. On the other hand, there was no consensus about whether regulatory enforcement has become over-criminalized: 41 percent said it had been, 31 percent said criminal sanctions were used too little, and the remainder said the current balance of civil and criminal penalties was proper.

Business respondents showed little confidence in the effectiveness of most government programs. They were asked to gauge the rate of return on state investment in public services: as “good,” “fair,” or “poor.” Only universities (76 percent) and community colleges (70 percent) got mostly a good rating. At the bottom of the list were North Carolina’s K-12 schools, with 16 percent of business leaders rating their return as good, 47 percent rating it fair, and 37 percent rating it poor. Business-recruitment programs also fared poorly in the survey: 18 percent good, 54 percent fair, and 28 percent poor.

“Business leaders don’t think we are getting our money’s worth from public education,” Adams said. “That’s got to be of great concern to state and local officials.”

On transportation, the CLI survey showed strong support for dedicating highway-related taxes solely to highway improvements (83 percent) rather than using some of the taxes for other programs (17 percent). It also found business support for mass-transit programs, already low, to have slipped further in 2005. Interestingly, while 71 percent of statewide respondents said the best use of tax dollars to combat urban congestion was highway investment, not rail transit, the number rose to nearly 80 percent among Triangle and Charlotte respondents.

“It is no small irony that in the very communities where federal, state, and local dollars are going into rail transit, there is stronger-than-average support for spending the money on highways instead,” Adams observed.

The Center for Local Innovation’s Policy Report, “Unsteady Ground: A Survey of North Carolina Business Leaders on Competitiveness, Taxes, and Reform” is available on the John Locke Foundation website. For more information, contact Chad Adams at 919-828-3876 or [email protected].

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About John Locke Foundation

We are North Carolina’s Most Trusted and Influential Source of Common Sense. The John Locke Foundation was created in 1990 as an independent, nonprofit think tank that would work “for truth, for freedom, and for the future of North Carolina.” The Foundation is named for John Locke (1632-1704), an English philosopher whose writings inspired Thomas Jefferson and the other Founders.

The John Locke Foundation is a 501(c)(3) research institute and is funded solely from voluntary contributions from individuals, corporations, and charitable foundations.