April 29, 2004

RALEIGH — North Carolina business executives see high taxes, burdensome regulations, and inadequate labor skills as the top factors hampering the state’s economic competitiveness, according to a new survey by the John Locke Foundation.

Respondents were overwhelmingly opposed to raising taxes to deal with budget deficits, and expressed skepticism about the cost-effectiveness of most government programs, said Chad Adams, director of JLF’s Center for Local Innovation and a coauthor of “Climate Change 2004: Economic Readings and Forecasts from North Carolina Business Leaders.”

“Two themes were clear in our findings,” said Adams, who also serves as vice chairman of the Lee County Commission. “Business executives disagreed about the severity of the state’s economic challenges — but they were surprisingly united about what policies would most improve the situation.”

The sample included approximately 300 executives from every region of North Carolina. The survey was sent to the membership of North Carolina Citizens for Business and Industry, which acts as the state’s chamber of commerce, as well as several other local chambers and business groups.

Respondents were closely divided on prospects for economic growth in North Carolina, with 52 percent rating them as “excellent” or “good” and 48 percent rating them as “fair” or “poor.” The sentiment varied significantly according to region, with about 60 percent of executives in the Piedmont Triad, Northeastern NC, and Western NC rating the state’s economic prospects as fair or poor while about 60 percent of Charlotte respondents and fully two-thirds of Triangle executives considered them excellent or good.

When asked to rank 10 factors according to how much they affected the state’s economic competitiveness, business leaders put state and local taxes at the top of the list — just as respondents in a similar JLF survey in 2002 had done. Regulations ranked second on the list, representing a significant jump from 2002, while labor skills and availability ranked third. At the bottom of the list in importance were the availability of air service, port and rail service, and recreational and leisure amenities.

A large majority said policymakers should close state or local budget deficits with spending restraint alone, while only 3 percent said tax increases alone were the right response and 29 percent favored mixing higher taxes and budget savings.

When asked which tax policy would be most likely to improve the state’s business climate, 61 percent picked across-the-board reductions in tax rates while 39 percent picked targeted incentives. Executives in the West and Northeast were somewhat more likely to pick incentives, though even there most continued to prefer general tax-rate reductions.

Two questions asked respondents whether taxpayers got a “good,” “fair,” or “poor” rate of return on dollars invested in the main activities of state and local governments. At the state level, only the university system (71 percent) and community colleges (68 percent) got mostly a “good” rating, while other major expenditures got mostly a “fair” or “poor” rating, including elementary and secondary schools (78 percent), Medicaid and public assistance (78 percent), and business-recruitment programs (86 percent). Similarly, at the local level only police and fire protection received a mostly good response (63 percent) with mostly fair or poor ratings going to spending on such activities as arts and community groups (65 percent) and planning and zoning (84 percent).

On transportation issues, North Carolina business leaders were more likely to favor highway spending (62 percent) over rail-transit spending (38 percent) to address urban traffic congestion. Interestingly, support for transit was weakest in the two region of the state — the Triangle and Charlotte — where such systems are currently being built. Survey respondents were also strongly in favor of dedicating Highway Fund revenues solely to highway construction and maintenance (84 percent) rather than using the dollars to fund other programs or balance the state budget (16 percent). In a 2002 JLF poll, North Carolina voters also endorsed a strict earmarking of Highway Funds instead of continued diversions, but the margin was much closer (55 percent to 45 percent).

About three-quarters of business executives in the “Climate Change” study said that the projected health or safety benefits of government regulations in North Carolina did not justify their costs. By a 59 percent to 41 percent margin, they said that current levels of immigration to North Carolina generated more costs than benefits to the state, although in the Triangle area respondents were split nearly 50-50 on the issue.

For more information about JLF’s “Climate Change” business-executive survey and a statewide tour in April and May to present its findings in public forums, call Adams at 919-828-3876. A PDF version of the report is available online.

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