The leaves have fallen and college basketball is under way, but on Main Streets across North Carolina there’s still something missing to finish the year. The stalemate in Raleigh has kept the state budget from passing – and with it, important progress has not been made for the lifeblood of our economy: small business.
Nearly six months ago on June 27, the House and Senate gave their final approval to HB 966. The budget itself is 395 pages (you can read all of it here if you like) and covers all of what you would expect: transportation, education, public safety, health care. Anyone concerned about economic growth will want to read page 363 – reduction of the franchise tax.
The franchise tax is imposed on corporations for the privilege of doing business in North Carolina. Yes, this is another tax in addition to the corporate income tax. Just ask any business owner, especially one who is new to the state or has taken the leap of starting a small business. Before the ink is barely dry on the business plan, they already need to figure out how to pay their franchise tax responsibilities.
Every year, CNBC publishes a “Top States for Business” list. On this year’s list, only 3 of the top 10 states impose a franchise tax: Nebraska, Georgia, and North Carolina. But there’s a critical distinction among these three: Georgia and Nebraska cap their franchise tax payments, whereas North Carolina allows for an unlimited amount of tax owed. That’s a distinct disadvantage for North Carolina businesses who must compete with businesses from other states!
Here is what CNBC said about our state: “…no state’s economy is on more solid ground than the Tar Heel state. The housing market is healthy and state finances are sound. The state attracted some $2.6 billion in venture capital in 2018, the 6th highest figure in the nation. It is also attracting skilled workers, who are moving to North Carolina in droves.”
While CNBC praised the North Carolina economy, we cannot rest or turn complacent as other states compete for North Carolina businesses. Instead, the responsible legislator will push forward to keep improving our business climate.
Consider the warning we received from Moody’s regarding our state’s credit rating: “Lack of state budget is a bad sign for N.C. credit.”
The report states: “The lack of a budget for more than four months reflects governance weakness and is credit negative,” Moody’s said in a recent credit outlook report. “Although the state ended fiscal 2019 with a budgetary surplus of nearly $900 million, the lack of agreement on budget priorities amid a time of economic expansion and healthy revenue growth does not augur [bode] well for budgeting and strong governance during times of economic and revenue stagnation or declines.”
It may not have received attention from those who place narrative, hysterics, and ultimatums ahead of facts, but refusing to compromise and prolonging the stalemate will have repercussions. North Carolina needs a budget. HB 966 is a positive step for the future of our state.