Most agree that reforming the N.C Tier system is necessary. But how?

Posted 3/20/20

Editor’s note: Last week, in the first of this two-part series, the News + Record discussed how N.C.’s Tier system — designed to level the playing field for the state’s 100 counties by …

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Most agree that reforming the N.C Tier system is necessary. But how?

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Editor’s note: Last week, in the first of this two-part series, the News + Record discussed how N.C.’s Tier system — designed to level the playing field for the state’s 100 counties by enhancing access to grant and loan funding — short-changes poorer municipalities located in wealthier counties. Chatham’s Tier 3 status means less access to funding opportunities, even for economically disadvantaged communities like Siler City. For years, officials in Chatham and other counties have made changing the Tier system a high legislative priority — without success. This week, we outline alternatives and possible changes to the legislatively-mandated Tier system and why, so far, change has been slow to come.

SILER CITY — In 2015, the Program Evaluation Division of the N.C. General Assembly — a non-partisan policy group — released a report declaratively entitled, “North Carolina Should Discontinue the Economic Development Tier System and Reexamine Strategies to Assist Communities with Chronic Economic Distress.”

The report contained a clear message: N.C’s. Tier system must change. It echoed what some local economic development directors, municipal and county-level officials and some legislators had been saying for years — that our state’s system of steering grants and tax credits away from counties considered “less distressed” because of criteria such as median household income and property value wasn’t working the way it was intended.

The results: it unfairly penalized counties like Chatham, which, although ranked among the top of North Carolina’s 100 counties in economic strength, was in dire need of help for funds for infrastructure for its distressed western portion.

But if the shortfalls of the Tier system are well-documented at the state level, why has reform seemed almost negligible during the five years that have passed since the Program Evaluation Division report? Why do communities in desperate need of infrastructure funding still encounter Tier-related roadblocks before they even begin grant applications?

Rep. Robert Reives II, a Goldston resident who represents Chatham County in the state legislature, said most government and community stakeholders understand that the Tier system must be improved. Recognizing the problem and making tangible changes to the system, however, was a “whole different ball game,” he said, and state-level legislative teams view the situation differently — depending on which district they serve.

“Of course the counties that are benefiting from it don’t want to be in a position where they’re set ... to lose that benefit,” Reives said. “And counties that are not benefiting from it, obviously, want to have a better opportunity. And then you’ve got the counties that are kind of in the middle — that the Tier system just doesn’t affect: for instance, a metropolitan county like Wake or something like that. And so it’s just really hard to get everybody on the same page.”

Siler City: A case study within Chatham

Siler City’s needs serve as a case study for how the county distress ranking system (which N.C.’s Tier system essentially is) affects economically distressed communities situated in counties otherwise considered economically advantaged or “wealthy.”

Nancy Hannah, Siler City’s municipal grants administrator, spends a great deal of time searching for what she calls “free money” — grant funding that could help improve infrastructure changes in Siler City and make the area more appealing to business owners seeking to put down roots. Hannah says that Chatham’s Tier 3 designation often disqualifies the county for many state-level funding sources.

“And [grant listings] also at the very beginning will generally say who can apply,” Hannah said. “Because you don’t want to spend time reading further and considering applying if you don’t qualify for it right off the bat.”

When she searches online for grant availability, she often sees a message that reads: “For counties ranked as either Tier 1 or Tier 2.”

That puts Tier 3 Chatham, and Siler City with it, out in the cold.

Two particular funding sources would typically be available to help with the kinds of improvements that Siler City needs are the N.C. Commerce Utility Account and the N.C. Ready Sites Program. The catch? They are only available to Tier 1 and Tier 2 counties, cutting Chatham and Siler City out of the application process from the very beginning a denying much-needed economic assistance.

The N.C. Commerce Utility account, designed as an investment in industry and job creation, helps fund resources including “water, sewer, gas, telecommunications, high-speed broadband, transportation infrastructure or electrical utility lines” to enhance industry. And the N.C. Ready Sites Program is designed to “fund improvement of public infrastructure that serves publicly owned or publicly controlled industrial sites.” Essentially, it seeks to prepare industrial sites with water and sewer capabilities so that new business operations can jump into action as quickly as possible. Similar to the Commerce Utility Account, the Ready Sites program is designed to draw industry and fresh job opportunities to areas in need.

If Siler City officials were permitted to apply to these programs, Hannah says she is confident that Chatham would have a fighting chance at obtaining the grant funding for a simple reason: economically, Siler City looks like most of N.C.’s “distressed” Tier 1 counties. Industry closures and job losses in the last few decades have adversely impacted the town’s economy; in order to attract investment from new business and industry, the town needs investment in infrastructure and other types of enhancements and improvements. But the Tier system, originally designed to level the playing field for poorer communities, short-changes Siler City.

And Hannah says that on the federal level, finding grant funding offers its own difficulties.

“Unfortunately, the federal funds are more limited in the amount...they’re usually limited to $2 or $3 million,” Hannah said. “For both infrastructure and economic development there are $2- and $3-million limits. And so when we’ve currently got a $21-million project, it makes sourcing funds challenging.”

That $21-million project revolves around expansion and improvements to Siler City’s water treatment plant. Siler City’s poultry processing plant, Mountaire Farms, as well as the up-and-coming Chatham-Siler City Advanced Manufacturing Site (CAM), mean that the capacity of the water treatment plant will need to advance from “four million gallons per day to six.”

What’s wrong with this picture?

Criticism directed toward the Tier system typically falls into one of two categories. First, some leaders claim the economic factors used to determine distress levels paint an inaccurate picture.

“A lot of the methods now do not measure the degree of distress,” says David Lambert, Moore County’s solid waste manager. “They measure the effects of distress. And there’s a difference.”

Still others take issue with the system’s county-level distribution of aid. They suggest that the system should somehow account for low-income municipalities located in counties the Tier system labels “less distressed.”

Currently, the legislative language defining the Tier system makes no such provision. The pitfalls inherent in a county-level examination of distress are particularly evident in counties like Chatham, where pockets of wealth and poverty coexist. As Assistant County Manager Bryan Thompson says, the system is “not a very authentic representation of the entire community.”

“It’s unfortunate how it ends up affecting Chatham County because Chatham’s really a tale of two counties ... ,” said Reives. “You’ve got the eastern portion of the county that has really experienced a major boom and a lot of economic growth and development, and then you’ve got the western side, which has not benefited from that. And in fact, if you took the western side and made it its own county, it would be the 99th poorest county in the state.”

Moving forward: proposed steps

Other specific solutions have been proposed. The Triangle J Council of Governments is a system of regional government that seeks to enhance “joint planning” efforts across Moore, Lee, Chatham, Orange, Durham, Wake and Johnston counties. According to “Hidden Distress,” a whitepaper released by the TJCOG in 2018, “a county-level analysis hides municipalities that are experiencing economic distress within more prosperous counties.”

The report released four specific recommendations for Tier reform:

• TJCOG’s “immediate” proposed solution to Tier reform was to “create exemptions” for pockets of economic distress within high-Tier counties. (This “easy button” solution has been championed by CAM Megasite owner Tim Booras of Chatham County; as noted in part one of this series, Moore county officials and the North Carolina Economic Development Association proposed H.B. 258 in 2019, a bill with a similar goal creating an exemption to Tier-related funding for Tier 3 counties applying to the state Utility Industrial Fund. The bill failed in the Senate.)

• Next, TJGOC recommended a completely new set of “economic indicators” that would determine distressed areas. They include: Median household income, Percentage of residents aged 25 or over with at least some college, Poverty rate and Average earnings from work. (If enacted, these indicators would replace the current set of criteria the N.C. Dept. of Commerce currently uses, which include unemployment rate, median household income, population growth and assessed property value per capita.

• The report also suggests using a combination of the U.S. Census data and the American Community Survey (ACS) to reevaluate Tier designations every five years instead of on a yearly basis. After all, the TJCOG reports, drastic Tier fluctuations over the course of a year are rare, and data collected from the ACS could fill in during the five-year block where new census data would be unavailable.

• Finally, TJCOG called upon state legislators to “release multiple indices of economic distress,” citing the use of the Tier system for many state-level aid programs. The more information provided to funding programs, TJCOG rationalizes, the better.

Though community stakeholders see the value in the TJCOG recommendations and Thompson said the report outlines “thoughtful avenues that this exploration can take,” the guidelines have not come to fruition in the N.C. general assembly. There have been attempts — dozens of bills, for instance, which address the Tier system — but none have passed.

Would census tract data work better?

As the TJCOG report outlined, a promising alternative to county-level economic analysis is the use of census tract data. Census data is already being used to denote “Opportunity Zones,” part of a federal program created by the Tax Cuts and Jobs Act in 2017.

The Opportunity Zones program uses census data to encourage investment in lower-income and poverty-stricken communities. Out of Chatham’s 13 census tracts, three have been designated “Opportunity Zones” and five have been designated as “Low-Income Census Tracts” according to the federal government’s consideration of poverty rates and median family income. Investors in “Opportunity Zone” communities will be rewarded with “tax benefits…for upwards of 10 years…”

Because N.C.’s tier system still operates at a broader county level, it creates what TJCOG describes as a “clash” between federal and state-level funding strategy.

‘Micro-targeting’ economic need using technology

Since the inception of the Tier system in 1996, technological advances have changed the way geographers and local government officials can interpret data and pinpoint economic need. “Hidden Distress,” the whitepaper from TJCOG, says “the use of sub-county data has been avoided due to large margins of error.” But new drill-down data technology and tools like Geographic Information System (GIS) can be used to more accurately mark pockets of distress in otherwise “well-off” areas. Still, the Tier system relies solely on county-level demarcations.

Rep. Reives imagines that the legislators who originally created the county-level Tier designations were “well intentioned.” There’s untapped potential, though, in the data tools that are available now.

“But I think that especially now that we’re such a different era, we’ve just got so many different opportunities, thanks to technology, in order to separate districts,” he said. “...But we’ve just got a lot of ways that we can really separate these areas out and do a little more micro-targeting. So I’d love for us to take advantage of that.”

Chatham County officials have discussed how simply using different data sets could create powerful change within the Tier system.

“A lot of our conversation has been focusing on sub-county data that exists, that is reliable enough to draw reasonable conclusions of economic distress,” says Thompson, who experienced firsthand how the Tier system impacted Siler City during his time as town manager there. “And census block data is one of those data sets that we believe would be appropriate to use.”

Is change unheard of? Certainly not.

The promising news? Though the path toward Tier system overhaul seems slow now, the system has not remained completely unchanged. In 2019, the Labor and Economic Analysis Division at the North Carolina Department of Commerce announced that the law had changed to eliminate the “adjustment factors” in the Tier system.

For more than a decade, county Tier rankings were determined using a combination of the four aforementioned “development factors” — unemployment rate, median household income, population growth and assessed property value per capita — and “adjustment factors.” Those adjustment factors were designed to account for certain counties with relatively lower populations and poverty rates that exceeded 19 percent, and the elimination of those factors was impactful. The use of adjustment factors in 2018 meant that almost a third of all N.C. counties received a different designation than would have been assigned if only development factors were used.

During the same legislation session in which “adjustment factors” were removed from the tier designation criteria, several bills were introduced with the objective of changing the tier system. The proposed changes — outlined specifically in bills like Senate Bill 563, Senate Bill 618 and House Bill 795 — ranged from distinguishing “county government distress factors” and “resident distress factors” to viewing county-level economic data as compared to state-level data in order to create an “index.” Each of those bills also proposed an elimination of “adjustment factors,” a change that came to fruition during the 2017-2018 legislative session.

But the TJCOG reported that each of the suggested changes to the system still “maintains the analysis of data at the county level.”

What’s the hold-up?

Since assuming public office in 2014, Reives has noticed vast differences in economic status from county to county. He is also discouraged by political gridlock that makes economic discussions more difficult.

“What you’ve really got to hope for, frankly, is something to tamp down the polarization,” he said. “Acknowledgment of some of the economic problems that we have in this state and then people really sitting down, from both sides of the aisle, putting their heads together and trying to figure out how to solve it. Because you have people who tell you that, economically, everybody’s doing great. We shouldn’t do anything differently. And then you’ve got people saying the sky is falling; there is no economic development and we’re not doing well. So you’ve got to get somewhere in the middle of that.”

Thompson said that, at the county level, Chatham officials understand the complexity that would accompany changes to the Tier system.

“We’re very careful to recognize that this is not an easy issue to work through, especially from a legislative standpoint on the state level,” he said. “Because while in our case, it doesn’t work perfectly at all, in other cases it might...being mindful that any decision that’s made could have unintended consequences if you’re not careful, and while it might solve a Chatham County issue, it may then create an issue for another county.”

State programs like the Main Street Solutions Fund, the Job Development Investment Grant Program, the Animal Shelter Support Fund and even the N.C. Science Museums Grant Program each use the Tier system to distribute funding. A great deal of funding is at stake, and like most questions of economic development, the stakes to Tier system reform are high.

Tier system reform could lead to more job opportunities and more robust communities for Chatham folks who happen to live outside of wealthier northern areas of the county. Now, the power to reform the system lies in the hands of state legislators.

Until then, Siler City’s municipal officials — and others in pockets of economic distress within Tier 3 counties — will continue to do what they’ve had to do: to apply to a smaller pool of grants and keep making tough choices in an effort to make the area look how the state of North Carolina sees it: most economically advantaged.

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