From CPP: High places brought low: Pandemic shakes up NC economic tiers used for government aid

By Kirk Ross, originally published by Carolina Public Press. Carolina Public Press is an independent, in-depth and investigative nonprofit news service for North Carolina.

Three of the state’s highest-growth counties are among those in economic distress in new state rankings released late last month.

Pandemic-driven unemployment, especially in the hard-hit service and hospitality industries in Buncombe, Brunswick and New Hanover counties, moved all three from their place among the most economically well off to the middle tier of the state’s three-tier system of assessing economic distress.

Each year, the state designates the 40 most economically distressed counties as Tier One, a middle group of 40 counties with some signs of distress as Tier Two and the 20 most economically well-off counties as Tier Three.

The state steers about a dozen grant and incentive programs to encourage economic development in Tier One and Tier Two counties.

Some programs use the rankings to direct more assistance to the lower-ranked counties, and matching-fund requirements for state grants are generally lower for those counties as well.

The N.C. Department of Commerce released the annual tier rankings Nov. 30.

The rankings are based on four factors — average unemployment rate, median household income, population growth rate and property tax per capita.

More than two dozen counties moved up or down in the rankings two years ago after the legislature approved criteria changes. But throughout its 30-year history, the tier rankings haven’t shifted much from year to year.

This year, that changed as 22 counties swapped positions in the rankings, with 11 classified as more distressed than last year and 11 ranked less distressed. Moving onto the list of the Tier One most distressed counties this year were Alexander, Burke, Cherokee, Hoke, Randolph and Rowan counties.

Moving from Tier One to Tier Two were Beaufort, Chowan, Jones, Onslow and Pitt. The rest of the 22 counties shifted between Tier Two and Tier Three.

While four factors were weighed, almost all of the moves were the result of increases in local unemployment rates and the uneven economic impact of COVID-19 across the state.

No one doing better, but some much worse

This year, none of the counties moved to a higher ranking of economic well-being because their economy improved but because conditions in other counties deteriorated.

Nothing underlines that like the shift in Buncombe, Brunswick and New Hanover counties, which have been among the state’s fastest-growing local economies.

The COVID-driven crash in the travel and hospitality sectors that helped fuel their rise moved all three from the top 20 best off in Tier Three to Tier Two.

The crash in Buncombe County was the most dramatic, taking the county from the lowest unemployment rate in the state to the 23rd-highest.

Nathan Ramsey, director of the Mountain Area Workforce Development Board with the four-county Land of Sky Regional Council, said Buncombe having a higher unemployment than neighbors Henderson, Transylvania and Madison is the opposite of historical trends.

“That’s traditionally reversed,” he said.

“Buncombe is always the lowest unemployment rate, and up through March it had the lowest unemployment rate of any county in the state over five years.”

What drove the change in Buncombe, he said, was when the bottom fell out of the travel and tourism industry. It rapidly drove the county unemployment rate up to the midteens.

Ramsey said every sector in the region’s economy has fewer jobs today than it did a year ago, except for construction, which saw a small increase, but nothing got hit as hard as leisure and hospitality.

“In the other sectors the job loss is not anywhere comparable to the loss in hospitality,” Ramsey said.

A recent study by the council logged 10,400 job losses in the leisure and hospitality sector in the region since October 2019, a drop of more than 33%.

Although not as dramatic a change, the drop in travel- and tourism-related employment in New Hanover and Brunswick counties also moved them into the middle tier.

Adam Jones, a UNC Wilmington professor of economics who studies the economy in southeastern North Carolina, said the extent of COVID’s damage to the economy is becoming clearer as assessments like the tier report come in.

“I think it’s really just a reflection of the pandemic and its effect, or at least the shutdown’s effect, on a lot of these communities that are dependent on leisure and hospitality, especially the coastal area,” he said.

“Wilmington has not changed a whole lot in the structure of the economy in the last 12 months, but in terms of the people who are working, that’s really changed a lot.”

Given that, next year could see more broad changes in the rankings when counties revert to where they were, he said.

But any rebound will depend on a number of factors, Jones said, including the pace of vaccinations and prospects for another round of relief from the federal government. Many small businesses are on the brink, he said.

“I’m crossing my fingers and hoping like hell that we can squeak through, but anecdotally what I’m hearing from folks is that they’re just barely hanging on and if this thing drags out, we could see a lot of these small businesses close,” Jones said.

That would slow any recovery, he said, because of the cost and effort it would take to replace those businesses instead of keeping the existing ones afloat.

Ramsey said he’s also counting on another stimulus bill to carry the western region through the transition to a reopened economy.

“We definitely need another CARES Act package to help our small businesses and our educational institutions to get through the winter and get to the spring when the economy can open up,” Ramsey said.

Relief passed early in the pandemic was critical, he said.

“If it weren’t for all that federal support, we’d have seen a lot more harm to our economy, harm to individuals,” Ramsey said.

“We need federal support to help us bridge this gap.”

Tiers questioned again

The three-tier system has been in place since 1987, and since then its use as a way of distributing state economic development assistance has gradually expanded.

A 2018 analysis by the Triangle J Council of Governments found that 11 programs use the tier system to determine the distribution of funds.

As the use of the tier designation has grown, the methods used to determine economic distress, which are ultimately written into legislation, have been repeatedly scrutinized.

The most recent rethink by the legislature in 2017-18 looked at how best to define and measure economic distress and, ultimately, how to use that to most effectively direct aid.

A legislative study of the metrics showed too much reliance on indirect and short-term economic measures, with too many “adjustments” added to by General Assembly over the years.

The report singled out requirements that guaranteed Tier One or Tier Two status to counties with low populations regardless of their economic conditions.

Reform legislation that followed ended those adjustments with the 2019 designations.

Ramsey, a former Buncombe County commissioner and state representative in the 2013-14 session, said that despite the recent changes, the tier system is still flawed.

He said it’s understandable that if you’re in Tier Three Henderson County looking across the border at a much more resourced Tier Two Buncombe County, you may wonder why leaders there are suddenly eligible for more grants and fewer matching fund requirements.

The problem, he said, is how best to fix the system.

“I think there’s consensus that the tier system is broken,” Ramsey said. “But we’ve got to say, ‘OK, replace it with what?’”

Jones said there are a number of possibilities for altering the metrics to improve the accuracy. For example, he said, the system doesn’t take into consideration cost of living, which varies widely throughout the state.

But Jones warned that making the system too complicated also has a downside.

“I think from a pragmatic standpoint you have this huge tradeoff between how complicated you want the system to be and how understandable and believable is it to the general public,” he said.

“There are lots of ways you can quibble with this and redo it, but imagine how complicated and ugly that formula would be.”

If it’s not understandable, he said, the system could lose trust. “People are just going to dismiss it as some kind of voodoo/witchcraft designed to send money to the politically connected counties.”