Flawed economic distress tier system not opening doors for growth in struggling communities ...Middle East

An abandoned storefront in Chadbourn in Columbus County, which the NC Department of Commerce rates as a Tier 1 county for economic distress. Jane Winik Sartwell / Carolina Public Press

North Carolina’s system of targeted economic development — economic distress tiers — was designed to distribute a tax credit that no longer exists. Today, the system persists, and various state agencies and nongovernmental organizations continually apply it in ways the original designers never could have anticipated, influencing economic growth in many parts of North Carolina, but not always for the better.

In Tier 1 Columbus County, where the decline of textile mills and tobacco farming left behind economic stagnation, the town of Chadbourn’s main street looks almost post-apocalyptic. Between 2022 and 2023, employment declined another 16% in Chadbourn. The median income in town is less than $20,000.

The tier system is specifically designed to help places like Chadbourn by prioritizing job creation there. So why isn’t anything changing in Chadbourn and many other communities across the state?

The poverty rate in Chadbourn is more than 50%. That town’s economic plight is, under the current distress tiers system, equal to that of Bethlehem in Tier 1 Alexander County. Yet the poverty rate in Bethlehem is less than 4%.

This kind of issue is a feature of the tiers system, not a bug.

This is part two of Trapped By Tiers, a three-part Carolina Public Press investigative series examining North Carolina’s economic distress tiers, a system intended to promote economic mobility across the state. CPP analyzed state data and found that this system is ineffective, stagnant, and at times, counterproductive.

The first article examined the ways this system fails counties across the economic spectrum. This article focuses on where North Carolina went wrong. The third and final installment explores possible solutions and alternatives.

The history of a broken system

North Carolina devised a system of five economic distress tiers in 1996 as a method to distribute the William S. Lee tax credit, which incentivized businesses to create new jobs in struggling counties.

The Lee tax credit hasn’t existed since 2010, but the system built to distribute it carries on. The tiers weren’t designed to be flexible, nor were they built to be an accurate reflection of North Carolina’s economic health.

The system is now officially used by North Carolina’s Commerce Department to distribute money relating to competitive incentive programs, public infrastructure, building renovation and downtown redevelopment, through state programs like:

In the years since, misrepresentation and broad application of the tiers has spiraled.

Many state departments besides Commerce use the tiers in a variety of different programs, the exact number of which is difficult to determine. They now affect each county’s eligibility for public and private dollars, as well as its overall reputation.

At the time of its inception, only two tiers existed: 20 counties qualified for incentives and 80 didn’t. In 1996, the program scaled up from two tiers to five, reflecting the idea that economic distress went beyond just the 20 most disadvantaged counties.

“Years and years ago, we used to have five tiers,” Ashley Wooten, McDowell County manager, told Carolina Public Press. “That gave you a little more of a granular look. There was a lot more movement between tiers back then.”

Ten years later, in 2006, the framework was simplified to just three tiers.

“Now, with three tiers, you have counties that are very different economically in the same tier,” Wooten said.

In 2018 came one of the biggest reforms of the tier system since its inception. Before that year, Commerce included two automatic qualifiers alongside the four economic indicators it considers: small population sizes and high poverty rates. Counties with populations of less than 12,000 were automatically classified as Tier 1, while counties with populations smaller than 50,000 were limited to Tier 1 or 2, regardless of the health of their economies.

Camden County was the best example of the system’s distortions pre-2018. It had the lowest poverty rate in the state, yet couldn’t leave Tier 1 due to its small population, displacing genuinely distressed counties from that designation.

Arbitrary arrangement

Though the state has done away with those pesky automatic qualifiers, the bones of the system still present serious problems.

The preprescribed number of counties in each category is one of these broken bones. Every year, there must be 40 Tier 1 counties, or most distressed, 40 Tier 2 counties, or medium distressed, and 20 Tier 3 counties — those which are least distressed. These numbers are entirely arbitrary, except that they add up to 100. The distribution does not reflect an actual ratio of distressed to nondistressed counties in North Carolina.

“It’s almost like musical chairs,” Cherokee County manager Paul Worley told Carolina Public Press. “Because there’s a set number of Tier 1, Tier 2 and Tier 3, if someone moves up, you automatically get pushed down. Cherokee County has moved back and forth without any major change here.”

Infinitesimal and even nonexistent changes are magnified. Meanwhile, if a county truly did improve or decline, but not enough to exit its tier, that change is reduced to nothing.

“First, they are forcing a rank of 1 to 100. Then, they are forcing that into three buckets. You end up creating difference where difference doesn’t exist, and obscuring differences that actually do exist,” said Carolyn Fryberger, co-author of a recent UNC School of Government study on the distress tiers system.

“You could shift places because someone else is doing way better or way worse — not because the underlying conditions in your own county have fundamentally changed.”

The system masks the unique issues of individual counties that are wildly different but end up in the same tier as one another.

“Are we really to believe that Haywood County — Canton, Waynesville — is in the same economic category as Charlotte?” said Rep. Brian Turner, D-Buncombe.

The system also obscures progress or decline in the overall state economy.

For example, isolating the unemployment rate data point shows considerable improvement in the state’s economy between 2014 and 2024. Still, the county tier rankings remained very similar over this period, and the system had no way to represent this change. Further, the system necessitates that 80% of the state is labeled as “distressed,” regardless of actual conditions.

The system is not flexible or adaptable enough to address economic crises, like COVID-19, Hurricane Florence or Tropical Storm Helene. If in next year’s ranking, Western North Carolina counties drop because of Helene’s lingering impact, that will artificially bump up counties that have not experienced any change — making them less attractive for state dollars.

The four-factor distress tier fallacy

The system uses four factors to determine each county’s rank: median household income, unemployment rate, population growth, and property tax base per capita.

That these are the only factors in the system results in a narrow picture of economic health.

“Some of those four stats unfairly advantage or disadvantage certain counties in the state, just based on that county’s particular point in time,” Curtis Potter, Washington County manager, told CPP.

“In Washington County, one of those four things is population growth. The fact that we are a shrinking-on-paper county in terms of population holds us down more than it otherwise should in the tier rankings.”

Population growth is a sticking point for other counties as well, largely because of North Carolina’s explosive growth over the last decade. Places that aren’t growing as fast as Charlotte, Raleigh or Wilmington are penalized, even if their growth rate isn’t negative. That’s the case in Caldwell County, where Ashley Bolick is the economic development director.

“Our growth pales in comparison to some of those communities, and that’s a hard narrative to describe or explain when people just read the headline that we are an economically distressed county,” Bolick said.

“The tier designation is not an accurate depiction of where we’re moving as a community. I don’t think the general public understands that. It’s really just intended to be a tool for the state to allocate resources.”

The other input factors present problems as well.

Using the property tax base per capita can artificially inflate county ranks in places where wealthy people own second homes, like the Outer Banks or the high country.

Using the median household income can disguise pockets of deep poverty in Tier 3 counties. It also inflates counties that attract wealthy retirees.

“I appreciate the theory behind creating such a system, and the benefits of having one, but I do not believe that the current system accurately reflects the reality in Buncombe County,” Rep. Lindsey Prather, D-Buncombe, told CPP.

“For example, Biltmore Forest, a small municipality in Buncombe, claims the highest income for any city in NC. But our county as a whole doesn’t even break the top 10 in the state for overall income. There are major variations within the county that are not accounted for in the county tier system, and it means that rural places in Buncombe are being underserved simply because of their proximity to Asheville.”

Other factors that could be considered in the assessment of a county’s economic health, but are left out of the distress tiers system. These include poverty rate, educational attainment, health care access, transportation infrastructure, child care availability, broadband access, wage growth, rate of home construction, cost of living, climate resilience, or small-business density — just to name a few.

“It’s really hard to boil an entire economy down to four metrics,” said Josh Carpenter, director of economic development group Mountain West Partnership. “Economic development is much more complicated than that.”

Yet even adding or switching out factors wouldn’t fix the fundamental problem, according to Fryberger. The methodology is set up to produce arbitrary results, she says.

Geographic complexities

The tier system treats each county as an autonomous economic zone, ignoring vast disparities that exist within county lines.

“If you went across Davie County, you would see all three tiers within the county itself,” said Davie County manager Brian Barnett.

This sentiment is echoed by county managers across the state, especially in Tier 2 and 3 counties, where the system ignores struggling towns and neighborhoods based on the affluence of another section of the county.

The system also ignores how regional labor markets function. Workers routinely cross county lines for employment, making a county-by-county system somewhat random.

Sometimes, this county-centric system produces absurd results. The town of Mebane, for example, straddles Alamance and Orange counties. Companies receive better incentives to locate on one side of town rather than the other, according to Orange County Commissioner Steve Brantley. That’s because Alamance is a Tier 2 county and Orange is Tier 3.

The system also fails to address the geographic clustering of persistently distressed counties in Eastern North Carolina — a regional economic challenge that might require regional solutions.

What keeps counties in distress

CPP analysis showed that half of the 40 Tier 1 counties have held that same status for more than a decade. The distress tiers system does not outline a clear process for improvement for these persistent Tier 1 counties. The incentives and funding the state is offering them now are not enough to allow them to move up in the rankings.

Part of the problem is that these counties may not have the resources to develop relevant projects or to apply for grants or incentives, even if they are given special treatment.

“Most of the Tier 1 counties don’t have the resources to go after all those grants anyway,” Potter said.

Parts of North Carolina desperately need economic help. The question is whether the tiers are doing so.

Vance County Manager Renee Perry appreciates the idea that counties like hers are singled out by the system. But she doesn’t think her county has what it takes to transform, even under that spotlight.

“Some counties will always be at a disadvantage because of location, because of the demographics, because of the poverty in that county,” Perry said.

“I’m not going to say that the tier system is not working. It’s just certain opportunities come this way and some don’t, unfortunately. There are concerns from businesses about coming here because of the demographics and because our infrastructure is not that of a Tier 3 county. We don’t have certain things that are needed for your big Amazons, or other big industries, to actually come here and set up shop. We don’t have the infrastructure.”

That lack of infrastructure and interest from businesses is exactly the problem the distress tier system aims to solve. But so far, the system hasn’t shown itself able to do that.

This article first appeared on Carolina Public Press and is republished here under a Creative Commons Attribution-NoDerivatives 4.0 International License. PARSELY = { autotrack: false, onload: function() { PARSELY.beacon.trackPageView({ url: “ carolinapublicpress.org/73137/distress-tier-system-nc-not-opening-doors-growth-poor-are/”, urlref: window.location.href }); } }

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