**North Carolina Rural Economic Development Center**

Prepared for the Rural Policy Research Institute

By

Bobby Gierisch

RUPRI Fellow

**Introduction**

Among state organizations[^1] promoting rural development, North
Carolina's Rural Economic Development Center has the broadest, deepest
and most successful programming. Since its inception in 1987, the "Rural
Center" has created, tested and implemented numerous programs, many of
which have become models for the nation. The Center played an early role
in the development of the Tech Prep and REAL Enterprise programs, which
have since spread across the face of America. Its microenterprise loan
program received a U. S. presidential award for excellence in 1997 and
is now the sixth largest program in the nation. The Rural Internet
Access program is widely regarded as a national model.[^2]

The mission of the Rural Center is to "develop, promote and implement
sound economic strategies to improve the quality of life of rural North
Carolinians . . . with a special focus on individuals with low to
moderate incomes and communities with limited resources."

Since 1987 the center has maintained and broadened its support among
North Carolina leaders, adding or spinning off programs and effectively
becoming the hub of the state's multi-faceted rural development efforts.

\[Sidebar: "The people at the NC Rural Center know what they are doing,
they do it well, and they make a real difference in the lives of their
citizens." -Chuck Fluharty, Director, Rural Policy Research Institute\]

**Creation of the NC Rural Center**

In 1986 Lt. Governor Bob Jordan convened the North Carolina Commission
on Jobs and Economic Growth. As a part of the Sunbelt renaissance, North
Carolina was experiencing growth and favorable economic conditions. The
Commission noted, however, that traditional industries - agriculture and
manufacturing - were being affected by globalization and automation, and
those industries were shedding jobs at an alarming rate. Rural areas
were especially hard hit, with unemployment 50 percent higher than urban
areas and a rate of job creation 50 percent lower. Per capita income in
the state's 85 rural counties was just 78 percent of that in urban
counties, and the gap between rural and urban counties was growing.

The Commission on Jobs and Economic Growth[^3] recommended addressing
the deficiencies in rural North Carolina through an office charged with
conducting ". . . long-term analysis of the effects of national and
regional policies on North Carolina's rural economy and the generation
of appropriate solutions to its unique problems."

A broad-based group of state leaders set about creating the NC Rural
Economic Development Center. The group included representation from
business, government, private foundations and the public universities.
It was led by Lt. Governor Jordan.

With start-up funds from North Carolina philanthropic endowments, the
Center was incorporated in January, 1987, and received its first state
appropriation of funds in July, 1987.

**The Center's Early Years**

The NC Center for Rural Economic Development was thus created as a small
"think tank" with a modest program for "research and demonstration"
grants. Its initial director, Billy Ray Hall, had academic training in
economic development and had served as deputy secretary of the NC
Department of Natural Resources and Community Development.

According to Billy Ray (almost no one calls him "Mr. Hall"), who
continues to direct the Center today, early success depended on several
factors.

First, in order to survive the state's emerging two-party politics it
was important to engage the "power players" outside of government as
well as government leaders. In addition to state officials, these
included power players in the private and philanthropic sectors, higher
education, and economic development, as well as rural leaders. The
Center's fifty-member board of directors was created to give a measure
of ownership to such stakeholders.

Second, the Center needed early successes. In Billy Ray's words, "Nobody
is going to be impressed with an institution that takes forever . . . we
had to hit a home run to create standing for the Center right out of the
chute."

In what was to become a pattern for the Center, it initiated a series of
talks with "serious-thinking" rural leaders and identified two important
deficiencies: leadership and financing for rural businesses. It then
collaborated with the Council for Community Development and the state's
banking community to prepare a comprehensive capital needs analysis for
the state, which led to the creation of the North Carolina Enterprise
Corporation to provide equity capital in rural areas. Within six months,
the corporation was fully subscribed with \$10 million from the state
treasurer and another \$10 million from the state's banks.

The Center had its first home run and, with it, enduring support from
the state's powerful banking community.

Within the same year, 1988, the Center became an early supporter of
"Tech Prep"[^4] as a pilot program, and it established a grants program
to build capacity in minority CDC's. It also released the first edition
of the North Carolina Rural Profile, a statistical profile that staff
believe to be one of the Center's most popular and serviceable products
to this day.[^5]

The next year,1989, the Rural Center conducted pilot projects on
microenterprise loans and leadership training, both of which became
permanent programs in subsequent years. It also continued its
policy-related research with a report on "The Waste Crunch in Rural
North Carolina: Who'll Foot the Bill?" The first Rural Partners Banquet
was held.

**A Mature Organization**

It can be seen that within three short years, the NC Rural Center had
accomplished a lot. Perhaps more impressive is that the programs put in
place in these earliest years have stood the test of time.

The North Carolina Enterprise Corporation was spun off and continued
operations until 2000, when it was superceded by a private venture
capital corporation. The Center's micro-business companion, the
microenterprise loan program, is still in operation.

The minority CDC grant and the research and demonstration grant programs
continue to receive legislative funding, and the statistical profiles
have been continually up-dated and converted to a computer-accessible
database. Leadership training is a permanent program and the Rural
Partners Forum an annual event. All of these were started between 1987
and 1989. That is remarkable continuity for programming at any
institution, especially one as dependent on government funding as the
Center was and is.

Just as important as concrete programs, certain processes had been
established. In-depth research formed the basis for new programming, and
new initiatives were often piloted before being handed-off to others or
given a permanent home at the Rural Center.

Collaboration has also been a part of the Rural Center's mode of
operation since its inception. It has sought funding and technical
support from outsiders, but also ideas and collaboration, and those in
both the seminal stages of program development and after testing, as
when a tested program is passed on to another entity to operate.
Collaborators also enjoy ownership in the form of participation on the
Center's board of directors.

**The Modern Era**

In the last five years, the Rural Center has continued in the traditions
discussed above. Support from the private and governmental sectors
remains strong. These sectors continue to look to the Rural Center for
policy guidance and to support initiatives coming from the Center's
research and policy efforts.

In 1998 the Rural Center collaborated with local governments and leading
engineering firms to complete a water and sewer inventory. The study
documented the cost of necessary repairs and up-grades at over \$11
billion, approximately three times the amount state leaders had
previously assumed. In response, state government and business leaders
developed and promoted a bond issue. North Carolina voters approved
\$800 million in Clean Water bonds, and the Center was asked to
administer grants that total approximately \$55 million annually.

The tradition of entrusting the Center with public responsibilities
continues. In 1999, Governor Jim Hunt, House Speaker Jim Black and
Senate President Pro-Tem Marc Basnight established the North Carolina
Rural Prosperity Task Force, to consider anew the challenges confronting
rural citizens. The 25-member task force was broadly inclusive of state
and local government, private sector and education leaders, including
six members of the Rural Center board of directors.

Upon the release of its report, the North Carolina general assembly
funded two significant recommendations of the task force and designated
the Rural Center as the administrative home for the resulting programs:
the Rural Internet Access Authority and the Agricultural Advancement
Consortium.

By accretion, then, the Rural Center has grown from a think tank with a
modest program of local grants to become the hub of rural initiatives in
the State of North Carolina.

**The Center and Its Programs**

The North Carolina Center for Rural Economic Development is a private
non-profit corporation. Since the beginning it has received financial
support from the North Carolina General Assembly, the state's
philanthropic foundations and numerous other governmental and private
sector organizations. A majority of core funding has always come from
the state.

The Center has a board of directors consisting of 50 members. Nine
members are legislators, including Lt. Governor Beverly Perdue. The
remaining members include business people, local officials, educators
and philanthropic leaders. The board has committees with specialized
assignments. The chairs of those committees sit on an executive
committee that works most closely with President Billy Ray Hall.

The Rural Center operates with a permanent staff of approximately 30
employees and an operations budget of approximately \$3 million per
year.[^6] In addition to Center employees, the Center houses and
performs administrative functions for the seven employees of the e-NC
Authority (formerly the Rural Internet Access Authority). It also houses
the Agricultural Advancement Consortium.

In addition to funding for operations, the Center acts as a pass-through
agency for an additional \$4 million in grants and contracts, mostly for
research and demonstration projects and for minority CDC grants, and for
\$55 million in clean water grants.

The Rural Center has its own building in Raleigh, opened in 1997.

The programs operated by the Rural Center are so many and so varied that
a partial listing with highlights is all we can accommodate here. But
all programming, according to Billy Ray, is based on "four building
blocks" that, in Carolina parlance, constitute "comprehensive economic
development." The building blocks are (1) business development, (2)
workforce development, (3) physical infrastructure, and (4) civic or
social infrastructure. All specific programming is built around this
core.

**Capital Access**. This program maintains a reserve fund that serves as
a guarantee for banks making loans to businesses with potential for
success, but that do not meet conventional lending guidelines. By June
of 2002 the original program had made loans of over \$33 million to 674
North Carolina businesses. The average loan was approximately \$50,000,
and the default rate has been consistently under three percent.

In 2002 the Center launched a second phase of the Capital Access Program
that will boost total lending capacity to over \$100 million.

Partners in the capital access programs include the North Carolina
General Assembly, the U. S. Small Business Administration, the Golden
LEAF Foundation, the Appalachian Regional Commission, and the state's
banking institutions.

**Microenterprise Lending**. This program makes loans of \$1,500 to
\$8,000 to groups of four to ten small businesses. The loans are coupled
with extensive business assistance, and the groups are expected to help
each other and make future credit decisions as a team. Individual loans
up to \$25,000 are available to businesses with more experience, coupled
with requirements for management, financial literacy, accounting and
business law, as well as technical assistance.

The microenterprise loan fund has made over \$5 million in loans to
nearly 1000 small, rural businesses, and more than 50 percent of
participants are women and/or minorities. It is now the sixth largest in
the nation and has received national honors.

Partners in the microenterprise program include the North Carolina
General Assembly, the Ford and Mott Foundations, the U. S. Small
Business Administration, and the state's banks.

**Water and Sewer Infrastructure**. Owing to its research and policy
leadership on the issue, the Center was designated to administer water
and sewer grants resulting from the \$800 million in Clean Water Bonds
approved in 1998. Over \$173 million in grants have gone to more than
500 distressed communities and counties, leveraging more than \$2
billion in other public and private funds.

In addition to funding for direct improvements, grants assist
communities in planning projects, matching federal and state improvement
grants, projects to eliminate failing septic systems, to extend safe
drinking water to families with contaminated wells and to help lift
administrative orders and notices of violations.

**Leadership Development**. The Center operates a number of programs
designed to foster leadership development. The core program is an
institute that trains a diverse group of 30-33 citizens each year in
three, three-day sessions emphasizing, "comprehensive economic
development and relationship-building techniques so participants learn
to work together toward common goals and community strategic planning."
Since its beginning over 600 leaders have been trained, and they, in
turn, have created an alumni group to foster continuing development.

The Center sponsors other initiatives to promote strategic planning and
capacity building, but perhaps more importantly, most Center programming
includes planning and capacity enhancements as a part of the
requirements of all programming.

MDC, Inc. has been an important partner in leadership and other training
initiatives. The Z. Smith Reynolds Foundation, and the Appalachian
Regional Commission have assisted the Civic Ventures Fund, helping
communities to plan and execute projects with clear civic, social,
economic, environmental or educational returns.

**Faith-Based Initiatives**. In the early 1990s, the Rural Center
recognized the value of rural churches assisting families in distress.
The first initiatives sought to strengthen churches' abilities to
provide quality childcare services, producing both jobs and assistance
to working mothers.

With the advent of federal welfare reform, faith initiatives were
expanded to assist with other welfare-to-work transition issues. In 1997
the Center established the Communities of Faith Initiative, and with
funding from the NC Division of Social Services, the Center supported
faith groups in a broad array of programs including mentoring and job
placement, computer-assisted instructional programs, youth
apprenticeships in local businesses, job-readiness, and transportation
services.

In 2001 the Center assisted in the creation of Faith Partners, Inc., a
private non-profit to maintain a permanent focus on issues involving the
rural poor and working families.

**Workforce Development**. The challenge of changing workforce
requirements in an evolving economy is often neglected, especially in
rural areas where program delivery is difficult. However, two programs
developed in North Carolina, Tech Prep and REAL Enterprises, illustrate
the Center's involvement with workforce development. Tech Prep and REAL
were not created by the Rural Center, but both of these now renowned
programs received early financial support to expand their scope from the
Center. Today, every state in America receives federal funding for
college Tech Prep programs, and almost one-quarter of North Carolina's
high school graduates complete a Tech Prep course. More than 1,000 local
Tech Prep consortia have been established across the nation.

REAL Enterprises focuses on developing entrepreneurial talent through
action learning and sustainable enterprises in rural communities. North
Carolina was one of three states to pioneer the concept.

NC REAL Enterprises has sponsored 124 entrepreneurial training programs
at 106 sites throughout North Carolina, and similar REAL Enterprises
programs now operate in more than 30 states and five foreign countries.

**Minority CDC Enhancement**. Since 1988 the Center has operated a grant
program to assist Minority Community Development Corporations. Through
almost \$15 million in competitive grants since the beginning, the
program has helped create affordable housing, provide after-school and
mentoring programs, job training, child care, business support services,
and such things as medical screening, nutrition services and
immunizations.

Also important, the Center has established guidelines for CDC operations
and planning, requiring that "they be engaged in economic development
activities and that they develop a diverse financial base."

**Internet Access**. In 1999 and 2000 several influential entities
released reports emphasizing the importance of high-speed Internet
access for the prosperity of all North Carolinians. The North Carolina
General Assembly responded by creating the Rural Internet Access
Authority (RIAA). An initial three years' funding of \$30 million was
provided by MCNC (formerly known at the Microelectronics Center of North
Carolina).

In 2003, the General Assembly changed the name of RIAA to the e-NC
Authority. The Rural Center houses and acts as fiscal agent for the
Authority.

The goals of the authority include high-speed (384 kbs) access for every
citizen within three years, establishment of telecenters in certain
economically distressed areas, promotion of computer ownership and
literacy, and improved delivery of government services by Internet. The
authority also established an "e-communities" program to support its
mission with assessment, planning and implementation by local citizens
led by local champions.

**Research and Policy Development**. The Rural Center continues its
research, program development, and testing activities as a way of
providing a firm foundation for its initiatives and programs. Research
on capital markets, water and sewer deficiencies, groundwater issues,
tobacco-dependent communities, rural school funding, and manufacturing
layoffs has been a key ingredient in getting ideas off the drawing
board. And grants, such as those to minority CDC's, rural churches,
small businesses and communities have allowed innovative ideas to be
tested to assess their suitability for other markets. The Center's most
recent project, the Institute for Rural Entrepreneurship, was preceded
by months of detailed research and testing prior to implementation.

**What Can Be Learned from the NC Rural Center?**

When asked, observers in North Carolina typically point to three factors
that account for the success of the NC Rural Center and for the breadth
and depth of high-quality rural programming.

1\. A history of **visionary statewide leadership**. Governors Terry
Sanford and Jim Hunt are often mentioned, along with education leaders
like former UNC president William Friday and many others. From its
creation, the Rural Center enjoyed the support of top state leaders. It
was set in motion by a lieutenant governor (Bob Jordan), and William
Friday was the first board chair.[^7] While rural proponents in most
other states strive to attract the attention of statewide leaders, those
leaders have been driving forces for the NC Rural Center since the
beginning.

2\. An unusually robust community of **philanthropic organizations and
non-profit or university-based R&D capacity.**[^8] When North Carolina
government, business or philanthropic leaders need rural research they
can rely on, they can turn to a number of non-profit or university-based
organizations and individuals who can do the job *and who have expertise
and research experience in rural issues*. In turn, these "R&D" shops
enjoy support not only from government, but also from a generous local
philanthropic community.

3\. **Billy Ray Hall**. Mr. Hall is savvy, tireless and one hundred
percent committed to rural North Carolina. He is also educated in
community and economic development. Billy Ray helped to dream and design
the Rural Center; he established "comprehensive economic development"
and the four building blocks as the programming model; and he built and
maintained support for the Center from state leaders in all sectors.

We believe there is a fourth factor that is propitious for North
Carolina. There is a **civic sense that all areas and social groups are
important**, and that if any group or area is not doing well, it
diminishes the entire state. This was well-said by the [Charlotte
Observer]{.underline} in 1987, when the Rural Center was created:

> *"North Carolina has only one economy. Strong cities need strong
> towns, and vice versa. Rural areas provide markets for urban goods and
> services as well as many urban workers and leaders \... If rural and
> urban areas don't work together, they might not work at all."*

Unfortunately, the success factors above are not found in all states,
nor can they be "created". Some are unique to North Carolina, others are
simply more pronounced there than elsewhere. The combination of factors
is certainly unique to North Carolina.

While the factors that brought North Carolina to its current state are
not replicable in other settings, there are important lessons for policy
makers in all states. We believe the following are lessons that *are
transferable* and that others should consider.

1\. **The comprehensive economic development model**, based on the four
building blocks, would serve agencies well in any jurisdiction. Rural
development encompasses so many sectors that it is hard for policy
makers to know where to start. The four building blocks are a useful
platform that provides focus but allows sufficient flexibility to
accommodate varying conditions.

2\. **Research and demonstration are critical**. Rural programs are too
often created with insufficient study of the problems and possible
solutions. A five-step development model is implicit in most Rural
Center programs, and it helps to ensure good results. The steps include
thorough study, initial program formulation, testing, reformulation, and
implementation. R&D capacity within and outside the Center is a key
ingredient here.

3\. **Institutional longevity** is a virtue, and it requires attention.
In too many states programs are created by an interested political
leader but suffer when that person leaves office. Support from a very
**broad group of leaders** contributes to the endurance of the NC Rural
Center. This support is reinforced by the Center's **collaboration on
virtually everything** with government, the non-profit community and
research organizations, higher education and philanthropic
organizations. Observers also believe the Center's status as a
**non-profit, private organization**, as distinct from a state agency,
is an important buffer to short-term political changes.

4\. Local communities are at the center of most programs, such that
**all programs build and reinforce local leadership capacity**. Whatever
their particulars, almost all Rural Center projects start with the local
community (in the study phase), they end with the local community (at
implementation), and they usually demand the active engagement of local
leaders in planning and execution. In the process, the state programs
add to the planning and programming capacity of local leaders, a
critical feature of successful communities.

5\. The Center's programs are based on in-depth research and many have
the wisdom of considerable longevity. Anyone with similar
responsibilities is well advised to **learn how the Center executes its
programs**, whether it be business finance, Internet access, leadership
development, infrastructure finance, or working with community and
faith-based projects.

[^1]: We use the term "state organization" to denote organizations whose
    programming is statewide. The term does not imply an agency of state
    government, though most of the organizations we review were created
    by state governments or, as in the case of the NC Rural Center,
    enjoy significant support from state government.

[^2]: Information for this report was taken from publications or the
    website of the North Carolina Rural Economic Development Center.
    That information was supplemented with interviews of the Rural
    Center director and staff and other persons in the education,
    governmental and non-profit sectors who are familiar with the Rural
    Center and its work.

[^3]: In 1987 Lt. Gov. Jordan ran against incumbent Governor Jim Martin
    and lost. Observers suggest that the Commission was created, at
    least in part, to bolster the record of Mr. Jordan for his campaign.

[^4]: Tech Prep was developed in 1985 by Richmond County Schools and
    Richmond Community College as an alternative to traditional
    vocational education programs focused solely on skills training.
    There are now over 1000 local Tech Prep consortia in America,
    involving virtually every community college and over half of all
    school districts. The Rural Center provided early funding to expand
    the program beyond Richmond and later provided a \$50,000 grant to
    establish the N.C. Tech Prep Leadership Development Center.

[^5]: The database is now in electronic format and accessible by
    Internet through the center's website
    [www.ncruralcenter.org](http://WWW.ncruralcenter.org/).

[^6]: The numbers in this section were obtained from center staff and
    are intended to convey the overall scope of operations. They are not
    exact, as operations fluctuate from year to year due to special
    projects and grants that come and go. The numbers are intended as
    approximate averages that reflect operations of the most recent
    years.

[^7]: William Friday was a leader greatly revered beyond educational
    circles. According to Billy Ray Hall, in the late 1980's, "*Nobody*
    said 'no' to Bill Friday."

[^8]: R&D capacity is available (and used) from UNC schools/centers of
    economic development, government, and planning; MDC, Inc.; the
    Southern Growth Policies Board, the Southern Regional Development
    Initiative, Rural Technology Strategies, and others. Also
    illustrative of the environment in North Carolina: the Center for
    Community Self-Help is a consumer credit union and the largest
    community development financial institution in America, and the
    Rural Advancement Foundation International (RAFI) is a nationally
    important advocate for small farmers. Important philanthropic
    support has come from numerous organizations, including the Z. Smith
    Reynolds, Mary Babcock Reynolds, Ford, Golden LEAF and North
    Carolina Community foundations.