The Bathroom Battle: The Economic Repercussions of HB2 in North Carolina
Jack Smul, Dartmouth Business Journal
On February 22, 2016, the city of Charlotte, North Carolina passed the Non-Discrimination Ordinance which, according to the Charlotte City Council, “added marital and familial status, sexual orientation, gender expression and gender identity to the list of protected characteristics in the existing nondiscrimination ordinances.” Little did they know that this act of good faith would lead to a year-long legal battle over the rights of the state and LGBTQ community. Nor did they expect the debate to draw national attention and directly cost the state $630 million as of November 2016.
The controversy erupted in March 2016 when the state of North Carolina responded to the Charlotte Ordinance by passing the Public Facilities Privacy and Security Act, otherwise known as House Bill 2 (HB2). This bill aimed to remove anti-discrimination protections for LGBTQ individuals and stipulated that individuals use restrooms that correspond to their gender as specified by their birth certificate. What followed was public outcry from the far more liberal city centers, such as Charlotte and Raleigh, as well as from the local, regional and national businesses who disagreed with the implications of the bill.
Within months, major organizations throughout the country began to cancel or relocate projects that had been designated to the state. In May 2016, the NBA removed the All-Star Game from Charlotte, costing the state $106 million. The NCAA and ACC followed suit, moving their championships from North Carolina to Florida, which cost the state $51 million and $40.4 million, respectively. Deutsche Bank and PayPal pulled out expansion plans which would have added $42 million and $109.2 million, respectively. Google Ventures announced that it was placing a moratorium on North Carolina investments despite seeing many life science companies in the Research triangle ripe for venture capital. Additionally, the venture capital piece of Alphabet vowed never to do business in the state, and the real estate group CoStar chose Richmond, Virginia over Charlotte for an expansion plan that would have added 730 jobs and $250 million to the North Carolina economy as a result of HB2. Finally, many major entertainers cancelled performances in the state including Bruce Springsteen, Pearl Jam and Ringo Starr.
Many proponents of HB2, like former North Carolina governor Pat McCrory and former North Carolina Secretary of Commerce John Skvarla, argued that $630 million is almost negligible considering that it constitutes a mere 0.1 percent of North Carolina’s $510 billion GDP. North Carolina’s economy was ranked as second best state by business by Forbes last year, they noted, and the state has gained 5,000 new jobs and around $600 million in new investments since March.
However, These estimates of the impact are shortsighted. They neglect a couple aspects that go well beyond the decisions of larger corporations to stop expanding to the state. In particular, they don’t account for the economic impact of HB2 on small businesses. For example, WUNC 91.5—a local radio station—reported that a small Mediterranean restaurant in Greensboro, NC lost $20,000 in revenue between the decisions of the NCAA and ACC to cancel. Losses like this are incredibly difficult for small businesses to overcome.
A May 2016 study done by the Williams Institute, a UCLA School of Law think tank, estimates that the potential future losses to the North Carolina economy could actually reach nearly $5 billion. The reason that their estimate is considerably higher than the current losses to the economy is that the study includes potential cuts to federal funding for education in the state, which are upwards of $4.8 billion. The new conservative Trump presidency will likely lower this funding, but the number should remain enormous. Furthermore, the study highlights a few more factors that could hurt the state going forward. With over 70 percent of millennials supporting marriage equality, the study mentions, it might become increasingly difficult to recruit young talent from outside the state. Keeping LGBTQ individuals in the state, currently estimated to number 250,000—of which, 22,000 are transgender – and not to mention recruiting LGBTQ talent from outside the state will likely be problematic. Finally, other potential costs include the likely decline of the $1.7 billion tourism industry as well as the high litigation and enforcement costs attributed to implementing and enforcing the bill.
The bathroom battle in North Carolina has implications far greater than the social and political controversies surrounding the issue, and many conservative supporters of HB2 seem to be underestimating the economic impact that it will have. If the Williams Institute’s estimate of $5 billion is correct, the impact of the bill could not be viewed as negligible as this would be roughly 1 percent of the state’s GDP. Furthermore, North Carolina’s reputation as a fast-growing economic boomtown could be greatly jeopardized. For now, however, the battle for the bathroom wages on.