The news puts North Carolina Gov. Pat McCrory (R), who is on our list of the top five most vulnerable incumbent governors, in a tough political spot for three reasons.
First, it puts a dent in his argument that the law won't cost the state any dollars.
"North Carolina was one of the top states to do business in the country before this law was passed," according to talking points his office circulated after he signed the law, "and preventing Charlotte's bathroom ordinance from going into effect on April 1 won't change that."
Second, it plays right into Democrats' hands -- specifically, McCrory's challenger for the governor's seat in November, state Attorney General Roy Cooper. Cooper's gameplan to win in a socially conservative state like North Carolina had always been to attack McCrory on his job-creating record. Now, Cooper can claim he has tangible evidence to "prove" the governor's proposals are costing North Carolina residents jobs -- 400 jobs in just this one instance.
Sure enough, here's Cooper's statement on the news PayPal has dropped its plan to open a facility in Charlotte: “The threat that HB 2 poses to jobs and our economy is no longer a possibility, it's a reality."
McCrory's campaign fired back in a statement that Cooper's "out-of-state-backers" like the LGBT rights group Human Rights Campaign are "actively recruiting companies to protest North Carolina and inflict economic damage so they can take advantage of the situation to continue to falsely attack Governor McCrory."
And here's what McCrory said at a press conference Tuesday:
But that argument misses the point that PayPal isn't an anomaly in North Carolina. The business community is largely on PayPal's side on this, and it could be just the first of several major companies decide it's not worth it to be involved with North Carolina anymore.
While they're disappointed in the overall trend on religious freedom bills, LGBT rights activists say they've been pleasantly surprised by the volume of backlash within the private sector in North Carolina and other Southern states. The business community also recently pressured Georgia Gov. Nathan Deal (R) to veto a religious exemption bill aimed at protecting clergy and faith-based institutions for refusing service to LGBT people. We went so far as to name the business community one of LGBT rights advocates' most-important allies in the fight against so-called religious freedom bills.
That brings us to our third point about why this matters: Recent history suggests PayPal is just the tip of the economic-blowback iceberg for the state.
In North Carolina, other Fortune 500 companies -- including major state employers like Dow Chemical and American Airlines -- have made their distaste for the law pretty clear. Some organizations, like the NCAA, have also directly threatened to follow PayPal's lead and take their business elsewhere. The Charlotte Observer reported Tuesday that a television studio pulled production for a Hulu show from the state.
Look no further than Indiana for how this could play out. The nonprofit tourism arm for the state's economic hub, Indianapolis, said Indiana's controversial religious freedom law signed last year cost the city 12 conventions and up to $60 million in lost economic investment.
Chris Gahl, vice president of marketing for Visit Indy, told the Indianapolis Star in January there was a direct correlation to Indiana's religious freedom law and convention-holders who decided to do business elsewhere:
"We have tracked 12 conventions, who, when asked proactively, 'why didn’t you pick Indianapolis?' have answered, unaided, 'RFRA.'""In some cases, it was the only reason. In some cases, it was one of a handful of reasons," he added. "But all 12, it was proactively brought up as a blockade from booking Indianapolis."
A few days after McCrory signed the North Carolina bill into law two weeks ago, the Southern Sociological Society cancelled its 2019 convention in Charlotte. In a letter to the governor, it specifically cited the new law, calling it "morally objectionable.
There's one big difference between Indiana and North Carolina that could suggest North Carolina has more economic damage awaiting it. During its entire religious freedom debate, Indianapolis only saw one business back out of a deal: Hometown business Angie's List decided not to go forward with an expansion in an economically depressed part of town (though the company remains in the city today).
Mark Fisher with Indianapolis Chamber of Commerce says there wasn't a bigger economic blowback because the business community was able to get Gov. Mike Pence (R) to sign a revised version of the law clarifying businesses couldn't use it to discriminate. The men's college basketball Final Four was going on at the same time in the city, and the chamber launched a messaging offensive to stress that the city and its member businesses welcomed all customers.
Charlotte and its business community can't make that argument. The North Carolina law specifically took away its protections for LGBT people.
Indiana's economy suffered so much in the wake of its religious freedom debate because the state became synonymous with intolerance. In his address to White House reporters last year, President Obama cracked a joke about how he and Vice President Joe Biden are so close they'd be refused pizza in the state.
Fairly or not, North Carolina risks becoming this year's Indiana. And for the reasons outlined above and despite his combative early approach, there may be little McCrory can do to stop it from happening -- and a lot of political damage awaiting him for it.