Dug in: the battle over House Bill 2 and its impact on North Carolina's economy seems split between parallel universes.

• Author: Mildenberg, David

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N.C. Commerce Secretary John Skvarla: "Our pipeline of prospects is chock-a-block full," he says. "If we have been taken off some lists, you have to ask if we would have won anyway. Lots of good things are happening."

Mac Holladay, a site-selection consultant who has led commerce departments in Georgia, Mississippi and South Carolina: "It's one of the most serious disasters I've seen in 40 years in the business. When you have companies that are not even allowing North Carolina to be on a list for an expansion or a new facility, you are entering a space in which the state has never been."

North Carolina's economy is on a roll in the urban areas that account for more than two-thirds of population and production. Our annual listing of the largest job expansions (page 54) highlights that growth, supporting Skvarla's claim that North Carolina's economy has expanded almost twice as fast as the U.S. average in recent years. Home sales are robust, apartment rents are soaring, cranes fill the skies in center-city Charlotte and Raleigh, and help-wanted signs are luring software developers, construction workers, restaurant servers and others.

Yet that momentum is at risk because of a debate over whether gay, lesbian and transgender people should be provided explicit nondiscrimination protection. Most of the two dozen business and political leaders interviewed for this story agree on this: Both sides of the HB2 debate messed up. As former N.C. State Budget Director Art Pope put it, "Charlotte overreached, and the General Assembly overreacted."

To recap, Charlotte's City Council voted to join 17 of the 20 largest U.S. cities in adding gay and transgender people to its nondiscrimination ordinance, fulfilling a campaign pledge by Mayor Jennifer Roberts, who took office in December. The move followed warnings from Gov. Pat McCrory and state lawmakers that the new rule would enable transgender people--who make up an estimated 0.3% of the population--to visit the bathroom of their current status, raising safety and moral concerns. In simpler terms, a man who transitioned to a woman could use a woman's bathroom in Charlotte. Not a good idea, the governor and other critics said.

The council, made up of nine Democrats and two Republicans, passed the bill anyway. "It had been discussed in Charlotte for two or three years, and it was the right thing to do," says Charlotte City Councilman A1 Austin, the first openly gay male elected to the board. The General Assembly responded in March with HB2, overturning Charlotte's ordinance and setting up a statewide class of nondiscrimination that does not include sexual orientation or gender identity.

While more than two dozen other states also don't provide such protections, North Carolina's action fueled international outrage over perceived intolerance. Key North Carolina CEOs including Brian Moynihan, Jim Whitehurst and Robert Niblock denounced the state's action, followed by large chambers of commerce who were dismayed when PayPal and...