Heard on the Street Posted: Thursday, March 19th, 2009 President picks Heels
Forget the budget buzz, the big news is that the President of the United States, the other big “O,” has gotten into bracketology and is ready to announce that the UNC Tar Heels will win this year’s NCAA men’s basketball tournament, according to ESPN.com. It must be reported that he picked the Heels to go all the way last year and we know how that worked out, but this year he is begging the boys in light blue not to let him down and go all the way. Political followers agree that President needs some good news for a change and it would make Number One happy if UNC came out Number One.
Perdue’s budget meets with mixed reaction
Let’s be honest. Governor Bev Perdue inherited a terrible economy, a government with crises on too many fronts to list, a six-month old budget already one billion in the hole and the need to generate a new two-year state budget to present to lawmakers within about 75 days of taking office. A daunting task for most anyone. Perdue, however, knew more about state government than any Governor we’ve had in the past half century. But let any analysis of her budget begin by stating her task was tough.
Perdue touted that this was going to be a lean budget with hard and painful decisions, always adding that she was tough and could make the tough decisions. How well did she do? The truthful answer is that we aren’t really sure. Even the most seasoned observers are still carefully reading the fine print to figure out the details.
But at this writing there are several points that can be made. This budget doesn’t contain all the pain and bad news Governor Perdue had led us to expect. If she hadn’t used $1.7 billion in federal dollars to balance the budget, we might have seen real pain. Many worry what’s going to happen in two years when that stimulus money dries up, but let’s don’t borrow trouble, right?
The budget calls for 1,000 cuts in state positions, but only 270 will actually lose their jobs. This is nowhere close to what we had been led to believe. With a state payroll of 270,000 people this cut is hardly noticeable and certainly not painful.
The proposed sin taxes are greater than most expected. Raising North Carolina’s tax on a pack of cigarettes from 35 cents to $1.35 is a big boost. On top of federal tax increases of 60 cents a pack you can count on this to hurt tobacco sales, which ultimately will hurt tobacco farmers. Many say the Governor was trying to promote her social agenda as much as raising revenue. No doubt all the tax increases will curb smoking. The five percent increase on alcohol will also affect sales. But all agree there will be a big fight waged over these tax increases. The Senate is prepared to pass some increases. The question is how much. The House is not so certain.
We are closing seven prisons and will double-bunk prisoners while trying to increase the parole and probation system. Mental Health was cut while giving more money to add beds in local hospitals. We will talk about that more next week on NC SPIN.
Education was a mixed bag. Per pupil expenditures increased but school systems got cuts in administrative positions in public schools. The Community College and University budgets were cut, especially painful since community colleges are seeing a rush of people wanting to be retrained due to layoffs. More discussion on this next week on NC SPIN.
State employees won’t be happy. The Health Plan still isn’t fixed, teachers got pay raises and they didn’t, and their retirement plan is springing leaks. But the good news is that they keep their jobs, and in this economy that is very good news.
The budget cuts transportation even further. We will talk about that more on next week’s NC SPIN.
Without writing volumes or devoting hours of air time to the subject we can’t cover it all now. Our takeaway is that this budget isn’t as painful, is nowhere near as drastic and doesn’t really do much to change state government, especially given the critical economy we face.
Governor Perdue likes to talk about O. Max Gardner, Governor of North Carolina during the Great Depression. Her situation is not unlike the one Gardner faced upon taking office, but her budget and approach is very different. Gardner used the crisis to reorganize a state government that had grown large and cumbersome (sound familiar) and revamped our tax structure. Perdue’s budget cannot be classified as bold in any way, except perhaps for the tax increases.
As friend Jack Betts reminds us in a Charlotte Observer blog, the unspoken rule is “The Governor proposes and the legislature disposes,” meaning that this is just the beginning of the budget process and Perdue, better than most, knows the game and how it is played. At the end of the day Governor Perdue’s budget is a beginning. Now the work begins.
We devote our entire NC SPIN program to a discussion on this budget. There are some aspects and comments you will want to hear. Be sure to catch this week’s show.
Foxes guarding the State Health Plan henhouse?
The fix on the State Health Plan is stalled as lawmakers are balking at a provision that would cut out local pharmacists in providing meds for chronic illnesses like diabetes. Meanwhile Democracy North Carolina has released a report that once again proves why our legislature should not be in charge of supervising the plan. There might not be conflicts and ethical violations in the relationship between legislative leaders who act as the board of the State Health Plan and Blue Cross Blue Shield, the company administering the plan, but a reasonable person might certainly question the situation.
Democracy North Carolina reports that Blue Cross gave more than $640,000 to state politicians from 2000 to 2008, including $36,000 to Senator Tony Rand, chairman of the committee that controls the plan, and $35,000 to Senator Marc Basnight, who runs the Senate. Company executives donated another $117,000 to politicians during this period. Democracy North Carolina says no company the size of Blue Cross gave more money to politicians. "This arrangement puts legislative leaders in the awkward position of monitoring themselves. When substantial political money flows from insurers to legislators, the awkward position becomes more problematic to a skeptical public, even when legislators are doing their best to protect the public interest,” the group said in a press release.
So the Health Plan crisis isn’t resolved. Meanwhile, most have forgotten about the larger problem. North Carolina has an unfunded liability amounting to billions of dollars for providing health insurance to retired state employees. Until recent years the law said that any employee who had worked for the state five years or more would have his or her health insurance premiums paid beginning at age 65. This problem is so big that nobody even wants to think about it…but it is there and the bills are coming due.
Retirement system sliding down the same slope
The State retirement system has long boasted that it was in sound condition and could meet the retirement promises made state employees. That may no longer be the case unless budget leaders take action now. Treasurer Janet Cowell, reporting actuarial projections, says that to keep the retirement plan fully funded the state must contribute an additional $360 million over the next two years. Governor Perdue’s budget added $42 million. This is a slippery slope. Once we accept less than full funding it will get easier and easier to allow the funding percentage to drop, as so many other states have done. One of the major reasons companies like General Motors, Chrysler, and Ford are in such deep economic trouble is that they failed to fully fund retirement programs for employees.
Former Treasurer Harlan Boyles, who ran the retirement programs for decades, used to proclaim “Promises made are promises kept.” In recent history our legislature has abided by that belief. Will they do so now?
We are told that Senator Rand and many legislative leaders are coming to recognize that we must revamp our retirement promises to employees, converting from a defined benefit when they retire to a defined contribution plan. The way this would work is that the state would effectively operate two systems. One would be for employees currently working, who were hired under the current defined benefit plan. But any new hires would fall under the defined contribution plan and their retirement checks would be dependent on investment returns for their accounts. Many public retirement programs are making the switch, understanding that they will be unable to afford the defined benefit plans in future years. The time to switch, most say, is when their current plans are sound rather than when they are in trouble. Otherwise you have an unfunded liability (see above).
Manning wants state to take over Halifax schools
Citing what he calls a “complete breakdown in academics in Halifax County Schools,” Judge Howdy Manning has ordered a hearing next month to determine if the state should take over running the schools in this Northeastern County. Manning says that 71.3 percent of students in elementary levels are not proficient in reading and that 74.3 percent of middle school students are not proficient.
Halifax school officials say the poor performance is due to changes in the state reading tests and they are working on the problems. Manning says this is academic genocide and must be stopped. Read more about this on www.ncblogger.com.
Schools cancel outside activities
We are hearing that more schools are canceling outside activities like after-school programs, field trips and school-sponsored socials. While finances might have a role in the decisions and might even be the main reason publicly stated for cancellations, the primary reasons are increased violence and a concern for safety. Principals are complaining about thugs and gangs intimidating students and parents at outside events.
Coastal insurance resistance grows
The controversy regarding insurance in coastal counties may have disappeared from the front pages but it hasn’t gone away. Far from it. A group has been formed to carry the fight to the state legislature. Called “NC-20,” the group includes governments, elected officials, business people and leaders from the 20 coastal counties of North Carolina. They are protesting what they believe are unreasonable insurance rates and want the legislature to put a stay on the revisions of the beach insurance plan and the increased rates approved by former Insurance Commissioner Jim Long.
Read more at their web site www.nc-20.com
Recreational versus commercial fishermen
There is another coastal storm, this one over fishing in the Tar Heel State. A group called Coastal Fisheries Reform Group has been formed to change policies they say favor commercial fishermen over recreational fishermen. They are especially upset over gill nets and commercial fishing for speckled trout during winter months. The group says they aim for the day when fisheries politics will more closely follow fisheries economics. They say this means recreational fishermen will rule.
Adams challenging for State GOP chair
The race for state Republican Party chair is heating up. Conservative NC has endorsed Chad Adams of the John Locke Foundation to head the party. Adams is a former County Commissioner and has headed the Center for Local Innovation. He has traveled to all 100 counties in recent months and is actively seeking to regroup a party that fared poorly in 2008. This is shaping up as a real horse race and promises new and energetic leadership for the GOP.
Railroad conference
The North Carolina Railroad is observing their 160th birthday this year and riding the wave of renewed interest for freight and passenger rail service in our state. A daylong conference, called “Progress in Motion: 2030” is being held today at McKimmon Center in Raleigh. Featured speakers include former Governor Jim Hunt, DOT Secretary Gene Conti, former Norfolk-Southern Rail executive Jim McClellan, and economic developers throughout the state.
House would cap in-state tuition
The House has a unique solution to granting in-state tuition to out-of-state athletes. Instead of doing away with the provision that costs taxpayers about $11 per year a House subcommittee would continue the practice but force the university to count the athletes in the cap that limits out of state students. Current law sets a limit of 18 percent of the freshman class that can come from out of state. Could be an interesting debate. ");
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