Heard on the Street Posted: Thursday, March 26th, 2009 It is becoming more obvious that the strains of a bad economy are starting to show. We see this in many sectors, but especially in our legislature. This report will cover some of those issues over which there is tension.
State Employees surrounded by controversy
Since the single largest item in the state budget is employee payroll and benefits, it is only natural for employees to be at the vortex of budget discussions.
The State Health Plan was the big controversy of the week. Lobbyists for pharmacists had essentially stalled a fix to the gaping deficit in the plan by mounting a massive phone campaign. They were upset that a provision of the “fix” involved employees having to purchase some medications for chronic illnesses online or by mail with contracted providers. Democratic Senators were completely caught off guard when Senate Majority Leader Tony Rand, who has become the chief (and apparently only significant) spokesperson in the Senate for the plan, offered an amendment to break the logjam that eliminated the controversial provision but increased dependent premium costs. As is generally the case in our State Senate, this decision was made behind closed doors without proper warning for Democrats and left many of them confused and somewhat upset. They said so on the floor of the Senate, at which time Rand decided it was time to take them to the woodshed. Rand called for a recess and a closed door Democratic caucus.
Rand was caught in a perfect storm between pharmacists threatening all out war in the Senate and especially in the House, employees balking at most anything that lessened coverage and raised costs, and a state budget that already has more holes than Swiss cheese. It was mostly about the numbers to Rand. His original plan saved $91 million. Deleting the pharmacist provision meant something had to be done to pay for that increase.
We will never know for sure what happened in that caucus, but what we do know is that when the session resumed and Rand presented his amendment, all the Democrats voted for it. The Republicans, who didn’t want to be left twiddling their thumbs while Democrats were deciding important issues of government, also caucused. Would it surprise you to learn they all voted against the amended bill?
Premiums for dependent coverage will increase even more than had been proposed, making up some 30 million of the proposed savings. Taxpayers will make up the other $51 million.
There is real question whether the House will approve this fix. Rand keeps saying it needs to be passed by April 1 in order to have changes ready for the start of the new fiscal year July 1. Otherwise it costs about $15 million per month more until the changes can be made.
Because this was done so quickly and behind closed doors, Capitol Press Corps members were understandably confused about what was done and where the money went. After the session they cornered Rand and peppered him with questions. Tony Rand is usually a pretty cool guy, especially when dealing with the media, but became irritable and even jokingly threatened to kick one female reporter. WUNC Radio’s Laura Leslie recorded the transaction and you can hear an MP3 recording of this four minute interview, along with her take on the events on her Leslie, a state employee, is one of the panelists on this week’s NC SPIN and offers up some good comments.
One humorous note you will hear on this recording is Rand’s frustration over the savings provision. He says if we are having this much trouble over saving $51 million, just think of what it is going to be like trying to cut three billion from next year’s budget. This speaks to the tensions and the problems our lawmakers are facing, but it also signals that most of their focus will be on cuts, not tax increases.
Publisher’s notes: All of this is further proof that the legislature doesn’t need to be directly running the State Health Plan. There are real separation of powers issues between administrative and legislative branches, but the plan’s problems are complex and deserve better and more professional attention than the legislature can and has provided for it. The plan needs to find a home in the executive branch as Rand is obviously finding out.
Blue Cross responds
Last week, in this newsletter we published a story based on a release by Democracy North Carolina that blasted Blue Cross Blue Shield for their corporate PAC and personal political contributions to Senators Rand and Basnight. Lew Borman, corporate spokesperson for the nonprofit, read our story and immediately fired off an e-mail asking if we were even interested in learning the company’s side of the story. We are. So here is what Borman wrote:
“You seem to be using Bob Hall's stuff verbatim. How about our response?
You'll notice Mr. Hall carefully nuanced his definition so BC [Blue Cross] would stand out.
There are a lot of special interests out there who don't hesitate to take a shot at Blue Cross-plenty that don't hesitate to deliver a negative message. Our political action committee is there so employees who voluntarily contribute have a voice in the democratic process and so we're able to fully protect the interests of our customers.
“Our leaders and employees voluntarily participate in the political process, as do those of companies across the state. There's nothing out-of-the ordinary about this. That's the system we have and many companies participate like we do.
• It's really important to understand that the State Health Plan contract is not a major money maker for BCBSNC. The contract sets our profit at well under 1 cent per dollar. The company's actual earnings were $478,000 for the fiscal year ended June 30, 2008.
• Our contract, which we have released publicly, demonstrates we are not the source of financial difficulty for the State Health Plan.
• Our leaders and employees voluntarily participate in the political process, as do those of companies across the state. There's nothing out-of-the ordinary about this.
“Tossing out a kitchen sink full of criticism of our company may satisfy some special interest groups, but it does nothing to address the real challenges facing the State Health Plan.”
Publisher’s note: Borman is absolutely correct on one point. The problems of the State Health Plan run deeper and wider than any criticism of Blue Cross. The 800 pound gorilla in this debate, which never gets any media or legislative attention, is the multi-billion dollar unfunded liability in benefits to retired state employees.
Cowell has game
State Treasurer Janet Cowell, in office for less than two months, was called to testify before the legislature about the Teachers and State Employee Retirement System. Actuaries have told the Treasurer’s office that the combination of investment portfolio losses and decreased state contributions to the plan in recent years have put the sound financial footing of the retirement plan in jeopardy. These actuaries say that in order to ensure the state is able to fulfill all the promises made to our current employees, the legislature needs to add $360 million over the next two years to current contribution levels.
What happens if they don’t, we asked? Well, nothing right this moment. But if the plan isn’t fully funded we face the real possibility of not meeting our obligations to retirees in the future, much as the State Health Plan faces. Additionally, failure to fulfill an obligation such as this might jeopardize the state’s Triple-A credit rating. We are one of only a handful of states that can borrow money at the lowest possible interest rates. Again, not a problem if we aren’t borrowing any money, but when we do this could cause us to pay more, creating even higher future debt service costs.
Essentially what Treasurer Cowell is saying is that we can pay now or we will pay later. But the legislature didn’t limit their questions to the retirement plan, asking Cowell about her perspective on employee furloughs, another topic of current discussion. Cowell commented that furloughs could be viewed negatively by the rating agencies and threaten our credit rating. Why? These agencies look for signs that our government is acting responsibly, meeting challenges and dealing with them directly. Cowell correctly stated that furloughs might be interpreted as a sign that the state wasn’t willing to address the real issue of government expenditures that exceed revenues and could cause the rating agencies to lower their opinion of our state’s financial management.
Cowell’s remarks reportedly upset some who favor furloughs but should not have. The Treasurer was asked a specific question about how the markets might view furloughs, not her personal opinion about the practice. She answered, as she should have, as the “keeper of the public purse.”
UNC President Erskine Bowles appeared before legislators that same day urging them to give him authority to furlough employees in lieu of having to fire them, a sentiment supposedly shared by House Speaker Joe Hackney.
Nothing has been decided and won’t be until the budget comes together. There can be lots of talk but nothing significant will happen until late next month when personal income tax numbers are made public. But there is already angst in the halls of the legislature. Corporate tax returns were down significantly and if they are any indicator, even current projects of a 3-plus billion dollar shortfall may need revising.
Burr worried
State legislators aren’t the only ones worried. Our national economy, despite some recent good days on Wall Street, is still deeply in trouble, as evidenced by President Obama’s news conference and the government’s plan to purchase bank assets that aren’t worth much.
But North Carolina Senator Richard Burr has additional concerns. A John William Pope Civitas poll being released today shows that the Senator’s re-election bid might not be easy. In a match-up with Attorney General Roy Cooper, Burr trailed Cooper, 41-38. Here’s the question that was asked and the response:
“If the election for United States Senate were held today and the candidates were republican Richard Burr and democrat Roy Cooper, for which would you be voting? If not sure/unsure/refused…which candidates are you leaning toward: republican Richard Burr or democrat Roy Cooper?”
Burr- 25%
Lean Burr- 13%
Lean Cooper- 8%
Cooper- 33%
Not Sure- 21%
More layoffs
GlaxoSmithKline reportedly laid off workers yesterday but haven’t released any numbers. Today is expected to be what many are calling “Black Thursday,” as one of the state’s largest employers IBM will be making what many think will be major layoffs. Regardless of the numbers is should be called “Blue Thursday,” in keeping with the nickname of the company, “Big Blue.”
Immigration issues cooling
One of last year’s hottest and most emotional issues, illegal immigration, has taken a seat at the back of the public policy bus this year because as many as 140,000 of the illegals have taken a real bus home. The economic decline has meant many of them are unable to find work and are returning to Mexico or other countries. Reports indicate that as many as 1.5 million undocumented immigrants have left since August 2007.
ABC issues
We have talked on NC SPIN and in this newsletter about problems with our state ABC system of alcoholic beverage control. The big issue at this moment concerns whether or not the state’s ABC stores should be opened to allow sales on Sunday. As might be imagined, this is once again opening up the old discussions about “Blue laws” and demon rum. Look for Sunday openings to be approved.
But there is also some quiet discussion about the need to reform our ABC system, we’re told. Unfortunately, much of that discussion deals with making the system more uniform. A growing number are saying we need to abolish our current system, a good way to reduce the number of state employees, while privatization of alcohol sales could also increase revenues to the state. Wonder why this notion doesn’t seem to be finding champions?
Board of Governors
The Senate, again doing business secretly, announced their selections to the UNC Board of Governors. There were 12 candidates proposed for 8 open Senate Seats on the BOG but four of them withdrew their names from consideration, including Blue Cross CEO Bob Greczyn. Again, nobody knows why the sudden withdrawals, but a good assumption would be that if you are not going to get appointed as President of a university or get a new corporate job or win appointment to the BOG you will be allowed to gracefully withdraw your name from consideration rather than suffer the humiliation of being defeated.
Those who were selected include current UNC BOG Chair Hannah Dawson Gage, former NC Supreme Court Chief Justice Burley Mitchell, former Greensboro sit-in leader Franklin McCain, Peaches Gunter Blank of Nashville (TN), current board member John Blackburn of Linville, former executive and UNC business school Dean Paul Fulton, Laura Buffaloe of Roanoke Rapids, Phil Dixon of Greenville, and William Smith of Durham. Fulton was a leader in creating the PAC for UNC Chapel Hill that ultimately brought the in-state tuition for out-of-state athletes into being and gave hundreds of thousands of dollars to legislators.
Senate Majority Leader Phil Berger, obviously irked because Republicans were left out of the process said, “This Soviet-styled balloting is an affront to our Democratic system and to the people of North Carolina.” Hopefully he felt better because it didn’t change anything and was largely ignored, as are most Republican suggestions.
Observations
Senate President Pro Tem Marc Basnight may have publicly pledged to conduct Senate business in a more open manner but so far it is hard to prove.
A growing number of people who have been closely associated with the legislative process in our state report there is a noticeable shift of power in our State Senate. Whereas Senate President Pro Tem Marc Basnight has long been considered the most powerful legislator and perhaps politician in the state, more and more attention is being given and more power resides in Senate Majority Leader Tony Rand.
Is this a deliberate shift of power to signal that Basnight is transitioning out or a filled vacuum that results from Basnight’s health issues? Few can say for sure but this is a topic increasingly discussed (in very muted tones) around the legislature and among lobbyists. Current speculation is that Basnight’s health is failing and Senator Rand is filling a void. Many believe that Rand would not win Basnight’s job if the Dare County Senator stepped down. He has been too heavy-handed and abrasive. But neither is there an odds-on successor.
Tensions between the Senate and House over the approach to the budget appear more pronounced. The Senate leadership’s support (therefore the Democrats in the Senate) for tax increases for cigarettes and alcohol do not have enough traction at this minute to pass in the House. Besides, these increases will only cover, at best, $500 million of a projected 4 billion dollar budget deficit.
The budget problems bring to memory the problems the state faced in the late 1980’s and early 1990’s. Then Governor Jim Martin, a fiscal conservative, was faced with a similar but much smaller deficit. He called the legislative leaders together and reported that as much as he wanted to do so, he couldn’t cut his way out of the deficit and proposed temporary sales and income tax increases to do so. There are similarities today, although state government’s size is considerably larger now, but there are also many saying they don’t see how the state can cut its way out of this budget crisis. Look for more discussion on this.
The support of Gene Conti as DOT Secretary continues to grow, however some mumbling has started over the awards of the first road projects from Stimulus money. Among them was Bruton Smith’s road at his Lowe’s Motor Speedway. It wasn’t a priority with local officials but low and behold it got approved. We thought the reason for eliminating DOT board decisions was to remove politics from decision making or was it just to remove those people from making political decisions about road decisions so that a different group of people could make political decisions?
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