Heard on the Street Posted: Thursday, April 9th, 2009 NC SPIN Economic Recovery Plan
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The Senate proclaims a budget
The six or seven people who holed up in Room 605 of the Legislative Office Building have handed down their verdict for a state budget.
We were told they were upset with Governor Perdue’s budget. Because she knows so much about the budget and the financial condition of the state, Senate leaders were hoping Perdue would use this budget as an opportunity to reform state government and were highly disappointed, saying it did little. Even so, they strongly considered passing her budget almost in tact, for two reasons. First, they wanted the House to take the heat for making some hard decisions about people and funding. Call it punting or, to use a very bad pun, passing the buck. They also believed the April personal income tax numbers are going to be very disappointing and additional painful cuts will be needed. Why not let the House bear the burden of that pain?
In the end they decided not to pass Perdue’s budget because they strongly disliked it, but more importantly, to do so would have given the trump card to the House. When the inevitable conference committee met to iron out differences, the House conferees would be able to say that the Senate had their turn and passed.
But the Senate version doesn’t do much to reform state government, either. Senators increased class sizes, immediately drawing criticism from Perdue as well as NCAE. But it will save $300 million of the projected $3-4 billion shortfall. There will also be some $500 million in “tax adjustments,” a.k.a. tax increases. The Senate Finance committee will roll out an overhaul of the state’s antiquated tax code, taxing services for the first time. We hear that lawyers, accountants, and many other services will be taxed, however Doctors’ visits will not be. We were told Doctors’ lobbyists drew a line in the sand on that one.
It’s a pretty smart strategy. Don’t raise income tax or sales tax rates. Just add a new category of taxation – services. The Senate will actually lower sales tax rates a bit, we’re told. But make no mistake, the net effect will be a tax increase for every citizen.
Two notable comments on the budget. John Hood, president of the John Locke Foundation and NC SPIN panelist noted that the House is most certainly not going to concur on the Senate’s $20.5 budget, but one thing he can predict with certainty is that the compromise budget will be more than either the Senate or the Governor have proposed. Joe Mavretic, former House Speaker and NC SPIN panelist remarks that once again the legislature is trying to use our tax policy to promote a social agenda…raising taxes on cigarettes to force people to quit smoking.
There’s lots more to consider in the Senate budget and we give you a full discussion on this week’s NC SPIN. Also, to get an insight into how our Senate operates read this week’s My Spin, “The Caste System is Alive and Well in Our State Senate.”
Sin taxes being negotiated
We hear that the beer and wine lobby, along with the cigarette lobby is trying to negotiate a deal with legislators so far as tax increases are concerned. Governor Perdue recommended a $1 per pack increase on taxes, proposed before the feds increased cigarette taxes dramatically last week. We’re told the Senate Finance team will propose a 15 cent a pack tax increase on tobacco while beer and wine interests are hoping to keep the increase in the 2-3 cents per bottle range.
The bottom line is that these proposals won’t raise the money needed to cover the anticipated budget deficit projected before the April tax returns are known. That just covers next year’s budget. The fiscal year starting July 1, 2010 won’t have the $1.7 billion in stimulus money and will need even more revenue. That’s why we will see tax increases.
State Health Plan bogged down…again
Insiders tell us there’s no way the House version of the State Health Plan will get enough votes to pass on the floor. Representative Hugh Holliman has been trying to guide this wounded duck through the House Appropriations committee but the content of the plan has changed so dramatically that even those who know the State Health Plan needs triage don’t want to vote for this bill. The Senate, trying to save costs, came up with a prescription drug scheme that would purportedly save $50 million using online services. Local pharmacists raised so much stink that the provision was dropped, increasing costs for taxpayers and premiums for state employee dependent coverage.
The Senate version of the bill wasn’t good but it passed and went to the House where special interests went to work molding the wounded duck into an ugly duckling. Their intense lobbying efforts have seen chiropractors and therapists, including physical, occupational, and speech practitioners add their ornaments on this Christmas tree. Now dependent coverage premiums will increase 10 percent per year for the next ten years, essentially dooming the health plan from getting healthy again. The increased costs for dependent coverage are insuring the plan will be even uncompetitive. State employees with healthy dependents (the ones who visit doctors less frequently and get fewer prescription drugs) can find health insurance at much lower rates and will opt out of this coverage. The plan will end up covering sickly dependents who run up more bills with doctors and drugs creating larger deficits. State employees are rightfully up in arms over lobbyists’ power to influence their insurance and you can be sure will lobby against this bill.
This whole scenario proves again why politicians don’t need to be running the State Health Plan.
Senate leadership picture
Insiders say that President Pro Tem Marc Basnight’s health continues to be a major concern. There is some speculation whether or not he will be able to complete this term ending in 2010, but most are skeptical he could stand for another in 2011, generating talk about who might replace Basnight. Behind-the-scenes gossip is ranking prospective successors much like a horse race.
The most obvious selection is Majority Leader Tony Rand, but the Fayetteville Senator has some potential issues that might stand in his way and has alienated many who would not vote for him. The next most obvious choice is probably David Hoyle, but the Gaston Democrat is getting long in the tooth and is tired of the life. He threatened not to run in ’08 and many speculate this is his last term. Going down the roster raises the names of Senator Dan Clodfelter of Mecklenburg, Senator Martin Nesbitt of Asheville, and Senator A.B. Swindell of Nashville. Nesbitt left the House because he wanted to be Speaker and the way was blocked for him. This might be his chance and he will try to seize the opportunity.
Republican disarray
State Republicans, especially those in the legislature, can’t find their footing on issues that will resonate with voters. As the loyal opposition, the implication is that they have some alternative plan for doing things. So far, they don’t. The common complaint from Republican legislators (as well as most other GOP members) is that the media never gives them airtime. The common complaint of the media is that Republicans rarely have anything to say except “no.” Their best hope is to elect a new party chair who can help in crafting a message that will appeal to voters.
Personalized license tags
While our honorables are sitting around the legislature not doing very much, they have time to come up with serious issues like personalized license tags. Believe it or not there are approximately 40 bills to set up personalized tags. It started out with veteran groups and then the universities and colleges got in the act, followed by every disease known to mankind and every organization smart enough to come up with an acronym. Shucks, even the turf grass growers association has a tag. But there might be an interesting twist to this seemingly innocuous practice. We understand some advocacy groups, like Planned Parenthood, want to have their own personalized tags. This could open up another can of worms, giving the appearance that the state is sanctioning these causes. We’re told that Republicans are eager to jump on the abortion issue again.
Meanwhile the Highway Patrol is complaining there are already too many variations of state license tags, making it harder for troopers to identify motorists as in state or out of state when stopped.
Not too old to vote…or drive
Republican Representative Ric Killian from Charlotte ran into a blue hair buzz saw with a bill he sponsored. Killian reported that some studies showed that older drivers have more crashes per mile driven than any group but teens and introduced legislation that would require drivers over 75 to be limited to three year license renewals. Those over 85 would be required to pass a road test. The AARP had been looking for a good issue to sink their teeth, false or otherwise, into and pounced on this faster than a hound dog on a pork chop. Calmer heads prevailed and committee members stripped the bill of both provisions. After the vote Killian complained that the amendments gutted his bill.
Killian should have learned four lessons that many of his colleagues apparently already know. First, many AARP members have some time on their hands and will respond when the alarm is sounded. Second, they have one of the most powerful lobbies in the state and nation. Third, they vote in disproportion to their percentage of the population. The fourth is that, contrary to public perception, seniors have long memories. Representative Killian may learn that lesson come November 2010.
Where’s Garrett?
Governor Perdue’s son, Garrett, raised some eyebrows when he was hired by the Womble Carlyle law firm as a lobbyist. Not to worry, all were told, there would be no conflict of interest here. Garrett will be lobbying in Washington for the firm.
So why isn’t Garrett headquartered in Washington and why are some among our North Carolina congressional delegation saying they have never even met him? What is he really doing for his pay? Under the Dome reports he has joined the N.C. Economic Developers Association. Inquiring minds are asking why a Washington lobbyist would join the state developers association?
Womble Caryle is a large firm with a big presence in helping corporate clients navigate state and local government waters, especially in the area of landing economic incentives for new or expanded plant locations. How beneficial would it be to have the son of North Carolina’s Governor attending meetings with these clients where issues involving state government are being discussed? What message might it send to a corporate client?
Grand Jury meets next week
We hear the Federal Grand Jury will be in session in Raleigh next week, likely on Wednesday and perhaps Thursday. Observers might get a good idea of what is being heard by identifying who comes and goes into the courthouse.
Two examples where common sense isn’t
First, the two brief snow episodes this winter led Wake Schools to cancel two days of Spring Break Monday and Tuesday, leaving the other days in place. Families who had already planned vacations were left with the choice of cutting their week short or having children skip school. They chose the latter, in big numbers. Not only did the students skip, but so did the teachers in large numbers. Wake schools reported substitute teachers showing movies and other light work. Didn’t anyone predict this? Memo to schools: Next year find another alternative if there are make-up days needed. How about eliminating some work days?
The second example is also in Wake and falls under the category of no good deed goes unpunished. During the drought in ’07 and even into ’08 the City of Raleigh imposed severe water restrictions on their customers, telling them to conserve water. If customers didn’t they would be subject to huge fines. Guess what? Customers did as they were told and stopped using so much water. Now the City says that there isn’t enough water being used to subsidize the water system so….you guessed it, they are going to raise rates. And what effect do you expect that to have, boys and girls? Yup, even less water being used. Which, of course, will trigger another round of rate increases….. Fortunately, the Raleigh City Council did decide to table the 17 percent rate increases for the time being.
Correction:
In last week’s edition we spelled George Holding’s name incorrectly.
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