The February 6 Daily Political Briefing by the North Carolina Association of Educators (NCAE)   resorts to misleading statements about teacher pay in an  unsuccessful  attempt to refute a March 2011 Civitas Institute article about why North Carolina should find a better way to pay teachers.

NCAE charges that teacher pay is decreasing because salaries attributed to individual steps (years of teaching experience) have actually been lowered over the last three years. It is true for the past three years the state legislature has chosen to freeze teacher salaries However, those actions did not preclude teachers from gaining step increases – even if the salary amounts remained the same.

For example, a standard step 5 teacher with a bachelor’s degree and no additional certification in 2010-11 made $32,640. This year the same teacher would qualify as a step 6 teacher, but would still make $32,640. The salary freeze does not require teachers to remain at the same step or to take a lower salary.

The NCAE criticism is disingenuous. Legislative actions froze salaries and altered step increases to ensure individual teachers would make the same salary the following year.  NCAE criticism does not change the fact that teacher salaries are still tied to years of experience and academic credentials.

NCAE notes that teachers have not had a raise in three years. Pay freezes in 2009-10 and 2010-11 were part of the state budget process approved by two Democratic legislatures and signed off by a Democratic governor. NCAE’s vocal opposition to this year’s education budget makes the organization’s silence the past two years all the more telling.

To illustrate their alleged point and to underscore the difficulty of teachers everywhere, NCAE highlights the plight of a high school teacher in the Guilford County Schools. However, the organization conveniently forgot to include that many teachers receive local salary supplements. In 2009-10 and 2010-11, teachers in Guilford County Schools received an average local salary supplement of about $4,900 each year, a figure not included in the NCAE briefing.

That said, the misleading charges leveled in the NCAE briefing are secondary to the main point of my article: there is no credible research that supports paying teachers based on longevity and academic credential. The current teacher salary schedule ties the hands of principals and forces schools to pay good and not-so-good teachers the same salary.  Such a system also ignores the reality of differences in local markets and economies – a shortcoming which helped to spawn the local salary supplements.

The NCAE briefing never addresses this point.

Teachers — like the students they teach– have different talents and perform at different levels.  Fairness dictates that we pay teachers that reflect those differences. The current teacher salary schedule serves – not the interest of teachers or the children they serve – but only the interests of the NCAE.

Raleigh, N.C. – The Civitas Institute recently welcomed Jim Tynen as its director of communications.

“I’m looking forward to spreading the message about conservative solutions to many problems facing the state,” he said. “I hope to help Civitas play a significant role in educating people about why limited government can help make North Carolina freer and more prosperous.”

Tynen will be working with the Institute’s team to reach out to the public and its leaders in a variety of media. He will also be available to assist journalists.

James E. Tynen grew up in the Chicago area. He has both a bachelor’s and a master’s degree from Northwestern University. In his career he has worked in a variety of positions, including student media adviser at the University of Pittsburgh, copy editor and writer for the Pittsburgh Tribune-Review, and most recently as editorial page editor for the Daily Herald of Provo, Utah.

More information on the Civitas Institute is available at www.nccivitas.org, or contact Jim Tynen at (919) 834-2099, ext. 148.

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State public campaign funding for key races is drying up, a situation with significant implications for a number of candidates in this coming election season.

The funding for three Council of State races (auditor, insurance commissioner and superintendent of public instruction) has virtually run out, while “rescue funds” will no longer be available to supposedly level the playing field in appellate court races.

The public funds for Council of State races come primarily from appropriations by the General Assembly, but there has been no money designated for that purpose since 2008. Other financing comes from a $3 check-off on state tax returns for public campaign funding. Taxpayers can designate whether the money goes to the Republican, Democratic or Libertarian parties. If the taxpayer indicates no preference the funds are evenly divided among the parties. The check-off generates about $1.5 million each year.

The Democratic-led legislature, however, siphoned off $1.5 million from the Council of State campaign fund in 2010 to shore up the general budget. This raiding of funds, combined with a lack of General Fund support, has left the public campaign fund virtually dry. The Council of State public campaign fund now holds only a little over $427,000.

The lack of funds is leaving the future of public campaign financing in doubt because a candidate for Council of State opting for public financing must receive no less than $300,000. In other words, the fund doesn’t have enough money to help more than one campaign. Thus public campaign financing for Council of State campaigns is for all practical purposes suspended for the 2012 elections.

Insurance Commissioner Wayne Goodwin has accepted public financing in the past but he has already raised money for a re-election bid. Seemingly anticipating the ending of public financing his latest campaign committee report shows he raised over $120,000 between July and the end of 2011. His committee now has over $226,000 cash on hand.

State Superintendent of Public Instruction June Atkinson, on the other hand, has raised virtually no money. Her campaign committee report shows only $650 cash on hand. Still Atkinson says she will run for re-election and has started soliciting contributions.

One option being considered is to evenly divide the existing public campaign cash among the candidates, then allow them to raise more contributions from private sources. However, the chairman of the House Elections Committee, Rep. David Lewis (R-Harnett), is one of the Republicans who would like to eliminate public financing for Council of State races, so this scenario appears highly unlikely.

The legislature could also choose to fix the Council of State shortfall with an appropriation. But with other pressing needs, publicly financed campaigns are not a priority for the Republican leaders in the General Assembly.

Meanwhile, candidates running for the Court of Appeals will be dealing with the end of so-called “rescue funds” in those races. Under the system, if a candidate for an appellate judicial seat chooses public financing, he or she receives an initial $164,400. Someone running for the Supreme Court is granted $240,100 to start a campaign. Up to now those candidates could also receive rescue funds, which are triggered when an opponent’s privately raised contributions exceed this initial public financing amount.

The State Board of Elections (SBOE), however, decided in December 2011 that rescue funds would no longer be available because of a U.S. Supreme Court ruling. In an Arizona case the high court ruled that rescue funds violated the free speech of candidates not receiving public dollars. (The board did not prohibit rescue dollars for Council of State races.)

Rescue funds were required in Court of Appeals races in 2008 and 2010. Republican Dan Barrett spent over $178,000 in a losing bid to unseat incumbent Judge Linda Stephens. Barrett was given over $18,000 in rescue funds. In 2010 Court of Appeals Judge Ann Marie Calabria needed nearly $5,000 in rescue dollars in her winning race with Jane Gray.

Unlike the Council of State public campaign fund, there is plenty of taxpayers’ and attorneys’ money in the judicial public campaign fund, which holds $7 million. Attorneys in North Carolina are required to pay a $50 surcharge as part of public financing for appellate court races. The lawyers can allocate their contributions toward publishing a Voter Guide. If they don’t, the money goes into the judicial campaign fund. In 2011 attorneys’ surcharges totaled $1.5 million. Just under $400,000 went to the Voter Guide fund.

With the new SBOE decision in place, judicial candidates – after receiving the initial tax dollars - will no longer be able to match opponents through the use of rescue funds. Furthermore, because candidates opting for public funds are barred from fundraising, they won’t have any means to raise more money to match their opponents’ spending.

Another concern of some is that these public campaign funding glitches may give one party an edge. Paul Shumaker has run successful appellate court races for Republicans and is not a fan of public financing. He says the lack of public funds may not be as difficult for Democratic candidates. “Funding for Republican judicial campaigns has never been there regardless of their stature on the bench,” says Shumaker.

And funding will be more crucial than ever. For example, Supreme Court Justice Paul Newby is up for re-election. Court of Appeals Judge Sam Ervin, Jr., a Democrat, says he will run for that seat on the bench. Shumaker says he’s concerned Ervin may run a $500,000 campaign.

For now it appears judicial candidates will have to hope whatever they get from the public campaign fund will be enough, or instead roll up their sleeves and raise money directly from voluntary support.  It also appears those running for Council of State offices will no longer be able to rely on taxpayer funds to finance their campaign.

NOTE: A previous version of this article incorrectly listed the Council of State races eligible for public financing, and the state involved in the Supreme Court case on rescue funds. Civitas regrets the errors.

The Patient Protection and Affordable Care Act (Obamacare) continues to threaten state sovereignty and individual rights.  With the uncertainty of the U.S. Supreme Court decision still looming, states must find ways to counteract this federally intrusive legislation, no matter the judicial outcome.

A Healthcare Compact (Compact) could be the solution to bringing power and control over healthcare back into the hands of the states and ultimately, individuals.  The Health Care Compact Alliance has promoted model legislation that has been endorsed by the American Legislative Exchange Council.  Within the language, several fundamental provisions are laid out.

Essentially, a compact is an interstate agreement between two or more states, approved by Congress. The first step begins at the state level, where the compact must pass both chambers of a state legislature and be approved by the governor.  Once approved at the state level, the compact would need to be approved and ratified by U.S. Congress, allowing the compact to supersede any conflicting federal laws or regulations.  It would not require the signature of the U.S. President to take effect.  After being “federalized” by Congress, the compact could then be implemented within the participating states. A compact may also bind all future state governments and even state constitutions under the U.S. Supremacy Clause.  However, most compacts have provisions for withdrawal and dissolution should the participating member states choose this path down the road.

Interstate compacts have been used throughout American history to allow states to coordinate in important policy areas.  Such compacts are authorized under Article I, Section 10 of the U.S. Constitution.  To date, more than 200 compacts have been authorized and are in effect.  Compacts currently in place regulate criminal background checks, environmental standards, education benefits, regional transportation systems, just to name a few.  While the states have never used a compact to explicitly circumvent existing federal law, there is no legal barrier to use a compact in this manner.

In this case, the Healthcare Compact could enable states to cooperate in order to undermine much of the federal regulation and mandates contained in Obamacare (excluding military healthcare).  Under the Compact drafted by the Health Care Compact Alliance, each state receives annual healthcare funding from the federal government. The funding is mandatory spending for the federal government and is not subject to annual appropriations. Funding for each state is calculated from a 2010 baseline of healthcare spending and then adjusted annually for changes in population and inflation.

Funding under the Compact would transform federal payments to providers and states for Medicare and Medicaid services into a single block grant payment to each state. Currently, funding for the Medicaid program is divided between the states and federal government. The federal government provides it funding with several strings attached, with different payout rates for different services or eligible populations for example. Medicaid is administered by the states, with limited leeway for what services and population groups it covers due to broad oversight by the federal government. Medicare is a federal program, administered at the federal level. Under the Compact, states would govern these programs.

Furthermore, the Compact does not stipulate a particular form of healthcare system.  Instead, it allows healthcare policy to be determined at the state level, where decisions can be made based on the healthcare needs and financial constraints of each particular state. For example, if one state wants to implement a socialistic “mini-Obamacare” for its state citizens, it may do so.  The competing “laboratories of democracy,” with differing state healthcare systems, will eventually prove that more socialistic models are unsustainable while free market healthcare systems prosper and flourish long-term.  Finally, like other compacts, participating member states can also withdrawal at any time.

The Healthcare Compact has been introduced in 13 states since February 2011. Four states – Texas, Georgia, Oklahoma and Missouri – have already adopted the Compact while almost half of the remaining states are actively considering the Compact.  The North Carolina legislature, on the other hand, has never introduced Compact language.

Will North Carolina continue on its path of an unsustainable healthcare system with too much dependency on the federal government and crippling financial debt, or take back its healthcare rights?  The Healthcare Compact would give North Carolina the power to roll back the federal overreach in our healthcare and bring control back to where it belongs – with the patient.

This article was first published in the Lincoln Tribune on February 2, 2012.

Business leaders complain the North Carolina unemployment system needs to be completely changed so people are encouraged to train and work. A Civitas Institute video report examines the tangled system.

Click here to view the video on YouTube.

The state is in debt to the federal government to the tune of $2.6 billion for loans to keep unemployment benefits flowing. Over $500 million of those benefits were improper overpayments. Matt Willoughby begins a series of reports on the unemployment system and some things you probably don’t know about it.
The first report deals with the magnitude of the problem with lawmakers grilling the head of the new Division of Employment Security.

Click here to view the video on YouTube.

Here are three files out of that same meeting. First, Rep. Dale Folwell (R-Forsyth) asks Lynn Holmes about the unemployment benefits card and then turns to Commerce Secretary Keith Crisco about the uncertainty surrounding the insolvency of the unemployment fund.

Click here to view the video on YouTube.

Here is a longer version of the Lynn Holmes talking about the overpayments and almost proud the overpayment rate was lower than other states.

Click here to view the video on YouTube.

Sen. Bob Rucho (R-Mecklenburg) was clearly frustrated with what he saw as a lack of cooperation from Holmes since the huge federal debt came to light in 2010.

Click here to view the video on YouTube.

In the wake of Governor Perdue’s surprise announcement that she will not run for re-election, Representative Bill Faison (D-Orange) announced his intention to run for governor January 28^th in Greensboro, NC.

Rep. Faison has recently been touring the state and calling into question Gov. Perdue’s leadership, causing many to speculate he had interest in the Governor’s mansion long before Perdue backed out of the race. Perhaps the central tenet of Rep. Faison’s campaign will be his JOBS plan for North Carolina, which he has spent the last several months promoting at his events.

Rep. Faison’s much publicized JOBS plan is riddled with questionable math, overly optimistic assumptions, and lacks critical details. Rather than a serious plan to get North Carolina back to work, the plan is a purely opportunistic political ploy designed to give the appearance of leadership by an ambitious back-bencher. Despite the questionable nature of the plan, it has been endorsed by several county Democratic parties and 35 other Democratic legislators.

The first part of the plan is a 0.7 cent sales tax increase, which Faison calls the “power of the painless penny.” Rep. Faison plans to use this tax increase to rehire public employees. This is no mere penny however; rather it is a penny on every dollar of most of the retail sales made in North Carolina. According to Rep. Faison himself, that little penny would actually cost each household in North Carolina on average more than $200 a year, and cost North Carolinians as a whole $1.1 billion dollars.

Rather than a painless penny, the Faison plan amounts to a new tax increase of over a billion dollars on the people of this state.

The other segment of his plan is a $35,000 tax exemption for small businesses with 20 or fewer employees. Faison claims the credit will create “up to” 155,784 jobs. Where did he come up with this number? 155,784 is the number of small businesses in North Carolina with 20 or fewer employees, so he simply assumed that every small business in North Carolina would use the tax credit to create one new job. This assumption is stunningly arbitrary and oversimplified.

From the information released so far, there is no reason to believe that any business has to actually hire a new worker to receive the exemption. The fact that many businesses will use this money to pay off debts, invest in capital improvements and new equipment, or even for profits for the owners, is a possibility that seems to have escaped the eagle-eyes of Rep. Faison’s office. The argument could just as easily be made that the plan will create zero jobs.

Rep. Faison claims that his tax exemption plan would decrease state revenue by about $2.29 billion. However, from his public discussions thus far, it is unclear whether Faison’s tax exemption is actually an exemption or a tax credit. Moreover, it is highly unclear how he arrives at the $2.29 billion figure.  The only way we can ever have a clean estimate of the cost of the Faison JOBs plan is for the Representative to produce an actual bill that can be scored by the professionals in the Legislature’s Fiscal Research Division. Until he does so, any estimates given for the cost of the JOBs plan are simply illusory.

To offset the decreased revenue in his proposed tax exemption, Rep. Faison proposes eliminating 40 percent of existing tax exemptions in North Carolina. In his public statements, Rep. Faison has slammed these exemptions as giveaways to “big business.” Which exemptions would the Representative get rid of? He hasn’t bothered to say.

Indeed, two-thirds of these exemptions include items such as the standard deduction and personal exemption for income taxes, the exemption for food and medicine from the state sales tax, exemptions for government retirement and social security income, and sales tax exemptions on purchases made by charitable organizations. Hardly seems like a list of giveaways to “big business.” Rather, these tax exemptions disproportionately protect low-income and working-class citizens.  Is Faison saying he wants to finance his plan by raising these taxes by billions of dollars?

The Faison tax increase plan is nothing more than political theatre. The job growth predictions and cost projections are sloppy and shamelessly careless. The plan overall appears to not have received much critical thought before being released.

The end result would be a massive billion dollar sales tax increase, along with many other tax hikes on exemptions low-income North Carolinians have come to rely on.

Faison’s JOBS plan was never meant to be serious public policy. It was simply an attempt to drum up publicity and media air time for his run for governor. While the details of the plan itself are still in question, it certainly has provided Rep. Faison airtime. That the plan, and Rep. Faison, have been treated so seriously, given their lack of serious preparation is unfortunate.

The first decade of the 21^st Century for North Carolina was a difficult one. In terms of the state’s economic condition, many may label it a lost decade.

Lost jobs, lost fiscal restraint by state government, lost opportunities for spending reform, and more lost ground in terms of worker pay. These topics all dominated North Carolina’s economic landscape during the recently-completed decade.

As we enter a crucial election season, and as the data from 2000 to 2010 becomes more complete, reviewing several of the major economic trends from this young century will add value to discussions on the future direction of the state.

We need to ask: Does North Carolina want to continue the trends established during the last decade, or stake a change in course?

Lost Jobs

The number of jobless North Carolinians nearly tripled from 2000 to 2010, adding almost 300,000 people to the ranks of the unemployed.[i] That figure is in contrast to just an 18 percent increase in the state’s working-age population. In other words, the number of unemployed North Carolinians rose at a rate ten times greater than the increase in working-age population during the last decade.

While unemployment statistics can fluctuate depending upon the number of people leaving or entering the workforce, one reliable measure of the state economy’s employment picture is the share of working-age population employed in the private sector. From 2000 to 2010, the share of working-age citizens employed by the private sector plummeted in North Carolina, dropping from 64.8 percent to 52.7 percent, a drop of nearly 20 percent in terms of the share of working-age citizens employed in the private sector.[ii]

State Government Adds Jobs at a Healthy Clip While Private Sector Shrinks

While North Carolina’s sluggish economy caused companies to shed jobs and crowd unemployment offices with out-of-work citizens, state government added more than 40,000 jobs during the last decade.

As shown below, North Carolina state legislators decided to swell state payrolls by a whopping 40,429 positions, a 14.3 percent increase. Meanwhile, private sector employment contracted by 1.3 percent, shedding 43,000 jobs.[iii]

These employment trends caused the ratio of private sector to state government worker to plummet from 11.4 in 2001 to 9.8 in 2010 – a 14 percent drop in the ratio.

Lost Fiscal Restraint

The last decade continued a long-term trend of out-of-control state budget growth. Even after adjusting for inflation, comparing North Carolina’s state budget to population growth for 1980-2010, we find[iv]:

• State spending, even after adjusting for inflation, more than tripled from 1980-2010
• State population grew by 62 percent, meaning that the state budget grew at more than three times the rate of population – even after adjusting for inflation

With the sustained expansion of the state budget outpacing population growth, the decade of the 2000’s saw the largest inflation-adjusted spending per person in a generation.[v]

• The average inflation-adjusted state spending per person for the 2000’s had risen to $2,178
• This marked an increase of 17 percent over the same average of the 1990s, and a dramatic rise of 61 percent from the 1980s average

State Debt Exploding

Despite massive spending hikes, however, state lawmakers’ appetite for spending was still not satisfied. The 2000s saw the state’s debt climb dramatically. By 2010, the state’s per capita state debt totaled more than 2.5 times the 2000 level.[vi]

Furthermore, the state’s annual payment required to pay down the growing state debt tripled.

Losing Ground in Worker Pay

In addition to the substantial job losses, North Carolina lost ground to the rest of the nation and the southeast region in terms of worker pay. North Carolina’s per capita income growth during the 2000s was 25.3 percent, well below the national average of 31.7 percent. North Carolina’s income growth was even more stagnant when compared to the southeast region – which experienced per capita income growth of 33.5 percent.

This slow income growth caused North Carolina per capita income to fall even further behind the region and nation. At the beginning of the decade, North Carolina’s per capita income was 92 percent of the national average. By 2010 it had dropped to only 87.6 percent of the national average. Moreover, in 2000 North Carolina’s per capita income was above the southeast’s average, but by 2010 had fallen to just 97 percent of the region’s per capita income.[vii]

Lost Opportunities for Spending Reform

In spite of the massive run-ups in state budgets and debt, some lawmakers made attempts at reigning in out-of-control state spending. Perhaps the most popular of such efforts is a Taxpayer Bill of Rights. TABOR is legislation that would place sensible limits on the annual growth rate of the state budget. During several legislative sessions in the 2000s, TABOR bills were introduced, but rarely received so much as placement on a committee calendar.

The latest version of a proposed TABOR was HB 188 – introduced last spring. Per usual, the bill never so much as received discussion in committee. However, running some numbers shows how much North Carolina could have benefitted if it had passed such a spending limit in 2000.

Using the specific formula included in HB 188 (a three-year average of the combined inflation and population growth) as the annual spending limit shows that state government could have had more than $10 billion in extra revenue to set aside for a rainy day.

As shown in the chart below, TABOR spending limits would have smoothed out the dramatic growth in spending in the mid part of the 2000s.[viii]

Instead of rapid growth of the state budget, a TABOR would have limited the amount of expenditures, and set aside any surplus revenue into a rainy day fund (and possibly returned any further excess revenue to taxpayers). Had TABOR been in place over the past decade, North Carolina would have reaped roughly $10 billion in reserves for budget writers to help balance the budget during the latest fiscal crisis – and avoided the billion-dollar tax hikes imposed on North Carolina’s economy.

Conclusion

By several measures included in this article, North Carolina’s fiscal and economic situation took a major step backwards in the last decade. Irresponsible state budgeting and a poor business climate has resulted in more North Carolinians out of work, multiple budget crises, exploding state debt and an economy losing ground to the region and nation.

North Carolina’s struggling economy simply cannot afford to continue the failed policies of the past decade.