Carolina Journal Weekly Report

August 19, 2002

In This Issue:
Feature 1 - Amendments to Be Dumped?

Feature 2 – Biotech Gets Lift From LEAF

Feature 3 - Block Scheduling Grows

Feature 1
Amendments to Be Dumped?
House passes its budget, Senate rejects it

The House finished its revision of the state budget Tuesday, but the Senate, which passed its own plan weeks ago, rejected the $14.3 billion House version Wednesday.

The House debated its plan Monday night and all day Tuesday and passed 15 amendments to the budget bill. However, whether all that time and effort would produce lasting change is in question. What will survive from the two versions after negotiators from both chambers are finished?

In one example, President Pro Tem of the Senate Marc Basnight told The News & Observer of Raleigh that a House amendment to eliminate funding for UNC-Chapel Hill’s reading requirement for incoming freshmen was a poor decision. House members barred the reading because of the uproar over the university’s requirement that students read a book about the Qu’ran without giving equal consideration to other religions.

“It’s incredible that we would start telling the university what they would teach or not teach,” Basnight said. “I don’t believe we will be doing that [amendment].”
Basnight’s remarks showed how easy it may be for House and Senate conferees to dispense with the amendments. Representatives’ efforts to change the budget on the House floor could have been in vain.

“It could be, but you do the best you can,” said House Minority Leader Leo Daughtry, R-Johnston. “It would be a waste of time if you don’t try.”
Daughtry presented two amendments. One that would shift funds from the Department of Corrections to allow the governor to appoint four Superior Court judges this year instead of next year won approval. The other motion, to cut Smart Start’s administrative costs, failed.

Another successful amendment by Rep. John Blust, R-Guilford, called for a limited version of zero-based budgeting, in which 20 percent of the state budget would be examined in order to eliminate ineffective programs.

“It requires each line item to be justified,” said Rep. Jim Gulley, R-Mecklenburg, who sponsored similar proposals in the past.

“It’s hard to achieve savings on the fly,” Blust said, referring to the current budget review process as the legislature attempts to correct a $1.5 billion deficit. “What we’re saying in this amendment is to slow down.”

Budget negotiators must agree on a plan that will pass the House and Senate, both of which have Democrat majorities.

In last year’s budget debate on the House floor, Speaker Jim Black did not allow amendments to be considered on the final House-Senate conference bill.

Ahead of the Curve

• Despite the $1.5 billion gap in its budget, the state will purchase 1,120 acres of land in Watauga County, if Gov. Mike Easley signs the bill into law as expected. A report by The Associated Press says the Department of Environment and Natural Resources “still has to find a total of $4.7 million to buy the tracts.” The land would be designated “natural areas” for the state’s park system, and the AP report said the parcels “are home to rare plant species.”

• The U.S. Fish and Wildlife Service is awarding a $2 million grant to the N.C. Wildlife Resources Commission to buy land along the Little Tennessee River. The land, in Swain and Macon counties, is owned by the land management arm of Duke Energy, which is considering whether to sell or use it for other purposes. The cost of purchasing the land would far exceed the $2 million grant, according to the Wildlife Resources Commission. The director of the Little Tennessee Watershed Association, Carla Norwood, said the land is “the No. 1 conservation opportunity in the state — probably in the Southeast right now.” The spotfin chub and Appalachian elktoe mussel, which make their home in the river, are considered to be endangered. Reported by the Asheville Citizen-Times.

• Newsweek continued the national media focus on North Carolina in its Aug. 19 issue, writing its own critique of how the state has misspent its share of the national tobacco settlement money.

Feature 2
Biotech Gets Lift From LEAF
Tobacco settlement money to fund speculative business

Golden LEAF will fund $85.4 million in investments and grants to lure biotechnology industry to North Carolina and stimulate the state’s economy, foundation officials announced Wednesday.

Officials of Golden LEAF, a nonprofit organization established in 1999 by the legislature to manage $2.3 billion of the state’s portion of the 1998 national tobacco settlement, said the foundation will provide $42 million in venture capital funds that would “invest in biopharmaceutical companies developing and manufacturing their products in North Carolina.”

The investments and grants will leverage an additional $264 million in outside investments and create at least 25,000 new jobs over the next five years, the officials said. If the $2 million in venture capital investments is successful this year, the foundation will invest $108 million in biosciences over the next six years.

“It is imperative for Golden LEAF to be a player in the future of North Carolina,” said Valeria Lee, president of the foundation.

Golden LEAF also would provide $10 million and “take an ownership position” in an extraction and processing plant for biodiesel fuels. Calling it “an alternative energy (that) holds great promise for North Carolina,” the new plant would be built in the eastern part of the state, cost $45 million, and have up to 100 employees within two to three years.

Community colleges and universities will receive $7 million for worker training and research and development. Golden LEAF will grant $3 million for predevelopment costs for businesses relocating or expanding in the state. The “nonprofit” is also offering $5 million to certify industrial sites.

“The biotechnology industry desperately needs new manufacturing facilities and workers,” Lee said.
LEAF will also give the nonprofit North Carolina Rural Economic Development Center $3.4 million as a “loan loss reserve” for its Capital Access Program. The program gives lenders assurance to extend credit to borrowers who don’t qualify for traditional loans. Billy Ray Hall, president of the Rural Center, is also on the board of directors for Golden LEAF.

The activity represents a change in the way Golden LEAF manages its money. When established, foundation leaders planned only to grant money earned from its investments, leaving its principal alone. The stimulus investments will take about $18.4 million from the $250 million LEAF has taken in so far.

“We must make North Carolina competitive,” said S. Lawrence Davenport, chairman of Golden LEAF.
Lee and Davenport were joined by Gov. Mike Easley and Senate President Pro Tem Marc Basnight at a press conference announcing the initiative. LEAF was established in order to separate the tobacco settlement money from the purview of the legislative appropriating process, to avoid using it for political purposes.

“Our state is already recognized globally as a leader in biotechnology,” Easley said in a statement. “But no such leader exists in biomanufacturing. I want North Carolina to stake that claim. I want the biomanufacturing industry to hear me loud and clear when I say that North Carolina is open for business.”

Davenport said discussions to allocate more funding for an economic stimulus in North Carolina began in November.

Capital Quotes

“If you don’t have any money, it doesn’t matter how much time off you’ve got, because you can’t afford to go anywhere.

—Bobby Duke, engineering technician with the state Department of Transportation, speaking with the News and Observer of Raleigh about one of the proposed additional employee benefits legislators are debating. The budget that passed the House would give state workers an extra two weeks of vacation in lieu of a pay increase. In addition, the House also endorsed an early-retirement option for certain state workers over age 55 with 25 years of service. The proposals now go to the Senate.

“How do you ever take a pig and turn him into a hog? You feed him.”

— Rep. Larry Womble, D-Forsyth, as quoted by the Winston-Salem Journal, explaining the rationale behind a $10 million earmark in the House budget for seven “focused growth” universities including, Winston-Salem State. The funds are to help smarter colleges deal with increased enrollment and should, of course, not be confused with any other description of swine, such as pork.

“It’s nothing more than political theater… The whole thing will be moot. We’re into the first week of September before we have a budget.”

— Joseph Ferrell, UNC-Chapel Hill professor of public law and policy and secretary of the UNC Faculty Council, commenting to the Herald-Sun of Durham about a motion in the House budget to restrict UNC-Chapel Hill from having a book about the Quran as its assigned reading for incoming students. The proposal bars the use of the book Approaching The Qur’an: The Early Revelations unless the college gave equal treatment to other religions. The provision, however, is unlikely to have any meaningful effect, as the book will be discussed Aug.19, well before a final budget is likely to be adopted by the General Assembly.

Feature 3
Block Scheduling Grows
Despite mixed reviews, 73% of N.C. high schools use it

Through the mid- to late 1990s many North Carolina high school principals chose to switch their schools to “block scheduling.” The change gave teachers 90-minute class periods instead of the traditional 45 minutes.

Today, 73 percent of all high schools in North Carolina are block-scheduled, a far cry from the six high schools, or 1.6 percent, that were block-scheduled 10 years ago.

“Principals really wanted the longer class periods,” said Gengshu Zhang, senior evaluation researcher with the N.C. Department of Public Instruction. A 1997 survey of 25 block-scheduled high schools in North Carolina conducted by DPI found that principals chose the system because it offered “a greater variety of courses, greater focus on fewer courses each semester, and the ability to retake failed courses immediately.”

Despite its popularity, the reform draws mixed reviews from a number of studies. A new study by Iowa State University and administrators of the ACT found that student achievement may actually be impaired by certain models of block scheduling. The series of joint studies, conducted by Donald Hackmann, associate professor of educational leadership and policy studies at Iowa State and a research team, concentrated on high schools in Iowa and Illinois.

Other studies have also questioned the system of rearranging class time. In 1999, the Texas Education Agency released a study of block scheduling in Texas high schools that found no proof the system improved student learning.

Mixed results were reached in several studies of North Carolina high schools. Overall, block scheduling made no difference in performance for most subject areas, except in Algebra I where block-scheduled schools outperformed traditional public schools, Zhang said.

For most subjects, however, the change had negative impacts before adjusting for student differences such as race or parental education. “Without adjusting for differences, students in traditional schedules score higher on English, biology, and history,” Zhang said. The differences disappeared once adjustments were made. These same studies by DPI also found that principals and teachers are generally satisfied with many aspects of block scheduling.

There are two basic models most schools use. The most common, known as the 4 x 4, requires students to take four classes a day for a semester. The next semester students move on to four new subjects. In North Carolina, Zhang estimates 85 to 90 percent of block-scheduled schools operate on this model.

Schools also can use an A-B-A-B model. In this system, students still have four class periods a day, but alternate to a different four classes the next day.

The 4 x 4 system receives the most criticism, mainly because it leaves large gaps between studies. For instance, a student who takes geometry in the fall may not have another math class until the following fall. The Iowa study found that schools using a 4 x 4 schedule showed performance declines in ACT scores.

DPI recognizes the problems with a 4 x 4 schedule and recommends that schools pursue an A/B block schedule or a mix of the two. All Charlotte-Mecklenburg high schools operate on an A/B schedule.

On The Cutting Edge

Prison Population

• The nation’s prison population grew last year at the lowest rate since 1972 and the increase was numerically the smallest since 1979, reports the Bureau of Justice Statistics. Yet, crime has begun to grow again after a decade of decline.

Authorities attribute the seemingly contradictory trends to the lag time between when a crime is committed and when criminals are actually sentenced to prison.
Altogether, there were 2.1 million convicts in state and federal prisons and local jails at the end of 2001 — an increase of 1.1 percent over the year before.

In the last six months of 2001, the number of state prison inmates actually fell by 3,700. Texas, which has the nation’s largest prison population, also had the largest drop in inmates last year as it speeded up inmate release on parole and sent fewer parole violators back to prison because of budgetary concerns.

Decreases in inmate populations were common in large, populous states — balanced by increases in smaller states such as West Virginia, which had the largest proportional increase at 9.3 percent.
After more than two decades of rapid growth in the prison population, which has quadrupled since the 1970s, the report concludes that prison populations are stabilizing.

Reported in the New York Times, 7-31-2002.

• Governments that seek to maximize revenues from the sale of state-owned properties should pay particular attention to how their auctions are designed.

A recent paper by Oxford University economist Paul Klemperer stresses the need to encourage entry by bidders and discourage col lusion among them.

Ascending-bid auctions, particularly when they involve only a few bidders, are particularly susceptible to collusion, since participants can use early rounds to signal intentions. In a German auction of mobile-phone spectrum several years ago, two participants encoded in their bids offers to compromise and threats to punish — and each walked away with spectrum at a very low price.

Prior to auctions, companies have used news releases and interviews to scare away competitors.
In an Australian sealed-bid auction for satellite television licenses, one company submitted several different bids on the same licenses and after winning, defaulted on the bids that were too high — paying a price only slightly higher than the amount bid by the next highest bidder.

To avoid such pitfalls, Klemperer recommends the “Anglo-Dutch” auction. This employs an open, ascending bid-auction until only two bidders are left. Then they must go head-to-head with final sealed bids.

Reported in the New York Times, 8-1-2002.

Family Stability

• Many see two-adult households as superior for children. However, not all two-adult households are better for children than single-parent households.

Johns Hopkins University researchers investigated 2,100 low-income families from Boston, Chicago, and San Antonio over a recent 16-month period.

Researchers found during that period, the percentage of children of low-income families living with two adults (including biological, step- and adoptive parents) increased from 34 percent to 38 percent. However, nearly all of the increase resulted from the mother cohabiting with a man other than the child’s biological father. The number of children living with both biological parents actually declined by one percent. Only 16 percent of cohabiting mothers had married, while 42 percent had ended the relationship.

In all, 22 percent of children in the study experienced a change in their living arrangements.

Many assume that children are better off in a two-parent household than in a single-parent household. However, studies show that stability seems to be a bigger factor in determining a child’s well being. For instance, the number of family transitions is more important than number of parents in determining whether a teen-age girl will get pregnant.

Reported as Policy Brief 02-3, Welfare, Children and Families: A Three-City Study, Johns Hopkins University, May 2002.

Medicare House Calls

• By 1966, the year Medicare was created, U.S. doctors had more or less stopped making house calls. Now that trend is being reversed, thanks to an increase in Medicare reimbursements for home visits to treat the elderly.

The number of home visits paid for by Medicare shot up more than eightfold to 1.5 million in 2001 from 195,700 in 1996, according to the Centers for Medicare and Medicaid Services.

In 1998, Medicare raised payments for home visits by as much as 50 percent — thereby encouraging doctors to venture forth from their offices. Medicare will reimburse doctors as much as $266 for a new patient treated at home — versus $182 for treatment at the office. The average allowed charge for a house call in 2001 was $131.

Reported in the Wall Street Journal, 8-2-2002.

Coming Up

• Dr. William Peterson, an adjunct scholar and senior fellow at the Heritage Foundation in Washington, will speak on The Forgotten Man: How You Fare In America’s Two Democracies, at a John Locke Foundation Headliner luncheon Aug. 20.

Peterson’s vast experience in business and government includes service as economist and assistant to the chairman of the Finance Committee of the U.S. Steel Corporation, senior economic adviser to the U.S. Department of Commerce, and economics speechwriter on the campaign staff of Richard Nixon.

Peterson has published articles in the Harvard Business Review, Freeman, Challenge, Monthly Labor Review, Christian Science Monitor, New York Times, Dun’s Review, Business Week, Journal of Business, Journal of Economic Literature, Kihon Keizai Shimbun, die Zeit, Farmand, Australian (Sydney), and Sunday Times (London). For 14 years he wrote a regular column for the Wall Street Journal entitled “Reading for Business.”

The luncheon will begin at noon at the Brownstone Hotel in Raleigh. The price of the luncheon is $15 per person. To preregister, contact Kory Swanson at (919) 828-3876.

The cost of the luncheon is $15 per person. For more information or to preregister, contact Thomas Croom at (919)828-3876 or [email protected].



Material published here may be reprinted provided the
Locke Foundation receives prior notice and appropriate credit is given.


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