Carolina Journal Weekly Report

September 02, 2002

In This Issue:
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Feature 1 - Locke to Launch Agenda 2002

Feature 2 – 'Double-Dipping' Teachers

Feature 3 - No Plan In Place
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Feature 1
Locke to Launch Agenda 2002
Analysts to discuss issues, release briefing book

Policy analysts from the John Locke Foundation will discuss taxes, the state budget, property rights, education, the state’s economy, and other key issues this election season in a series of 25 events across the state in September.

The Agenda 2002 Tour — organized by the foundation, the North Carolina chapter of Citizens for a Sound Economy, and a variety of local organizations — will begin at 6 p.m. Tuesday at a meeting in Wilmington. The title of the tour refers to Agenda 2002: A Candidate’s Guide to North Carolina Public Policy, a briefing book to be released and discussed at each tour stop.

Locke Foundation Chairman and President John Hood and other Foundation scholars will speak at the various events. Locke analysts will also make dozens of appearances with North Carolina’s print and broadcast media during the tour, which concludes Sept. 24 in Fayetteville.

“The purpose of Agenda 2002 is to inform candidates, journalists, business and community leaders, political activists, and the general public about the serious issues facing North Carolina state and local governments,” said Hood, who edited the new report. “Because we believe so strongly in the importance of public debate about the future of our state, we are investing significant time and resources into the Agenda 2002 Tour to give citizens a chance to obtain a free copy of the report and ask questions about it.”

The foundation publishes a briefing book every two years, and has conducted regional meeting tours every spring and fall since 1997. Its Tax Awareness Tour in the spring attracted more than 1,300 participants at two dozen events throughout the state.

A statewide poll of likely voters traditionally concludes Locke’s Agenda project; the Agenda 2002 Poll will be released in early October. During the past three election cycles, the foundation’s Agenda polls have been among the most accurate predicators of electoral outcomes of any publicly released poll in North Carolina.

Agenda 2002 Tour events scheduled as of Aug. 26 include stops in the following cities: Wilmington, on Tuesday; Winston-Salem, Wednesday; Raleigh, Thursday; North Wilkesboro, Sept. 9; Charlotte, Marion, Boone, and Bakersville, Sept. 12; New Bern, Asheville, and Hickory, Sept. 13; Lincolnton and Lenoir, Sept. 16; Goldsboro, Wilson, and Wingate, Sept. 17; Hillsborough, Sept. 18; Sanford, Laurinburg, and Roanoke Rapids, Sept. 19; Southern Pines, Sept. 20; Clinton and North Raleigh, Sept. 23; and Fayetteville, Sept. 24.

Ahead of the Curve

• Redistricting placed Democratic state Senate incumbents Ellie Kinnaird and Howard Lee in the same Orange County district, creating a quandary for the Chapel Hill News. Who to endorse? “Unfortunately, we must choose between the greater of two goods,” the editors wrote Aug. 27. Because “she believes strongly in helping those without power, votes her conscience and acts on her own convictions even at risk to her own political well-being,” the News decided on Kinnaird.

• Two other newspapers refused to endorse Cabarrus County’s lawsuit against the state to recover up to $4 million in tax reimbursements withheld by Gov. Mike Easley, to balance the budget. The Independent-Tribune of Concord said “all that’s being accomplished is county taxpayers suing themselves as state taxpayers,” calling it a “lose-lose proposition.” The Salisbury Post editors were a bit more charitable, writing that “right is right, and wrong is wrong, and the state has wronged local government.” But the Post warned that seeking “a remedy through the courts, rather than through lobbying and elections, we all will pay the price. A chunk of precious tax money will go to attorneys, and the state budget will get bigger.”

• The Winston-Salem Journal reported that when Easley spoke last weekend to the N.C. Association of County Commissioners, he was introduced as “the man who owes us $1.5 billion.”

Feature 2
'Double-Dipping' Teachers
House, Senate plan to curtail retirement loophole

Given the state’s budget crisis, many legislators are looking for ways to cut wasteful spending. Some lawmakers are focusing on teachers who go back into the classroom the year after they retire—and receive full pension and salary. Both the Senate and the House have a provision attached to their respective budgets that would affect teacher retirement plans.

Legislators think the practice of taking both salary and pension at the same time is problematic for two reasons. First, the practice as it stands violates IRS rules that require time off between retirement and rehiring. Second, taking the pension and the salary at the same time is a form of “double dipping” in which the teachers are getting money that would be rightfully theirs if they were either retired or working — but it shouldn’t be both.

The Senate provision under discussion would allow teachers to earn up to 50 percent of their previous salary during the year immediately following retirement. If their earnings exceed that amount, “the retirement allowance shall be suspended as of the first day of the month following the month in which the re-employment earnings exceed the amount above.”

The House provision would be virtually identical except that it would “not apply during the 2002-2003 fiscal year to any person who prior to September 1, 2002, entered into an employment contract or commitment for some or all of that year.”

The current provision already states that state employees can receive 50 percent or $23,600, whichever is greater, of their previous salary in a given calendar year while receiving full pension. However, since teachers work through two calendar years, they can collect 50 percent of their previous pay in the fall and 50 percent in the spring — totalling 100 percent of their previous salary.

The critical part of the new House and Senate provisions is that they set the earnings limit within 12 months of retirement rather than the calendar year. Some fear that teachers will still take advantage of the provision by earning their full salary in the fall, which would only be half of their previous income, then leave before the spring semester.

A recent survey by the state treasurer’s office found that at least 583 school employees retired, then went directly back to work in 2001. Accounting for the minimum salary that a teacher could earn over the 30-year period it takes to retire, the state spent more than $14 million on pensions for employees who received their regular paychecks at the same time during the 2001-’02 school year.

The number could be higher, since the estimate includes only employees who returned the survey. The estimate also does not include employees who took advantage of another provision in the N.C. general statutes. Teachers can wait six months after retiring, then re-enter the school system, keeping both the salary and the pension.

According to the 2002 Teachers and State Employees Retirement manual, “if you retire and are re-employed to teach on a substitute, interim, or permanent basis, you may teach without earnings restrictions and not have your retirement interrupted...”

This plan was introduced specifically to address the teacher shortage in the state by providing an incentive for experienced educators to come back to teach.

Capital Quotes

“What we are seeing from one side over there is just nonparticipation. If that’s all you are going to get, we might as well replace them with potted plants and hang signs on them that say ‘no.’”

— Gov. Mike Easley, commenting to The Charlotte Observer on the amount of cooperation he’s gotten from Republicans in trying to get a budget approved by the General Assembly. Easley called on Republican legislators to either approve a state lottery or increase taxes to close the state’s budget gap. Easley’s comments came after Moody’s downgraded the state’s credit rating from AAA to Aa1.

“The governor’s budget wasn’t in balance when he presented it to us… I’m sure he’s gonna blame the drought on us too.”

—Rep. Connie Wilson, R-Mecklenburg, responding to The Charlotte Observer about the governor’s comments. Republicans also noted that Easley was blaming others for his problems and that Democrats controlled both houses of the General Assembly as well as the governor’s mansion.

“Those are the people who’ve been around since the department started. They’re professionals. They’ve got all the institutional history. They’ve been through lots of budget cycles and lots of administrations, and they know how to do their jobs.”

— Libba Evans, Cultural Resources secretary, explaining the impact of a proposed early-retirement option on her department to the News &Observer of Raleigh. Of the department’s 762 employees, 41 would be eligible for the early-retirement provision included in the House’s budget. The House projects that early retirements would save the state $31 million a year. It would be available to state employees with 25 years of service who were at least 55 years old. The proposal would pay early retirees one-fourth of their current salaries until age 62.

Feature 3
No Plan In Place
Easley's Economic Development Board ignores law

The State Economic Development Board has failed to produce an updated economic development plan for the past three years, even though North Carolina law requires the plan to be reviewed and updated annually.

And in an another apparent violation of the law, over the past few weeks the board released and promoted the Economic Stimulus and Job Creation Act, which apparently is a component of a yet-to-be released comprehensive plan.

Since the master plan has not been released, legislators and the public have no way of knowing whether the cash-grants-for-new-jobs component of the Job Creation Act is part of an overall strategy or what many opponents have called it — a last minute gimmick.

An N.C. statute that describes the requirements for the state’s economic development plan says “the board shall review and update this plan by April 1 of each year.” The original plan, created in 1994, covered a period of four years, and state law says “each annual update shall extend the time frame by one year so that a four-year plan is always in effect.”

The law also requires the board to report annual updates of the plan to the governor and the Joint Legislative Commission on Governmental Operations. The primary function of the board is to develop and update the comprehensive plan, according to the statute. The most recent update was released in the summer of 1999 — months past the deadline for that year.

Stephanie McGarrah, staff coordinator for the Economic Development Board, told Carolina Journal that a new plan will not be released until November.

Late last Monday in the debate over the economic stimulus bill, Rep. Verla Insko, D-Orange, inquired about the lack of an updated economic development plan.

Insko asked the bill sponsor, Rep. Bill Owens, D-Pasquotank, whether he was aware of the requirement for annual updates. Owens is also vice chairman of the Economic Development Board and seemed unprepared for her question and did not answer directly. He indicated that he would look into the issue.

According to Department of Commerce information, in November 2001 Gov. Mike Easley charged the board with developing a comprehensive strategic economic development plan, to be unveiled in August 2002.
The 37-member board serves as the state’s top economic development advisory body and is responsible for recommending such policy to the governor. The governor appoints 23 members to the board and designates the chairman, currently Gordon Myers of Asheville, and the vice chairman.

One objective from the plan that is now in effect (from 1999) was to “Create a more competitive tax climate in North Carolina that generates adequate revenues while maintaining a competitive posture relative to other states.”

North Carolina currently has the highest individual income and corporate income tax rates in the Southeast.

On The Cutting Edge

Housing Bubble?

• Investors and others are engaged in a spirited debate over whether the nation’s housing market resembles a bubble about to burst. With stock equities tumbling, many Americans have chosen to put their money in real estate, adding to inflated home prices. Perhaps only time will tell if they have been right.
But there’s no denying prices are soaring.

The National Association of Realtors reports that home prices rose nearly 30 percent on New York’s Long Island during a recent 12-month period.

The increase was more than 21 percent in San Diego. Prices in Washington, D.C. jumped by nearly 21 percent over 12 months — to a median $249,700.

Nationwide, median home prices rose 8.1 percent in the first quarter of this year, cooling to a 7.4 percent rise in the second quarter.

Despite the talk of price bubbles, most economists don’t expect home prices to tumble as far or as fast as did stocks.

Instead, they predict, prices in the most expensive areas may simply stagnate, or slow to a more normal rate of appreciation.

While the hottest markets kept soaring, the Realtor’s association didn’t report major price gains for all parts of the country.

Price increases slowed in cities such as Minneapolis-St. Paul and Dallas, especially in the markets for high-end properties priced above $1 million.

Realtors in certain markets say properties have started taking longer to sell and that some owners are dropping their selling prices.

Analysts note that real-estate markets tend to peak two or three years after a stock-market peak.
Reported in the Wall Street Journal, 8-13-2002.

Fannie Mae & Freddie Mac

• The United States grants Fannie Mae and Freddie Mac subsidies to help them boost homeowner-ship by lowering mortgage rates. The subsidy costs about $8.3 billion a year. However, a recent study by the Federal Reserve Bank of Minneapolis finds that the organizations are inefficient and ineffective.
The Fed Bank study shows that the interest-rate reduction is negligible and has a minimal impact on helping renters buy a home.

Fannie and Freddie are credited with reducing standard mortgage rates by an average of 0.2 to 0.5 percentage points. But mortgage rates would have to fall 2 percentage points to produce a meaningful change in the percentage of households that can afford to buy a home.

Even then its effect would be limited — a 2-percentage-point drop would increase the percentage of all renters that could buy a house by only 0.5 percentage points.

The study recommends that the $8.3 billion subsidy be converted into a federal program that provides direct cash payments to first-time homebuyers. That money could provide grants of $10,000 to about 830,000 first-time homeown-ers. Lowering of the down-payment amount will better spur home-ownership. The study finds that a $5,000 payment increases the percentage of renters who can afford a home by 11 percent for all renters. A cash payment of $10,000 has nearly twice the effect.

In contrast, Fannie Mae and Freddie Mac’s no-down-payment standard increases the percentage of renters who can become homeowners by only 2.5 percentage points. However, Freddie Mac reports that historically direct assistance programs have not been successful.

Reported by Dow Jones Newswires, 8-13-2002.

Steel Tariffs

• Many economists forecasted that serious economic dislocations would arise from the Bush administration’s steel tariffs imposed in March. Now the proof is in. Steel prices have risen by 30 percent to 50 percent.

And at an aptly named hearing, “Unintended Consequences of Increased Steel Tariffs on American Manufacturers” before the House Small Business Committee, owners of small steel-using businesses outlined woes caused by the tariffs and the threats posed to their continued operations.

They reported they are unable to obtain the kinds of steel they need to manufacture their products.
The shortages are forcing them to lay off workers — many of whom, ironically, are members of the United Steelworkers of America.

They face steel price increases of up to 54 percent, meaning not only higher prices for American consumers, but also less-competitive prices overseas on the products they make for export.

Economist Laura Baughman testified that eight times as many jobs will be lost in steel-consuming businesses as may be saved among steel producers. She and Joseph Francois of the Consuming Industries Trade Action Association estimated that 5,000 to 9,000 steel industry jobs might be saved by the tariffs — but at a cost of about 36,000 to 74,000 other jobs. They estimate the economic loss of each job saved in steel manufacture at more than $400,000.

As it that weren’t bad enough, the Bush Administration has angered U.S. global trading partners and undercut arguments for freer world trade.

Reported in the Washington Times, 8-15-2002.

Coming Up

• Political commentator Michael Barone will be the featured speaker at a John Locke Foundation luncheon at noon Sept. 12 at the Brownstone Hotel in Raleigh.

Barone is a senior writer for U.S. News & World Report. He grew up in Detroit and Birmingham, Mich. He graduated from Harvard College (1966) and Yale Law School (1969). He also was editor of the Harvard Crimson and the Yale Law Journal.

Barone is the principal coauthor of The Almanac of American Politics, published by National Journal every two years. The first edition appeared in 1971, and the 16th edition, The Almanac of American Politics 2002, appears in August 2001. He is also the author of The New Americans: How the Melting Pot Can Work Again (Regnery, 2001) and Our Country: The Shaping of America from Roosevelt to Reagan (Free Press, 1990). Barone also is a regular panelist on “The McLaughlin Group,” and is a contributor to the Fox News Channel.

The cost of the luncheon is $20 per person. For more information or to preregister, contact Thomas Croom at (919) 828-3876 or e-mail him at events@johnlocke.org.

 

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