Carolina Journal Weekly Report

September 23, 2002

In This Issue:
Feature 1 - Another Bloated Budget

Feature 2 – A Special Day of Horseplay

Feature 3 - N.C.’s Well-Paid Teachers

Feature 1
Another Bloated Budget
Legislators increase spending by $600 million; lottery fails

The N.C. House and Senate last week approved a new budget that increased spending by nearly $600 million over actual spending last year.

Democrat majorities in both chambers reached agreement on a conference report late Wednesday, which represented a compromise between the legislature and Gov. Mike Easley. The governor had threatened to veto a plan devised by House and Senate conferees because it lacked funding for class-size reductions and a More at Four preschool program. The House and Senate both passed the budget on consecutive, near-party line votes Thursday and Friday, and Easley is expected to sign it this week.

While Easley’s signature education programs were preserved in the budget, his desire to fund them through a state lottery was soundly rejected Tuesday by the House, 69-50. Fourteen members of his own party voted with most Republicans against a referendum that would have sought voter approval for a lottery.

The budget that the House, Senate, and Easley approved spends more than any of the plans the three entities proposed separately. Republicans who opposed it complained that it contained too much new spending, was out of balance, and preserved pet projects of the Democrat leadership.

“I guess this is a political document, and not a budget for the people,” said Rep. Art Pope, R-Wake.

The plan restores $80 million in tobacco settlement money for Golden LEAF, which both the Senate and House had partially or entirely diverted to the general budget in their individual proposals. Republicans also took exception to the continued funding of international travel for (mostly Democrat) legislators; $4 million in economic incentive money for Easley’s use; and allowing the UNC system to keep “overhead receipts” that the federal government pays universities for research projects.

Despite the funding for Easley’s new education programs, the budget cuts $41 million from the Public School Facility Fund. While cutting 817 positions in state government, it adds 1,050 new positions for education. GOP members complained that cuts to local governments would harm education also. Cities and counties lose $334 million in reimbursements they formerly received from the state, which had replaced repealed taxes.

“We’ve left our cities and counties hanging out to dry,” said Rep. Larry Justus, R-Henderson.

Officials from county and municipal governments will converge on the state capital this week, as the legislature again considers allowing them to raise a half-cent sales tax. The House rejected the proposal in July by a slim margin, but a motion to reconsider allowed the measure to stay alive.

Ahead of the Curve

• John Merritt, senior assistant for policy and communications for Gov. Mike Easley, denied Friday that he threatened New Hanover and Alamance County officials because of their lawsuit against the state to recover tax reimbursements. He told Carolina Journal that he called “to tell them when they sued, that it could not be viewed by the state government as a friendly act. I asked them to please think carefully before they did that. I didn’t tell them not to do it, and I didn’t threaten them.”

The Wilmington Star-News reported Sept. 14 that Merritt said if New Hanover County won its lawsuit, the governor would have to look at state projects in the Wilmington region. Likewise, the Burlington Times-News reported Sept. 16 that Alamance County Manager David Cheek received a call from Merritt, who told Cheek that state money earmarked for Alamance might be spent elsewhere. Merritt reasoned that if an “economic engine of the state” like Charlotte doesn’t sue, and the state takes the tax revenue they generate “and gives it to the counties who won the suit, how do you think (Charlotte) is going to feel?”

Merritt is also on the board of directors of Golden LEAF, which distributes half the state’s tobacco settlement money to local interests across the state to promote economic development. Asked whether counties in the lawsuit would be denied his support for LEAF funding for their projects, Merritt replied, “Absolutely not.”

Feature 2
A Special Day of Horseplay
Park to entertain legislators and their families

The Carolina Horse Park Foundation near Southern Pines has invited members of the General Assembly and their families to a special Legislature Day in the Park on Sept. 28. The 250-acre park is located about 10 minutes from Southern Pines at a rural site in Hoke County called Five Points.

Foundation officials routinely promote the project as a rural economic development initiative even though the majority of the 20 foundation board members live in Southern Pines or Moore County. Only three live in Hoke County.

Activities include a reception, lunch, tour, and cross-country walk. The event also coincides with some actual horse-and-rider events. “During your visit you will enjoy some of the best horse and rider teams perform the Dressage and Cross Country Phase of this equestrian triathalon,” the invitation states.

Late last year, the park received a controversial $200,000 grant from the Golden Long Term Economic Advancement Foundation. Golden LEAF is a private nonprofit organization set up by the legislature in 1999 to receive one-half of North Carolina’s $4.6 billion tobacco settlement. The premise of the original lawsuit was to reimburse state governments for the costs of taking care of sick smokers. Tobacco companies financed payments to the states primarily by raising the price of cigarettes.

The governor, speaker of the N.C. House, and the president pro tem of the Senate each appoint five members to the Golden LEAF board.

Carolina Journal featured the grant in a cover story in its February 2002 edition. More recently, national television media including ABC, NBC, and CNN, picked up the story. Many sources interviewed by the networks ridiculed the horse park grant.

The invitation to lawmakers was accompanied by an additional invitation letter signed by four Democrat state senators: Tony Rand, Aaron Plyler, William Purcell, and David Weinstein. “The park brings a lot of people to Hoke County,” Purcell told Carolina Journal.

He said that he was not aware of any further requests for public or Golden LEAF funds, but that he would look at any future request.

The horse park foundation’s letter defended the grant, claiming the park was an “economic development opportunity of enormous potential and low risk.”

Originally wanting $300,000 to fund the construction of horse barns, the horse park foundation instead settled for $200,000 from Golden LEAF to offset operating expenses. The grant money came in late 2001.

In 2000 the park also received a $25,000 grant from the taxpayer-funded North Carolina Southeast Economic Development Commission and $3,500 from the state tourism office.
The Southeast Economic Development Commission was also a sponsor of Stoneybrook Steeplechase Festival conducted at the park in April 2001.

Sen. Hugh Webster, R-Alamance County, told CJ he will not attend the Sept. 28 affair at the horse park.

He perceived the occasion as a way for park officials to persuade legislators that the project is deserving of further public support.

“They have had their hors d’oeuvres and they must be getting ready to ask for some real money,” he said.

Capital Quotes

“There’s always been a subtext to this, and it’s been public corruption. I don’t know what information my client might have, or what information they believe he is privy to. He will cooperate with investigators, 100 percent.”

— Woody Webb Sr., lawyer for former N.C. Transportation Secretary Garland Garrett Jr., speaking to The Charlotte Observer after his client pleaded guilty to a federal felony charge. In exchange for the guilty plea to a charge of running an illegal gambling operation, prosecutors dropped an additional 266 counts. Garrett was transportation secretary from 1995 to 1998, when he was forced to resign amid a scandal about the role of patronage in determining state road construction priorities.

“I think the Tuesday election solidified some of the anti-lottery feeling. I think it firmed up some people’s opposition — their understanding that they could vote against it without losing politically.”

—Rep. Edd Nye, D-Bladen, discussing with The Charlotte Observer the impact of his primary victory over Rep. Nurham Warwick. This year’s redistricting placed the two incumbents in the same district, the 22nd. Warwick’s campaign stressed his support for a state lottery, while Nye opposes a lottery. Nye will face Republican Joy Barbour in the November general election.

“I’ve built my reputation over the past 20 years. You shouldn’t lose that from one allegation.”

— District Judge Greg Hayes, commenting to the Hickory Daily Record on his prospects of keeping his job. Aside from voters, who gave Hayes 54 percent of the vote in the primary, the N.C. Supreme Court will also have a say in whether Hayes retains his judgeship. Hayes has been accused of sexual harassment and the state’s judicial standards commission has twice recommended he be removed. The Supreme Court is expected to rule in about a month.

Feature 3
N.C.’s Well-Paid Teachers
State ranks 13th in the nation in overall compensation

After heavily funding teacher pay over the last several years, North Carolina ranks 13th in the nation in teacher compensation, and remains above the national average.

Cost-of-living and benefits differences give the misleading impression that North Carolina’s teacher pay lags most other states in the nation. Not so, the data reveal, once wages are adjusted for cost of living and benefits in each locality. North Carolina’s teachers actually rank third highest in the Southeast, and surpass 37 states nationally in real compensation –– purchasing power of their wages plus tangible benefits such as the employer contribution to pensions.

Ranking teacher salaries by state is a common practice. But the nature of the teacher workforce and cost of living are important differences, and to cite the national average as a benchmark requires careful measurement. Adjusted state-by-state rankings provide an apples-to-apples comparison, although the 2002 statistics do not include a “teacher experience” variable for lack of recent data. Policymakers at the state level ignore nondollar information as well. As a result, North Carolina teachers have been miscast as underdogs in the national teacher pay scale.

The North Carolina Education Alliance study, Ranking Teacher Pay 2002, adjusted raw salaries by cost of living and employer pension contributions. Raw salary data are supplied by the National Education Association, and reported from each state as a statewide average salary. The results of the adjusted state-by-state comparison indicate that at a $48,321 adjusted salary, North Carolina teachers are above the adjusted national average of $45,239, and above the adjusted national median salary of $44,994 for 2002.

Following a method similar to that originally created in the late 1970s and revamped and updated in the 1990s by the Bureau of Labor Statistics, the North Carolina Education Alliance used American Chamber of Commerce Researchers Association data to construct an up-to-date interstate index. This interstate index is the most reliable means of adjusting teacher compensation currently available.

The states ranking highest in the index are mainly Northern and Northeastern states –– Massachusetts, Connecticut, and New York –– and Alaska. At the bottom of the index are Southern and Southeastern States –– Arkansas, Mississippi, Alabama and West Virginia. North Carolina experienced a slight drop in the cost of living from 1999 to 2000, the index showing it slightly below the national average.

In most states, teacher salaries were raised slightly in the last year. The U.S. raw salary average listed by the NEA increased from $43,445 in 2001 to $44,614 in 2002. Taking these adjustments as well as cost of living into account, North Carolina ranked 13th in the nation in 2002 in adjusted teacher compensation. Lowest-ranking states in the adjusted compensation scale were Nebraska, Arizona, Kansas, North Dakota, and South Dakota. New York, which has one of the highest raw salary rankings in the nation, dropped to 26th after adjustments were made.

States receiving the highest post-adjustment compensation were Michigan, Pennsylvania, Illinois, California, and Georgia. Adjusted salaries in the Southeast varied widely. South Carolina, Tennessee, Mississippi, and Louisiana all fell below the national average. Above the national average were Florida, Georgia, West Virginia, Alabama, Virginia, and North Carolina.

On The Cutting Edge

Corporate Mergers

• Each time the U.S. economy experiences a major wave of large mergers — as it did in the 1980s and 1990s — pundits decry the increased risk that some companies will gain market power and that democratic institutions will be undermined.

However, recent research concludes that on the whole, concentration of business actually declined during the 1980s and early 1990s before rising slightly.

The most intriguing question is why. Some possible answers may be found in the advantages and disadvantages of company size.

Very large size may be a disadvantage: a U-shaped rather than an L-shaped average-cost curve (with costs rising beyond some optimal level of concentration) may accurately represent the advantages and disadvantages of size.

The net advantages of vertical integration may be overblown; economics of scope in most areas may be weak.

Corporate chiefs who are poorly restrained by their boards may create giant firms through mergers and acquisitions, but economic reality eventually intrudes and forces them to shrink and spin off firms.

Also, the merger and acquisitions data itself may overstate the extent to which the registered transactions imply an increase in corporate size. About one-third of the transactions included in the merger and acquisitions lists are actually divestitures: company A is spinning off a subsidiary.

This subsidiary may become a stand-alone entity, in which case concentration decreases.

It may also be bought by another company, in which case concentration can increase or decrease depending on the size of the acquiring company compared to the divesting company.
Giants of industry — the larg est 500 or 1,000 corporations in the U.S. — have not been growing appreciably faster than the overall economy; if anything, they have been growing a bit more slowly.

Researched by Lawrence J. White as “Are Giant Companies Taking Over the U.S. Economy? Should We Care?” Milken Institute Review, Second Quarter 2002.

No Child Left Behind Act

• Under a revised law, the 3.5 million children enrolled in failing public schools have the right to transfer to better schools this fall. But few are doing so, due to lack of space and parents’ preference for schools close to home.

In Baltimore, only 347 children out of 30,000 eligible have applied for transfers — and that’s with only 194 slots available.

In Chicago, 145,000 children can theoretically leave below-par schools, but only 2,425 have applied for the 1,170 open slots.

In Los Angeles, a crowded system with 223,000 children in 120 failing schools, officials say there is no room in better schools for children to transfer to.

The “No Child Left Behind” law demands that authorities find slots in better schools, but gives them no means to create them.

Moreover, superintendents are supposed to arrange transportation for students to new schools, hire extra teachers, and buy supplies on short notice.

In several Southern states, local school administrators are struggling to comply with the new law without violating court desegregation orders.

While the law does not spell out penalties, states could conceivably lose their share of the federal $10.4 billion Title I allotments if they do not comply.

Reported in the New York Times, 8-28-2002.

Dietary Recommendations

• For decades, federal government agencies have been handing out advice on nutrition. Now, it has been discovered, we have become a nation of fat people — and the government wants us to thin down. Could the government’s previous nutritional advice have had anything to do with it?

Yes, experts are coming to recognize. Its sermons on eating a low-fat diet have turned out to be a myth.

In 1990, the Food and Drug Administration and a coalition of 38 federal agencies and health organizations instructed Americans to reduce the fat in their diets to 30 percent or less of total calories.

Actually, that never made much sense — because a diet of 3,000 calories including 30 percent fat provides more fat than one of 2,000 calories including 40 percent fat. Moreover, dietary studies conducted here and around the world show no correlation between fat consumption and obesity levels — but calories do count.

Since 1977-78, fat as a percentage of our diets has dropped by over 17 percent, even as obesity has increased by over 25 percent.

Spurred by the government’s “Demon Fat” campaign, food makers began pumping out products low in fat, but packed with sugar and calories. Priding themselves on eating low-fat foods, consumers chowed down on bigger and bigger portions, thereby stuffing themselves with more and more sugars and calories.

“The studies are clear,” according to Walter Willett, chairman of the department of nutrition at the Harvard School of Public Health. “As far as body fat goes, it doesn’t make any difference where your calories come from.”

Reported in the Washington Times, 9-5-2002.

Coming Up

• R. James Woolsey, former director of the Central Intelligence Agency, will speak at a special John Locke Foundation dinner at 7 p.m. Oct. 30 at the Brownestone Hotel in Raleigh.

Woolsey is a partner in the law firm of Shea & Gardner in Washington, D.C. He returned to the firm in January 1995 after being director of the CIA for two year. He has been a member of the boards of directors of several corporations.

Woolsey has also served in the U.S. government as: ambassador to the Negotiation on Conventional Armed Forces in Europe, Vienna, 1989-1991; under secretary of the Navy, 1977-1979; general counsel to the U.S. Senate Committee on Armed Services, 1970-73; and adviser (during military service) on the U.S. Delegation to the Strategic Arms Limitation Talks (SALT I), Helsinki and Vienna, 1969-1970.
He earned a bachelor of arts degree in 1963 from Stanford University (with great distinction, Phi Beta Kappa), a master of arts degree from Oxford University, and an LL.B from Yale Law School in 1968, where he was managing editor of the Yale Law Journal.

For more information or to preregister, contact Kory Swanson 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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