Carolina Journal Weekly Report

October 28, 2002

In This Issue:
Feature 1 - Insider Trading in N.C.?

Feature 2 – UNC-CH to Change Studies

Feature 3 - Legislature's Spooky Session

Feature 1
Insider Trading in N.C.?
Questionable conduct taints economic stimulus bill

Conceived as North Carolina’s answer to recession and unemployment, a new state business incentives program instead bears the birthmarks of questionable ethical conduct.

Helping to deliver the N.C. Economic Stimulus and Job Creation Act was Rep. Pryor Gibson — who is employed by Time Warner. Time Warner is expected to be one of the first beneficiaries of the act when it becomes effective in January.

Even though the Montgomery County Democrat recused himself from voting on the incentives bill, Gibson said he worked hard to get it passed. “I worked my fanny off to try to make sure people understood what the bill would do and what it would do for my district,” Gibson said.

Another company, Ernst & Young, also established a cozy relationship with state officials through the incentives bill. Last year the N.C. Department of Commerce hired the firm to study the use of incentives in Southeastern states. Now, Ernst & Young is advising Time Warner on how to extract incentives from the department, essentially working both ends of the issue.

For the last 10 years the General Assembly has steadily added new types of business recruiting incentives.
The most recent addition was the Economic Stimulus and Job Creation Act. Passed at the end of the 2002 short session, the act gives a five-person Economic Investment Committee, controlled by the governor, unprecedented discretionary power in rewarding selected companies with cash grants. The program is called the Job Development Investment Grant Program.

A story in the Charlotte Observer on July 28 reported that Time Warner Cable was planning to create a campus of 1,100 employees in Charlotte. The story said that a deal to move several hundred employees to Charlotte depended upon legislative approval of the incentives program and that Time Warner could reap as much as $55 million in incentives.

During the debates and discussions in the House Finance and Appropriations committees, Gibson appeared to be planning strategy with the Department of Commerce to help pass the incentives bill.

Even though Gibson did not vote on the incentives bill, his lobbying for its passage did not appear to meet the guidelines adopted by the legislature in 1996 when it established an ethics policy.

Reached at his Time Warner office near the Raleigh-Durham Airport, Gibson told CJ, “I do federal and city regulatory work for Time Warner.” He said that his title is manager of regulatory affairs and that he spends a lot of time in Washington, D.C. trying to help members of Congress understand how North Carolina works.

Ahead of the Curve

• Four counties last week decided not to implement an extra half-cent sales tax increase — an option given to them by the state to partially make up for other tax revenues that Gov. Mike Easley took away from them. Commissioners of Craven and Pamlico counties voted Monday against the increase. Cabarrus County, a plaintiff in a lawsuit against the state to recover the lost tax reimbursements to local governments, also declined to raise its sales tax. Johnston County commissioners also voted against the increase. The five counties so far (Henderson is the other) that have decided against the increase made their decisions in the last two weeks. More than half of the state’s 100 counties will implement the increase Dec. 1.

• Less than a month after the General Assembly passed a multimillion-dollar economic incentives bill, two North Carolina professors released a study that said foreign-owned companies come to the state for other reasons. Dennis Rondinelli of UNC-Chapel Hill and William Burpitt of Elon University surveyed 78 executives in 26 companies in the state. The business leaders said location, quality of life, access to transportation, and well-trained labor rated highly in their decisions where to expand their operations. “Our findings raise additional questions about whether state and local tax incentives…can offset weak location assets,” Rondinelli told The Associated Press.

Feature 2
UNC-CH to Change Studies
Committee drafts plan to overhaul general curriculum

More than 100 faculty members worked with a handful of students and staff members at the University of North Carolina at Chapel Hill to produce a proposed new general education curriculum for the university.

Their report, “Making Connections: An Initial Proposal to Revise the General Education Curriculum,” submitted in September, is a significant step toward the first major overhaul of UNC-CH’s general education curriculum since 1980. Its genesis was a 1995 study within the university that called for a re-evaluation of the curriculum in place. The Curriculum Review Steering Committee presenting the report considers its proposal just a “draft,” expecting a vigorous campus discussion over their suggestions.

Among the major changes proposed:

• Reducing the general-education component of an A.B. degree at UNC-CH to 42 hours and the “upper level” arts and sciences general-education requirement to nine hours, from 44 hours and 12 hours, respectively.

• Replacing the English 11/12 requirement with Rhetoric A/B, courses that would teach the arts of written and oral argument, composition, and rhetorical analysis.

• Replacing the mathematical science course requirement with a quantitative reasoning requirement.

• Eliminating the swim-test requirement and the required two physical-activity courses (for no academic credit) with one wellness course for one hour of academic credit. The wellness course would, “in addition to physical activity,… include topics such as nutrition, exercise science, weight control, time management, and stress management.”

• Changing the requirement for two social sciences courses to three courses in social and behavioral sciences, including one that “engage[s] in historical analysis.”

• Changing the philosophy requirement to one of “philosophical and moral reasoning,” stipulating that the philosophical course taken “contains significant content in ethics and moral reasoning.”

• Replacing the Western Historical/Non-Western/Comparative (two courses) and Cultural Diversity requirements (one course that also must meet a different requirement) with Connections requirements.

The first Connections requirement is “Applying Foundations Across the Curriculum,” which involves one “C” course (for communications skills), one “language integration experiences” course (which involves either taking an additional hour of a foreign language, living for at least a semester in a “campus language house,” studying abroad or working at an approved internship where a target language is used predominantly), and one “Q” course (either a course that applies quantitative reasoning to a discipline or a course in mathematical sciences).

Another is “U.S. Diversity,” which is one course (that must also meet a different requirement) that deals with “the interaction between at least TWO of the following groups or subcultures: African Americans, European Americans, Asian Americans, Latinos, or Native Americans” and “might also engage other aspects of diversity, such as age, class, disability, gender, region, religion, or sexuality.”

The proposal awaits the approval process, which will take place during the current academic year.

Capital Quotes

“The only people I see raising prices are government. Governments have raised taxes. They have the power to do it because they have a monopoly, but I don’t think it’s a long-term solution to the problem. We’re going to have to look at cutting costs again and again and again.”

— Mark Vitner, senior economist with Wachovia, as quoted by the News & Observer of Raleigh, addressing a League of Municipalities conference in Durham. Vitner noted that while the economy was slowly improving, companies were still being forced to keep prices down and cut costs by market pressure.

“I think the governor is nothing short than a terrorist… taking our children as hostage… Our decision is whether we are willing to pay the ransom, and the ransom in this case is a sales tax increase.”

— Arne Fennel, Cabarrus County commissioner, as quoted by The Charlotte Observer, talking about Gov. Mike Easley’s decision to retain more than $500 million in funds that the state collected for and was to transfer to localities. The General Assembly did, however, allow counties to raise the sales tax by one-half percent. The Cabarrus County commissioners apparently were unwilling to “pay the ransom” and voted unanimously against the sales tax increase.

“I’m trying not to be so negative. The ordinance, except for this billboard provision, is very good. But to me, the words scenic corridor and billboards don’t belong in the same sentence.”

— Sandy Carmany, Greensboro City Council member, commenting to the Greensboro News & Record about a proposal to designate the 44-mile- long Urban Loop road under construction around the city as a scenic corridor. Under the plan, a limited number of billboards would be allowed a half-mile either side of on- and off-ramps from the interstate-quality road. The proposal tentatively passed council on a 5-4 vote. Carmany was among those voting against it.

Feature 3
Legislature's Spooky Session
Democrat leaders keep redistricting options open

“Shadow,” “phantom,” and “special” have been some of the adjectives used to define an extra session of the N.C. General Assembly, in which only a few lawmakers show up to keep it going.

The special session originated in May to draw new redistricting maps after the N.C. Supreme Court deemed earlier, Democrat-drawn versions unconstitutional. Even though temporary maps are in place for this year’s elections, House and Senate leaders have kept open the extra redistricting session. The state constitution says that when the Assembly is in session, members may not allow more than three days to pass without convening.

State Republicans suspect that Democrats, who hold majorities in both legislative chambers, want to use the extra session after the Nov. 5 elections to redraw district maps, should the Democrats lose majorities in the House or Senate. Theoretically they would be able to do so as a lame-duck majority before the new legislature takes office in January.

Several Republican members have said that if Democrats attempt to redraw maps after the elections, they will again seek redress through the courts. In its opinion that ruled the Democrats’ districts unconstitutional, the Supreme Court said the 2003 legislature could redraw new districts. Republicans say that precludes Democrats from creating new maps this year.

Republican lawmakers object to the continuation of the redistricting session, saying it is unconstitutional to convene without a majority present. Rep. Art Pope, R-Wake, filed a protest Oct. 22 with the House clerk. The protest said the legislature is failing “to comply with the spirit and intent of the constitution.”

“What they are saying is, ‘We’re going to keep open this special session, but we aren’t going to bother showing up.’ It’s really a slap in the face of the people of North Carolina,” Pope told the Associated Press. “We hope to shame the Democrats into attending their special session and adjourning sine die (for the year).”

According to the state constitution, “Neither house (of the General Assembly) shall proceed upon public business unless a majority of all of its members are actually present.”

Two weeks ago members of the House Republican caucus planned to keep the chamber convened until a majority of legislators showed up, at which time they would attempt to close the session with their own majority. Democrats overcame that option when they excused their members from appearing at the session. House rules stipulate that legislators cannot be mandated to attend sessions if they’ve been granted an excused absence.

Republicans say the lack of a majority presence means no real session is taking place.

“If there is not a quorum,” said Sen. Hugh Webster, R-Alamance, “there is no meeting, which means we are adjourned.”

Webster said allowing such meetings sets a dangerous precedent for the rules of legislative operations.

“The ruling party could just decide to show up there one day and pass a motion by the rules chairman to change the rules,” Webster said. “They could look at anything, and I suppose they could pass a tax increase, change spending…They could do a lot of things.

“What has happened is there are no rules. The rules mean whatever the ruling class says they are at that time.”

On The Cutting Edge

Mandates and Insurance

• The news that 41.2 million Americans went without health insurance last year coincides with efforts to force insurers to cover a growing list of ills in their policies. But experts point out that state mandates to accomplish that have already pushed up insurance costs and priced those 41.2 million Americans out of the market.

While there are few federal health mandates, the states have been going wild. In the past four decades, state legislatures have passed more than 1,500 mandates requiring insurers to cover everything from infertility treatments to wigs for cancer patients.

According to a recent study from PricewaterhouseCoopers, mandates were responsible for 15 percent of the $67 billion increase in health spending in 2001 alone.

The Health Insurance Association of America estimates that mandates are the reason that one in four uninsured Americans lacks coverage.

New York state, where health insurance costs are among the highest in the nation, requires every policy to cover a vast universe of treatments and services ranging from contraceptives to ambulance transportation and foot care to nurse midwives.

Legislation now in the U.S. Senate would require that most medium and large businesses insure employees for every one of the conditions listed in the American Psychiatric Association’s 941-page Diagnostic and Statistical Manual — conditions that include, for example, “social phobia,” or irrational fear of embarrassment.

If the health mandate craze continues to expand, those 41.2 million uninsured Americans are going to have a lot more company.

Reported in the Wall Street Journal, 10-1-2002.

Predatory-Lending Laws

• More than a dozen states have passed so-called predatory-lending laws designed to eliminate mortgage loans carrying high fees and interest rates offered to high-risk, “subprime” borrowers.

But there is evidence such laws are also making it harder for deserving borrowers to obtain mortgage loans.
Some banks have threatened to curtail credit to some families because they fear possible lawsuits in states that have adopted such laws.

Georgia, which has one of the toughest laws, restricts certain practices such as balloon payments on loans it deemed “high cost,” which includes mortgages whose fees exceed 5 percent of the total loan amount.

The law also established penalties in cases where such loans were made without certain protections for consumers, including counseling by a third-party nonprofit organization.

A number of lenders, including Chase Manhattan Mortgage Corp., have said they will stop offering high-cost loans altogether, even though they remain legal under the law.

Freddie Mac, the government-sponsored loan company that buys loans from lenders, has also announced it will stop buying high-cost loans in Georgia.

If mortgage credit dries up in Georgia and elsewhere, observers say, a slowdown in home construction would occur, which could spread to numerous other industries, such as furniture manufacture.

Part of the problem, however, is that defining what is a predatory loan remains more art than science, since there is no formal definition and not all subprime loans are considered predatory. So each state must make its own definition.

Reported in the Wall Street Journal, 10-14-2002.

Returns from Education

• The accepted literature on education states that education gives a high rate of return in future income per year of additional schooling. But a new study finds that returns to education are far lower than previously thought and may reflect innate qualities of individuals independent of schooling.

The study analyzed data from the National Longitudinal Survey on Youth. Despite literature claiming that education has large returns, the analysis revealed otherwise:

• Local returns of education are low from grades 1 to 11 — 1 percent or less a year.

• The returns increase to 3.7 percent in grade 12.

• Only in the second and third years of college do the returns reach a large return of more than 10 percent.

The average rate of return reflects similar trends — it increases smoothly from 0.4 percent return in grade 7 to 4.6 percent for college seniors.

Previous studies also claim that unobserved market ability is completely unrelated with returns on schooling. The new research finds evidence disproving this assertion as well.

According to the analysis, unobserved market ability has a positive correlation to returns on schooling of 0.28 — a significant correlation. This suggests that people with certain attributes will get larger returns on education than those without them.

Researched by Christian Belzil and Jorgen Hansen as “Unobserved Ability and Returns on Schooling,” IZA Discussion Paper No. 58, May 2002, Institute for the Study of Labor.

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 or 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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