Freedom

When the Cato Institute arrived in Raleigh to brief legislators on Freedom in the 50 States, I was hopeful.

My hope faded quickly.

My optimism, I thought, was well founded. After all, over the last 4 years, the NC General Assembly had led the nation in tax reform. NC’s business tax climate ranking by the Tax Foundation had risen dramatically, from 44th to 11th among the 50 states. And, in fact, Cato did give North Carolina high marks on tax freedom.

But freedom is bigger than money.

And, it turns out, in categories like regulatory freedom and the ability to make a living, NC isn’t doing well at all. It still trails most other states. That needs to change. We should continue our work on tax reform but, to fuel more economic growth, it’s time to double down on regulatory reform.

There’s a lot of talk about working across the political aisle – about the left and right working together to make the lives of our citizens better. And hopefully, freedom, and lifting burdens off the backs of working families, is a place where both sides can actually do that. But, to be realistic, there are two roadblocks standing in the way:

One is simple. Overcoming inertia. Sitting in the Senate listening to state agencies, I sometimes wonder how the Latin would read on a second state motto, “We have always done it that way.” Because that’s what you hear over and over: Not it’s the best way. Or the most effective way. But that’s how we’ve always done it.

The other roadblock is even more challenging. Every time a freedom gets trampled by a government regulation or government agency, someone makes money. It may be an increase in state employees’ pensions or benefits, a business that feeds on – or gains an advantage over competitors due to – a new regulation, or simply a new area for the practice of law. Whatever the reason, it’s a hard fact that once the money starts flowing to a special interest it’s hard to cut it off.

Hard or not, for a nation founded on freedom, the result is worth the fight.

Eye to Eye

Battle lines are forming in Raleigh. But it’s not what you think.

The ophthalmologists and optometrists are having a turf battle. While a clash of eye docs may not raise your pulse, it does open up a secret world to public view.

Here’s the broad picture: Optometrists want to expand their practice into things only ophthalmologists now do – involving needles and lasers around the eyes. They say that, in some communities, optometrists are the only available treatment specialists. That’s true.

Ophthalmologists say they have more training and can do those things better, and no matter where you live, if you drive far enough, there is a medical doctor available. That’s true, too.

If you are wondering why the state department that supervises these two boards can’t resolve the problem…well, that is the problem. There is no state department that supervises North Carolina’s 55 occupational licensing boards.  In our state, each of those 55 boards report directly to 170 part-time legislators, who have limited medical training.

Which amounts to no supervision at all.

Which is one of the issues raised by the U.S. Supreme Court two years ago when NC became the poster child for maverick licensing boards who, at times, use the power granted them by the state to limit competition.

In fact, most people in NC who need a state license are going to pay more for it than people in our neighboring states, like VA and SC. Which adds up to a burden on consumers who ultimately pay the bills.

To be clear, I’m looking to avoid a bruhaha. Not start one. There is enough conflict in government already. Hopefully, a ‘diplomatic mission’ – and the specter of a little active supervision – can bring the ophthalmologists and optometrists together before their debate gets too heated.

The Great Divide

Charlotte’s booming. Raleigh’s booming. But in Hoke and Hyde and dozens of other rural counties working families are struggling to make ends meet. It’s the ‘Great Divide.’ The distance between the urban world and the rural world in our state. The divide has now gotten the attention of the politicians but the result is not what you’d hope.

Last week with the best of intentions, newly elected Democratic State Representative from Charlotte, Chaz Beasley tackled the problem in an interview with the Charlotte Business Journal. Beasley explained he wants to build a bridge across the divide: “I’m one of the few urban representatives that actually grew up in rural North Carolina – I grew up in Catawba County – and that’s a bridge we have to build.”

From Charlotte, Catawba County may look like a rural county on the far side of the great divide. But it’s not. If you want to see a rural community, struggling for jobs, drive to Raeford or Swan Quarter or any of a hundred other rural small towns.

Rep. Beasley meant well but showed us how far apart the two worlds are. I appreciate his connection to Hickory, but bridging the great divide will be a different, and bigger, job.

St. Joseph Abbey

For years the 38 Benedictine monks at St. Joseph Abbey in Louisiana paid for their healthcare by selling timber. Then Hurricane Katrina wiped out their timber stand, so, to pay for their healthcare, the monks started building caskets – cheap, inexpensive, wooden caskets.

The monks’ new enterprise got the attention of a local undertaker who filed a complaint against them with the Louisiana Board of Funeral Directors and Embalmers. The monks, he said, didn’t have a state license. And the Board ordered the monks to stop.

Here in North Carolina, we have 55 of the same type of state licensing boards. Many of those boards are necessary – like the medical board that licenses doctors. But it’s also true many of our licensing boards exist for less public spirited reasons.

According to the Goldwater Institute, a John Locke-type think tank in Arizona, state licensing boards can stifle competition, drive up costs to consumers, and create a “drag on the economy” each year.

A simple first step toward reform – here in North Carolina – would be for the General Assembly to conduct a study to classify licensing boards into one of two categories: Essential (like doctors) or Nonessential.

Then the General Assembly could go to work to figure out which of theNonessential Boards create a drag on our state’s economy and should be reformed or disbanded.

A Rigged System

The other day, of all things on earth, I got wacked by a lobbyist, in a video.

Over a dozen different groups pay Ches McDowell to lobby for them – including the Association of Acupuncturists.

In his video, Ches said I’d introduced a bill that could ‘make acupuncture illegal.’ Then, just to make sure no acupuncturist misunderstood his message, he added, if my bill passed acupuncturists could be ‘out of business.’

There’s a lot of fact-twisting going on here – so let’s clear the air: There are 541 acupuncturists in NC and each one has to pay for a license. I introduced a bill to merge the acupuncture licensing board with other small boards to lower the cost of getting a license. If my bill had passed the worst thing that would have happened to acupuncturists would be their license fees going down.

Virginia charges $130 to apply for a license and $135 to renew the license for two years. North Carolina charges $100 to apply, $500 when the license is issued, and $300 for two-year renewal. Those are the fees I’d like to cut. But, I expect, Ches is focused on a different problem.

Cutting license fees will save working people money. But it also means less money flowing into licensing boards in Raleigh who hire insiders like Ches McDowell – who then tried to mislead acupuncturists by telling them my bill could ‘make acupuncture illegal.’

We’ve heard a lot of talk over the last year about how powerful people with lobbyists rig the system at the expense of working people. Don’t get me wrong, there are licensing boards that are needed. And do good work. But it’s also true there are other licensing boards that are an example of how a ‘rigged system’ works in Raleigh.

What’s the Price?

Democratic legislators quarreled with Jim Hunt. Republican legislators quarreled with Pat McCrory. It’s one of the oldest feuds: Legislators battling Governors.  It can even end up in court: When Republican legislators took control of the new Coal Ash Commission away from Governor McCrory he sued.

Whether they’re fighting over patronage, appointments, or regulations, whenever legislators and governors bump heads there’re fireworks.

More often than not, when the legislature passes a law, it’s a broad policy statement – followed by instructions to a state department (controlled by the Governor) to devise regulations to implement the policy.

Generally, I’m not a fan of government regulations. But when they’re unavoidable the goal is simple: To make the rules clear, fair, and consistent with (what lawyers call) the intent of the law.

However, no system devised by man is perfect. Especially politics. Sometimes state agencies (or Governors) don’t like a new law. They dig in their heels and resist. They even, at times, act as if the law doesn’t exist. And the result can be a nightmare. Because when the rules are not clear a citizen will suddenly find himself – or herself – face to face with a bureaucrat who, basically, says, “The law means what I say it means” – and that’s not the answer any citizen deserves in a society based on the rule of law.

Here’s one small example: Twenty years ago, in 1997, the General Assembly told the State Board of Elections, in statute, to make rules clarifying which campaign contributions and expenditures are legal and which are illegal. That wasn’t an earthshaking reform. It didn’t affect many people – only candidates for office. However, through four governors – one Republican and three Democrats – the Elections Board did nothing. It passed no rules defining which expenditures are proper and which are not.

What harm is done by these kinds of obtuse regulations? Part of our national debate over the past year has been about the fact that we are a constitutional democracy where there is no special, privileged class of people who are above the law. In our Democracy, everyone plays by the same rules. Everyone caught on the highway driving 80 in a 65 pays the same price.

But vague regulations, or no regulations, lead straight to loopholes that one group can use to its advantage.

State of Confusion

It’s not often the General Assembly passes a law that upends the North Carolina Constitution – but it happened back in 1971.

Article VII of the North Carolina Constitution states “The General Assembly…may give such powers and duties to counties, cities and towns, … as it may deem advisable.” In other words, local governments receive their powers – to tax and pass laws – from the General Assembly.

If you’re a mayor or a county commissioner you may not like that. Or not think it’s ideal. But it’s a tried and true legal principle: Way back in 1872 a Federal Judge – named John Forrest Dillon – wrote an opinion confirming that local governments receive their powers from the states and two years later, in 1874, the NC Supreme Court embraced ‘Dillon’s Rule.’

However, in 1971, the General Assembly threw a monkey wrench into the works with an odd declaration of its own. The General Assembly said the powers the state grants local governments “shall be broadly construed.”

Broadly construed was pretty ambiguous language and, to make matters worse, the General Assembly never clarified what it meant. It just left the concept hanging there in the air – vague and ambiguous.

For the next 45 years North Carolina courts struggled to figure out what legislators meant –  with some judges interpreting broadly construed one way and others another.

The UNC-School of Government has probably studied these problems more than anyone – and I have never heard them referred to as a Republican think tank. In a well-documented article, a decade ago, their staff suggested it would be a good idea to clear up the confusion.

It’s hard to argue with that – but it’s not as simple as it sounds. For example, who should be granted the power to determine local laws in Catawba County – counties or cities? If the answer is cities, Catawba County could end up with seven or eight different sets of local laws.

Untying a 45-year old legal knot won’t be easy. But, still, there’s not much doubt it would be preferable to what we are doing now.

Choices

The Trustees who run the State Health Plan faced a tough problem when they met last week: They were handed a report showing the plan – which pays for health insurance for 700,000 current and retired teachers and state employees – had unfunded liabilities of $32.5 billion.

What did the Trustees do about the plan’s debt? Did they cut costs?

No.

Instead, the Trustees voted to increase spending by adding a large new benefit to the plan – they voted to pay for sex change operations for state employees.

You couldn’t make this stuff up.

The Millionaire Next Door

In my last article, I explained how the Johnston County School Board spiked its Superintendent’s salary by $130,000 to increase his pension, how the Superintendent then retired at age 50 with a pension of $143,436, and how the State Treasurer then sent Johnston County a bill for $435,000 to pay for the ‘pension spike.’

Today, I’d like to discuss another side of the problem called pension spiking.

Say a private sector worker met with his financial planner and asked how much cash he’d need to put in his retirement fund or IRA in safe investments to be able to retire at age 50. Safe investments like the U.S. Treasury earn about 2.5% so a $143,000 pension is worth somewhere around $6 million. Which means to match the Johnston County Superintendent’s pension, a worker would have to be a millionaire six times over.

Of course, the Johnston County School Superintendent doesn’t have a $6 million IRA, but he receives a pension that is worth the equivalent of a six-million-dollar retirement account.

And whether you’re a school superintendent or another state employee that math makes pension spiking a sore temptation. It’s not surprising that, over the last two years, twenty of NC’s 115 school systems have received bills from the Treasurer for pension spiking.

Here in Hickory City a school system retiree made the list by retiring on August 1, 2015 while generating a pension spiking charge of $151,000. The school board gave him retirement plan with an investment value of around $4 million.

On July 1, 2015 a retiree in the Alexander County Schools made the list as well – when the Treasurer sent those local taxpayers a bill for $65,000 to pay for its pension spiking so he could retire with benefits approaching $3 million.

As I explained, gaming the pension system is a hard temptation to resist. But there’s a clear bottom line: The more spiking drives up the cost of pensions, the more money it takes out of classrooms.

A Silver Lining

Along with dropping temperatures, fall brings newspaper stories about shortages of school supplies and teachers paying for classroom supplies out of their own pockets.

But this fall the headlines also brought a different kind of story.

Not long ago the State Treasurer sent bills to four counties claiming they owed the State Pension Fund money for ‘pension spiking.’ Johnston County – which received an invoice from the Treasurer for $435,000 – is an example.

Here’s what happened: When state employees retire their pensions are based on their salaries. Just before Johnston County’s school superintendent retired the local school board increased his salary by a whopping $130,000. How the Board did that was interesting: It converted $44,000 in fringe benefits to salary, made $50,000 in special payments to the Superintendent, and paid the Superintendent $36,000 for unused vacation and bonus days.

Then the Superintendent retired at age 50 with a state pension of $143,436 a year.

The State Treasurer decided the Superintendent’s $130,000 salary increase was ‘pension spiking’ – and sent Johnston County a bill for $435,000. In effect, the Treasurer said to Johnston County, You have to pay for the pension spike not us. 

Johnston County promptly sued. And lost. But may appeal.

It’s worth noting that the State Superintendent for Public Instruction (who serves all 100 North Carolina counties) makes $127,561 – so the retired 50-year-old Johnston County School Superintendent will be paid nearly $16,000 more for not working than the State Superintendent will be paid for working.

Does that make sense?

We hear a lot about the challenges facing teachers in the classroom. And I believe that. We have lost focus on where education actually takes place. We lavishly fund pensions for bureaucrats and administrators instead of spending money in classrooms.

That’s a lot of less than happy news – but there is a silver lining in every dark cloud: At least, now, the next time a school needs classroom supplies, we know where to find the money.