The Rural Center: The Wrong Kind of Politics

If a group of politicians were setting out to build themselves an empire, it’d be helpful for them to have two things: Plenty of taxpayer money available to pass out to make new friends, and a high-sounding name for their endeavor – which, according to the News and Observer, is about exactly what happened twenty-six years ago when Democrats in the General Assembly created The Rural Center.

With Republican Jim Martin in the Governor’s Mansion, Democrats leading the General Assembly decided, instead of letting Martin get credit for handing out checks for ‘Economic Development Grants,’ they’d set up a legislatively controlled nonprofit and pass out the taxpayers’ money themselves. Then, adding a layer of political camouflage to what was an old-fashioned pork barrel fund, they proclaimed their group had a noble mission – to create jobs in rural areas – and named it The Rural Center.

Before long it was up and running – headed by CEO Billy Ray Hall – and what happened next worked like this:

  • Democratic legislators voted to send millions in taxpayer dollars to the The Rural Center.
  • Over at The Rural Center, Billy Ray Hall paid close attention to the wishes of legislators when he gave out ‘grants’
  • The cycle repeated over and over.

Billy Ray Hall had the best and arguably one of the most powerful jobs in state government – giving away money, which helped generate a lot of friends. Since its inception, The Rural Center and Mr. Hall have given away tens of millions of dollars in grants at the request of NC Senators and NC Representatives.

The process worked so well that even after Republican Governor Martin handed the Governor’s Mansion keys to Democrat Jim Hunt, the Democrats running the General Assembly saw no reason for change. Better yet, it became a model for more ways to help their friends using more economic development funds like The Golden Leaf Foundation and The Clean Water Management Trust Fund.

Over the years, in the name of creating jobs in rural communities, The Rural Center poured $24 million in grants to the center of non-ruralness, Wake County.

It poured millions into highly profitable companies that didn’t need help – like Walmart which benefited from $6 million in Rural Center grants. Grants even included a golf course near Southern Pines and a video sweepstakes company in Greenville.

The News & Observer illustrated the mechanism by including the tale of one legislator that helped arrange a $300,000 Rural Center grant for a project in his district. The project did not strictly comply with Mr. Hall’s existing rules but those rules were bent and the grant was made and, according to the newspaper, the legislator raised $6,500 in campaign donations from partners in the development.

It all rolled along fine for over two decades as an example of good ole boy politics and pork barrel spending at its best until a stroke of bad luck landed Billy Ray Hall on the front page of the News and Observer in an exposé headlined, “Politicians, powerful touch NC Rural Center cash.”

To give Hall credit, he tried to make the best of a bad situation, dressing up decades of pork barrel spending as dedication to helping rural North Carolina – as Hall told the News and Observer, “I eat, sleep, and breathe rural North Carolina.”

But the bottom line is simpler: The Rural Center is living proof pork barrel spending isn’t the best way to create jobs in rural areas.

Now that the News and Observer’s story has put the program in front of us, this looks like a good time to end this particular pork barrel right now and take the Rural Center’s $170 million in state funds which, unlike other state agencies, are in its own account and not controlled by the NC Treasury.

The Governor, in his budget, proposed cutting The Rural Center’s funding 60% this year – giving it another $6 million. The Senate then cut the funding to zero. The State House went in the other direction, increasing the center’s funding by $36 million over two years.

There’s no doubt rural communities have very real needs and some legislators are concerned eliminating The Rural Center will leave rural communities short of friends. But pork barrel politics is not the answer to the challenges facing rural North Carolina. Let’s get the good ole boy politics and pork-barreling out of the way – then we can work on fixing the real problems.

It’s time for Republicans to shut down The Rural Center.

We’re for Free Markets… Except…

In my five months in the General Assembly, it seems to me that the most interesting dramas occur when long-time business-as-usual collides head-on with new technology that reshapes our economic markets. Rules and policies designed in the 1950s completely miss the finer points of a society built on high technology- kind of a Mad Men meets Amazon story.

Recently, a little known California electric car maker happened to, oddly enough, land squarely in the middle of such a political brawl in the State Legislature.

Tesla Motors makes a product that you could just as accurately call a computer on wheels as an automobile. However you label them, after they sold eighty electric cars in North Carolina over the Internet, the Automobile Dealers Association strolled over to the State Senate and asked its friends to pass a bill saying cars can only be sold through car dealerships.

That left Senators, like Majority Leader Harry Brown, who’s a car dealer, facing a tough question: Do I stand up for my free market ideals – or stand with my friends?

The temptation of helping their friends proved irresistible – free market ideals lost and, in the blink of an eye, the Senate passed a bill to stop Tesla Motors dead in its tracks.

Now the bill (and the Automobile Dealers lobbyists) is headed to the State House to find out how State Representatives respond to temptation.

Teen Leadership Newton 2013

Representative Andy Wells and Senator Austin Allran met with Teen Leadership Newton 2013 in the General Assembly Appropriations Committee Room in April, 2013.

Two States

The Commerce Department has just announced an agreement to pay MetLife $94 million – a record ‘incentive’ – to create 2,600 jobs in Charlotte and Cary. 2,600 jobs is no small achievement. But there is a subtle irony at work here too: Because these jobs are going to the two places in North Carolina that need jobs least. Charlotte and Raleigh-Cary, according to our own Employment Security Division, are now at or over their all-time record employment levels.

North Carolina was once a state of widely dispersed small towns and vibrant local communities. Today, with the evolving economy, we’ve become two states. Our two largest metropolitan areas are racing ahead to see who can become the next Atlanta – while, at the same time, the rest of the state is languishing, losing jobs (as the accompanying chart shows).

The tremendous growth in Raleigh and Charlotte is no accident. In part it is due to 21st Century economic trends. But it is also a direct result of state policies.

Every day in Raleigh bills cross my desk with the unmentioned and often unnoticed effect of transferring money and power from smaller communities to larger ones – and the latest incentive package is just a recent example.

Living outside the two major metropolitan areas, I have seen firsthand the consequences of the job exodus from small towns. The challenges facing communities like ours are obvious. And now it’s time to step back and have a serious public conversation about these policies.

Living in a fast-growing, vibrant metropolitan area has its appeals. But I would argue small towns have a unique charm of their own and a unique quality of life that, in many ways, is preferable to modern suburban sprawl.

After all, millions of North Carolinians live in small towns and communities – if they wanted to live in Atlanta, they would have moved there.

Salesman of the Year

After a month of listening to fairly predictable debates in the State House, last week in the Commerce Committee I finally got a good old-fashioned surprise.

By custom, when a House Committee considers a State Senator’s bill, the Senator’s invited to speak to the committee. So, last Wednesday, the Senator who sponsored Senate Bill visited the Commerce Committee to explain the virtues of his bill.

Now, this Senator is not your average legislator – he’s one of the most powerful leaders in the General Assembly. He’s got a quick, sharp sense of humor but he’s also a straight-talking man who’s a master of hardball legislative politics.

He stepped to the podium and started by telling a joke but, after that, he didn’t mince words: He told the Committee bluntly the changes it had made to his bill were completely unacceptable to him, said he was particularly disturbed the House had deleted a part of his bill that removed 12 Superior Court judges from office, then got down to brass tacks challenging the wisdom in that decision.

That was a bombshell.

Someone on the Committee, the Senator was surmising (and he specifically mentioned lawyers), wanted to keep those judges in office for suspicious reasons.I looked around the committee room, watching the senior Members, waiting for someone to ask the Senator, Exactly who on this committee has a conflict of interest? But no one said a word.

I’ve been in business for over 35 years and have closed my share of sales. It has never occurred to me to approach a prospective customer with an opening statement suggesting he/she was in error. So my first big surprise was that something like that worked and worked so well – because the Committee proceeded to reverse course and undo several of the changes it had earlier made in the Senator’s bill.

That’s where the Bill stood until the next morning when it was sent to the House Rules Committee – which promptly put changes back into the bill. Then it sailed onto the House floor and passed – but that’s not the end of the story.

Now, the Senate Bill is going to a Conference Committee where Representatives are going to sit down eye-to-eye across a table from the Senator (and his colleagues) to iron out the differences between the Bill the House did pass and the version of the bill the Senator wants passed.

Medicaid

After over 35 years as a businessman, I have learned – the hard way – that at times, with the best of intentions, you wake up one morning to find you’ve gotten yourself into a new business that doesn’t work. It looked like a good idea when you started, but, after you rolled up your sleeves and went to work, you found out it either wasn’t what you expected, was beyond your ability or expertise, or was just a bad idea.

That’s called a ‘learning experience’ – and that’s what came to mind when I read the Observer report that “A state audit of the $13 billion Medicaid budget revealed a rat’s nest of problems from overspending, bloated administrative costs and violations of the law.”

State Auditor Beth Wood – a Democrat – was equally blunt. In her audit, Wood reported the Medicaid Department has spent $1.4 billion more than its budget over the last three years and its overhead costs are $180,000 higher per year than other states our size.

In other words, after 12 years of mismanagement and neglect by two Democratic Governors (Mike Easley and Beverly Perdue), we have a multi-billion dollar train wreck on our hands – that should give even the staunchest believer in more government a moment’s pause.

And now, to complicate the problem further, the Obama Administration would like the state to expand Medicaid by 31%.

But does that make common sense – to expand a program that has turned out to be the poster child for government mismanagement by billions of dollars?

Here’s what does make sense: Fix what’s broke first. Give newly elected Governor McCrory time to fix a dysfunctional Medicaid Department and create a new system that works for both the recipients and the taxpayers. Then, after the problems are fixed, we can argue over whether we should expand Medicaid 31%.

Observer Article: Audit – State overspent Medicaid budget by $1.4B

Banning Liberal Arts

The other day I received an email from a lady I know in Hickory, asking me to look at a petition she’d signed opposing ending liberal arts classes at UNC. I clicked on the link to a website, read the petition, sat back and thought, The Governor wants to dismantle the liberal arts program at UNC?

Next I clicked on the News & Observer’s website to see just what the Governor had said – according to the newspaper, during a radio interview he’d explained he wanted to change funding of state universities to emphasize preparing students for jobs. He’d only said a critical word about two courses: Teaching basketball players at UNC Swahili (a course criticized during the athletics scandal) and ‘Gender Studies’ (which he doubted was touchstone to a job). Then he’d added, “I do believe in liberal arts education. I got one.”

Then I scrolled down the page to read the comments on the newspaper’s website and the world turned upside down into an elbow-throwing political brawl with people saying things like ‘the Governor’s against teaching liberal arts’ because he wants people to be idiots so they’ll vote for him. Sometime after that, 10,000 people had signed an Internet petition to save liberal arts programs at UNC – which, as far as I can tell, no one ever meant to ban in the first place.

When I finished reading, I wrote the lady back and explained the good news was the liberal arts are safe at UNC, and the bad news was we have a problem with political debates on the Internet – which are dysfunctional.

Unemployment Insurance

Back in early December, I supported the House bill to fix the Unemployment Insurance mess now moving through the General Assembly. But after Congress changed the game, I believe it is time for a new look:

North Carolina has a train wreck on its hands: The state fund that pays unemployment benefits is ‘empty’ and has been empty for years. In fact, since the recession began, the state has had to borrow $2.5 billion from Washington to pay its unemployment benefits.

Now Washington wants its money back and it’s going to get it back by raising federal unemployment taxes on businesses in North Carolina – and that new tax is a job killer.

To protect jobs the General Assembly came up with a plan to reduce state unemployment benefits on July 1. The logic was straightforward: Cutting benefits will save $1.7 billion and that savings can be used to reduce our debt to Washington – so North Carolina businesses would pay $800 million in new federal taxes instead of $2.5 billion.

But, then, when Congress passed the ‘Fiscal Cliff’ bill it threw a monkey wrench into the works.

Congress doesn’t want states – like North Carolina – to cut unemployment benefits. So it said if we cut ourstate benefits this year it will stop all federal emergency unemployment benefits to North Carolina workers (those federal benefits go to people who have been out of work more than 26 weeks).

I asked the legislative staff, How much money is that? Their answer was: $600 million.

Then I asked, What happens if we delay the cut in state benefits until next year?

Their answer was: We’d keep the $600 million this year but add $200 million in additional debt (to the state’s insurance fund) which businesses would have to pay back sometime after 2015.

So, that’s the question: Do we want our economy to lose $600 million this year or $200 million sometime after.

We can pass this bill but, if we do, Washington will take $600 million out of our economy which families would have spent in retail stores and grocery stores – which can hurt a lot more people than just unemployed workers.

Or we can delay the state benefits cuts until January 1st of next year and keep the $600 million – but then, three years from now, businesses will be faced with paying $200 million more in taxes.

What Washington is doing to our economy is wrong and it would be satisfying to dig our heels in and say to Congress: We’re going to cut our state benefits on July 1st – and we don’t care whether you like it or not.

But two wrongs don’t make a right and we’d be wrong to compound our economic problems – especially in Hickory where unemployment is higher than in most parts of the state.

To rebuild our economy, we’d be wiser to delay the state benefits cuts for six months, keep the $600 million, strengthen our economy, and then, over the next three years, find a way to lift that 2015 tax increase off businesses to protect jobs.

Federal Unemployment Insurance

Our state constitution mandates a balanced budget. But it turns out there’s a loophole and, over the last four years, one department of state government has incurred a 2.5 billion dollar debt – by spending money off budget.

Early in the recession, in 2009, job losses drained our state’s unemployment fund. The reserves were gone. The money was gone. But the number of people filing unemployment claims was going up. So, Washington stepped in and loaned the North Carolina Employment Security Commission $2.5 billion dollars to pay unemployment benefits – off budget. Now, Washington wants its money back and using a claw back provision that would make a Wall Street banker proud, it’s determined to get it.

There are two unemployment taxes: FUTA, the federal tax; and SUTA, the state tax. Washington has ordered a tenfold increase in the FUTA tax paid by North Carolina employers from $42 to $420 dollars per employee per year – to be phased in over the next a decade and a half.

So just when small businessmen hoped they were seeing a light at the end of the tunnel – instead they’re about to get run over by a big tax increase from Washington putting a roadblock in the way of North Carolina creating new jobs.

And that’s not all. The FUTA tax isn’t spread equally over all employers. Instead, some pay it and some don’t. For instance, government doesn’t pay FUTA taxes. Not a penny. Neither do non-profits that employ thousands of people. While they pay a reduced state tax, it means government gets a free ride on the federal tax and small businesses pay the bills.

The issue here isn’t just money or taxes – it’s jobs. And this is a case study of how government makes it harder for small business owners to create jobs.

Op-Ed: October 27th, 2012

Losing 33,000 jobs in the Hickory area over the last decade has been hard and has touched everyone in our community – financially and personally. Getting the economy back on track – given the hole the politicians have dug – won’t be easy or simple.

Studies show that when the recession began families across America acted responsibly – they cut back on their spending and paid down their debts. At the same time, the politicians in Washington moved in the opposite direction. They spent more and borrowed more. President Obama told us – we can spend our way to prosperity. But recycling that old idea didn’t work.

Now the politicians in both Washington and Raleigh have to do what families across America have already done – act responsibly by cutting spending and debt.

While we are at it, this is a good time for a serious, in depth, discussion about the role of government. What should government do and what shouldn’t it do?

The federal government provides low income people with free cell phones and North Carolina state government implements that program. Now, should government be in the cell phone business? Or would we be better off with less government and economic policies that create jobs – so people can buy their own cell phones?

That’s an example of a government program most people would agree we can do without. But doing away with other programs is more controversial. Under current tax law, when the people of the Catawba Valley go out and spend a million dollars on cars, they will collectively pay $30,000 in taxes on the sales. But if someone spends the same million dollars on an airplane, due to a loophole, the tax is capped at $1500. A lot of economists argue we’d be wiser to eliminate the loopholes and reduce the overall sales tax rate. Of course, if you like airplanes, that may not sound like a good idea.

We will grow the economy and create jobs when we reduce the size of government while simplifying and reducing taxes. The timing won’t get any better.