Bad Day at Black Rock

Below is a guest post by Raynor James, an eastern North Carolina resident who has followed the debate on North Carolina House Bill 184 very closely:

Tuesday, April 3rd was a sad day in the North Carolina House of Representatives.

Let me tell you about it. Dale Folwell is North Carolina’s Treasurer. He’s a very popular fellow for all the right reasons. He did a good job when he served in the North Carolina General Assembly. He got North Carolina’s unemployment insurance out of debt to the Federal Government when he served in Governor McCrory’s administration, an accomplishment that continues to save North Carolina’s employers significant sums annually. He’s known as a problem solver.

North Carolina’s State Health Plan (which pays for medical expenses of current and retired state employees) is seriously underfunded and is projected to be bankrupt by the year 2023.When Dale Folwell was elected Treasurer, many who voted for him expected him to solve the Plan’s problems as its administration was in the Treasurer’s portfolio.

Enter HB-184 which if implemented will tie the Treasurer’s hands and not allow corrective action to be taken while a committee studies the situation.

HB-184 was debated on the floor of the House April 3rd. Let’s look in on how some conservative House members tried to kill the bill.

First, Representative Michael Speciale offered two amendments to the bill. Representative Speciale’s first amendment would give the Treasurer a vote on the study committee and would make it impossible to expand the size of the committee (something that is sometimes done when the “powers that be”don’t like the direction a committee seems to be taking).

That amendment passed by a vote of 106 to 5.

Representative Speciale’s second amendment would remove Section 2 from the bill. Section 2 requires that Blue Cross-Blue Shield continue to be used during the study period.

It also prevents the Treasurer from switching the Plan to using referenced based pricing for medical services to the Plan during the study period.That amendment failed by a vote of 88 to 23.

During debate on HB-184 itself, Representative Larry Pittman cited a memo from the Plan’s Board of Trustees that projects that the plan will be out of money in 2023, and said that we can’t wait on a two year study. He talked about how hospital groups were groaning about how burdensome the Treasurer’s planed payment changes would be on them [tie pricing of medical services to 172% of the average Medicare pays for the same service], and pointed out how well funded many hospitals are. In support of his assertion, Representative Pittman mentioned that the hospital at East Carolina has given $10 million dollars to fund a stadium.

Representative Pittman asked that members not pass the bill and added that when Treasurer Folwell had requested info from the hospital groups, they had sent him the schedules he asked for with page after page blacked out. “They might as well have slapped him in the face and spit on him,” Representative Pittman said.

He continued by saying passage of the bill would hurt both members of the Plan and taxpayers who pay the freight and pointed out that members of the Plan are also taxpayers, so they get hit two ways.

He stated that Dale Folwell is “competent” and “honest” and renewed his request by saying, “Defeat this bill.” Representative Michael Speciale said, “We’re told that if we don’t pass this bill, the sky will fall; we’ll lose our rural hospitals.” He went on to say that they’d heard the same thing when he was trying to get rid of the CON [Certificate of Need] laws [which did not pass] and shortly thereafter they closed one of the hospitals in my district.”

“I hear fake news ads” [on the topic of rural hospitals closing if HB-184 doesn’t pass] when I drive in my district.”

Representative Speciale went on to say that Dale Folwell got the people together who are opposing him [mainly large hospital groups] and asked how much waste, fraud, and abuse there is in the system. The answers they give him ran from 12% to 25%, so he took a middle number and asked them to figure out how they could reduce costs by 15% and said that they needed to get together again as soon as that was done.

After that meeting, Treasurer Folwell tried to set follow up meetings, and time after time he was stonewalled.

Representative Speciale continued, “Now we’re faced with $33 to $36 billion dollars in unfunded liabilities. If we don’t allow him to cut costs, how are we going to cut costs because it’ll be on us!”

“Dale Folwell has increased what would be going into rural hospitals. He’s compromised, but they won’t budge an inch.If we do not pass this bill, then the hospital lobby will sit down and talk to him. Let the state Treasurer do what he was elected to do. Throw the politics aside and vote NO!

Representative Keith Kidwell said, “For the last 10 years, health care costs have gone up and up. We asked Treasurer Folwell to handle it. Let’s not bobble him,or we’ll be faced with taking $235 million to $509 million [dollars] from the general fund to deal with the problem AND $1.1 billion will be added to the unfunded liability.”

“HB-184 will cost us a ton of money!” “Cut through partisanship and look at the numbers! We HAVE to block this bill!’

In spite of those eloquent pleas and others, too, HB-184 passed 75 to 36, and it will now be sent to the North Carolina Senate where it is hoped that wiser voices will prevail.

If you’d like to hear the whole debate, you can go to the NC General Assembly website at which NC House sessions are archived.

Thank you, Raynor. This is a picture of what is going on in the North Carolina state legislature. President Eisenhower warned about the military-industrial complex. What we see here is the result of intense lobbying by the healthcare-industrial complex. We need to stop this bill.

How To Create Economic Growth

Yesterday Stephen Moore posted an article at the Wall Street Journal about what has happened in North Carolina since 2013.

The article reports:

Four years ago North Carolina’s unemployment rate was above 10% and the state still bore the effects of its battering in the recession. Many rural towns faced jobless rates of more than 20%. But in 2013 a combination of the biggest tax-rate reductions in the state’s history and a gutsy but controversial unemployment-insurance reform supercharged the state’s economy and has even helped finance budget surpluses.

As Wells Fargo ’s Economics Group recently put it: “North Carolina’s economy has shifted into high gear. Hiring has picked up across nearly every industry.”

The tax cut slashed the state’s top personal income-tax rate to 5.75%, near the regional average, from 7.75%, which had been the highest in the South. The corporate tax rate was cut to 5% from 6.9%. The estate tax was eliminated.

So what happened next? Did the state go bankrupt? Is everyone in the state walking around in rags wondering where their next meal is coming from? Not hardly. On May 6, Gov. McCrory announced that the state has a budget surplus of $400 million.

The article explains:

This is the opposite of what has happened in Kansas, where jobs have been created but revenues have fallen since the top personal income-tax rate was cut from 6.45% in 2012 to 4.6% today and the income tax for small business owners who file as individuals has been eliminated. North Carolina’s former budget director, Art Pope, says one difference between the two states is that “we cut spending too. Kansas didn’t.”

…You won’t hear much about this in national news media, where the preferred story line is that tax cuts don’t work because they were followed by budget deficits in Kansas. In North Carolina, policies to reduce taxes and stop paying people for not working have created jobs and surpluses. Mr. Pope says: “I wish people criticizing Kansas would look at what’s happened here.”

Unfortunately the State of North Carolina has not cut spending as much as some of us would like to see it cut, but we have made progress in the right direction.

For any of you who are still skeptical, this is a picture of the Laffer Curve:

Higher Revenues with Lower Taxes? The Laffer Curve Explained

The bottom line here is very simple–after a certain point, raising taxes is counter productive and will not produce revenue. The best way to increase revenue is to decrease taxes, which stimulates economic activity. As economic activity increases, tax revenue generated as a result of that activity increases. North Carolina has learned that lesson. However, it also helps to reduce government spending–every dollar spent by the government is a dollar taken out of the private sector.