1 The State We’re In AENC Talk Friday, February 8, 2013My task is to present a State of the State address to some of North Carolina’s most influential and best-informed leaders. I feel a bit like Elizabeth Taylor’s eighth husband on his wedding night. I know whatI’m supposed to do, I’m just not sure I am equal to the task. But I get to hang out with some prettysmart folks on my TV show, NC SPIN, so I’ll try my best.North Carolina is a state of 9.7 million people, according to the Census Bureau and even during therecession we have continued to grow at the rate of a little less than 18 percent per year, about 100,000people per year. 72 percent of us are white, 22 percent are black and 8 percent Hispanic, with thatgroup being the fastest growing…now some 800,000, with about another 300,000 in undocumentedHispanics. 51.3 percent of us are female, about 24 percent are under 18 years of age, 13 percent areover 65 and that group is growing rapidly with the aging of the baby boomers and an influx of retirees.How you view the current state we’re in depends in large measure on which of the three NorthCarolina’s you are in. Folks along the I-85 Piedmont corridor from Raleigh to Charlotte would tell youthings are getting better. Folks east of I-95 would report things are bad and getting desperate and folksin Western Carolina would say things haven’t changed a lot…they’ve always been pretty bad.If you had to choose one word to describe the year 2013 it would be reform.The election of a Republican Governor, coupled with veto-proof Republican majorities in the Houseand Senate and their stated intent to get things done raised expectations for this year. If we are honestabout it North Carolina has been more or less coasting without firm leadership and direction for thepast 15 years. We have been reactive instead of proactive. We went from being a state that met issueshead-on to a state that nibbled around the edges of problems, either unwilling or unable to propose andenact bold solutions. Deferred action usually results in crisis that demands action. That is no way torun a state.If you believe the public opinion polls most North Carolinians think our state is headed in the wrongdirection.Fifteen years ago when I started NC SPIN I was worried we would run out of topics to discuss in thefirst six months, but the biggest problem I have is having to choose which topic warrants time on theshow. We have 28 minutes and 26 seconds each week and panelists who love to talk so I often feel likethe guy in the days of ancient Rome who went into the center of the coliseum and threw the raw meaton the floor, then tried to get out of the way when the lions were released.We are at a fork in the road in many segments of our society and to paraphrase that great philosopherYogi Berra, when you come to a fork in the road take it. It is time for us to chart a new course, developa plan for our future and get to work.Let’s look at the state we’re in and suggest some solutions. They are chosen not necessarily because ofimportance or even urgency but by topicality and continuity of subject matter.
2MedicaidWe’ve known for years our Medicaid program was a mess and we didn’t need Beth Wood’s audit totell us this program has suffered from mismanagement, cost overruns, insufficient oversight, waste,fraud and structural problems. Until now no governor and no legislature has been willing to seriouslytackle this huge program that costs 13 billion dollars per year, of which 3 billion comes from our state.This program accounts for 22 percent of our state budget and even with all its problems it has helpedmany of the 1.5 million North Carolinians who receive benefits. Perhaps the tipping point came whenWood’s audit pointed out that we are spending 180 million dollars more in administrative costs thanthe average of nine other states. Governor McCrory seems to be making Medicaid reform a highpriority. DHHS Secretary Aldona Wos understands the complexity of the problems and newly hiredMedicaid Director Carol Steckel ran the Medicaid program in Alabama and Louisiana, so we havehopes they can make positive changes.Comparing our Medicaid program with other states indicates that ours provides more benefits thanperhaps we can afford. Reform is not only desirable but urgent. It won’t be easy but it is essential toour state’s future to fix this problem now.What makes Medicaid reform even more urgent is the implementation of the new Affordable Care Act,often referred to as Obamacare.The ACA dictates that every person in America be covered by healthcare insurance. Each state ismandated to establish one or more health insurance exchanges. We can design and manage our ownstate plan, work with a state-federal partnership or opt to let the feds run it. We had many months oflegislative debate and the House passed a plan for a state run exchange in time for the decisiondeadline last summer, but the Senate didn’t even take up the bill the House passed, essentiallydeferring the decision to Governor Perdue, who choose the state-federal option.Now the Senate says they don’t want anything to do with exchanges and, in the first full week ofsession, passed legislation to let the federal government establish and run ours. Interesting becausethese are the same people who rail against the federal government and its controls yet they are willingto turn complete control over to the feds for health insurance exchanges.They also don’t want to expand Medicaid to a projected 500,000 new recipients. The feds promise tofund 100 percent for the first three years and 90 percent thereafter, but Senators are rightfully skepticalabout unfunded future mandates.We talk about this on our show this week and our panel agrees the most troubling part of thediscussion to date is the apparent power play by Senate leaders who effectively told GovernorMcCrory to butt out…these are legislative decisions not decisions to be made by a governor.Medicaid decisions are important. They involve many dollars and affect many people. We need ourbest and brightest minds to make sure we get this right, regardless of their party, regardless of theirelected position. This is no time for petty power plays.
3HealthcareLet’s look at healthcare in North Carolina. Our state ranks 33rd in nation in health care indicators. Werank 5th in obesity, with 66 percent of our adults and 28 percent of our children overweight or obese.Nearly one in three adults has high blood pressure, one in ten has diabetes, and four in ten report highcholesterol. 17 percent of our families report food insecurity and we are tenth in the nation for childrenunder 18 who worry about having enough to eat. 1.5 million people in our state have no healthinsurance and, for many of them, the first option for medical treatment is the emergencydepartment…the most expensive and one of the most profitable departments in a hospital.These symptoms reflect a healthcare system that is a train wreck. Sadly, most of the major players inhealthcare give voice to wanting to fix this system but few are willing to come to the table to reallysolve problems….there are too many dollars and too much turf at stake. So costs get shifted to thosewith health insurance or employers and employees who pay for Medicaid and Medicare.We spend too much money and get health outcomes that don’t compare with what we are spending.Patients and consumers need educating as to what healthy looks like, what their personal role shouldbe, how to better access healthcare and how they can bring down healthcare costs through better eatingand exercise behaviors. NC SPIN is getting ready to launch a statewide healthcare initiative called “AHealthier NC,” which mirrors a similar statewide initiative from the 1940’s called The Good HealthPlan. Look for more to come on this soon.The way we treat our mentally ill is nothing short of criminal and should be a painful reminder to usabout bungled reforms. Back in 2001, we decided to reform our mental health system. We closed orcompletely changed services provided by our mental health hospitals, saying we wanted to pushservices to the local level instead of handling them at the state level. Problem was the locals wereneither equipped nor desirous of this new responsibility and we put mentally ill patients on the streets,where many landed in our jails or became homeless…or we stuck them in adult care homes notadequately staffed to provide for them. Services were provided by outside contactors, some of whomcheated and scammed the system. We can and must do better by folks who are unable to do forthemselves. This is the safety net we have promised to provide.The economy and jobsThe number one theme of last year’s elections was the economy and jobs. North Carolina lost morethan 300,000 jobs to the Great Recession, many of them in manufacturing. If you couple these lost jobswith the in-migration of 100,000 new people per year you see why we have a 9.2 percentunemployment rate. We have the fifth highest rate in the nation and it has remained that way for threeyears.Factor in the number who have either given up finding work or who are underemployed, taking a jobthat pays far less than they previously earned, our true rate of unemployment and underemployment iscloser to 18 percent. Per capita income in North Carolina is $25,256 compared to the national averageof almost $28,000. Income is higher along the I-85 crescent, lower in the rural east and west. Almost 1in 5, or 16 percent, live below the federal poverty level of $23,050 for a family of four.Everyone wants to talk about job creation but realistically there is little being done. Just cuttinggovernment spending or taxes doesn’t create jobs, at least in the short run. We haven’t had an
4economic development plan in such a long time most of us can’t even remember when we did. It maynot be government’s responsibility to create jobs but government does have a role to play, especiallywhen you connect that to our growing crisis in infrastructure.InfrastructurePublic infrastructure needs are at crisis levels. The American Society for Civil Engineers gives ourstate a grade of “D” for infrastructure. And if population projections are close to accurate we will have12 million or more residents by 2030. We are staring down the barrel at a major crisis. Much of ourpublic infrastructure was built more between 30 to 50 years ago.Governor McCrory says he was appalled at the poor level of maintenance of current state-ownedbuildings. The same is true for roads and bridges. Almost one-third of our bridges are considered sub-standard. We once called ourselves the Good Roads State but that hasn’t been true in at least 20 years.We can’t maintain the current roads we have, much less build new roads for today’s needs. TheHighway Trust Fund of the late 1980’s was supposed to fund future roads, but it hasn’t come close,because it depends largely on the gas tax. While our gas tax is the highest in the Southeast people aredriving more fuel-efficient vehicles. Even with the growth in traffic we fall further behind every year.Then there’s water. With all this growth we are facing clean water shortages. 70 percent of our watersystems are municipally owned and many of them were put into operation 40 years ago. We have thehighest number of small water systems of any state in the nation. 138 of the 214 water systems intowns of fewer than 2,500 are losing money and unable to properly maintain their systems, posingfuture serious health threats. We haven’t started any new large water reservoirs to meet our growthneeds in more than 30 years…about the length of time it takes to bring one online. The costs to repairand expand water systems are projected to be greater than 17 billion dollars. And this doesn’t includea discussion on water treatment plants…which also need a lot of work.You may have seen the recent report from the Federal Communications Commission that says we aretied with Mississippi for having the lowest number of households with basic broadband connections.While businesses, government and consumers are increasingly dependent on the Internet forcommerce, education and information we are at the bottom of the broadband pipeline and this doesn’tbode well for our future…especially in rural areas.The need for public school buildings is acute and growing daily, as is the need for other publicbuildings, but few local elected officials want to put forward bond campaigns and go into debt for fearof having to raise taxes and getting thrown out by voters.If my former boss, the late State Treasurer Harlan Boyles, was around today he would telling anyonewho would listen that now is the time for our state to engage in a major public infrastructure buildingand renovation campaign. Here’s why: We have historically low interest rates and governments, likeNorth Carolina, that have Triple-A credit ratings could borrow money as cheaply as any of us canremember. We currently owe about 7.1 billion dollars and are considered a low debt state by the majorrating agencies. Construction costs are still very reasonable. And we could put tens of thousands ofpeople to work…we’ve heard it estimated that for every billion dollars in construction money wespend there are 28,000 new jobs created. If properly designed and enacted this program would bring
5down our unemployment rate while also updating our public infrastructure. We pay for it withimproved government efficiency and growth. Doesn’t that sound like a win-win solution?Tax ReformWith all the conversation about tax reform I have to touch on this. Our current tax codes were basicallyput in place when Max Gardner was Governor during the Great Depression. Since that time we havelayered on exclusions, tax preferences and exceptions. Our economy has shifted from textile, tobaccoand furniture manufacturing to information, biotechnology, agriculture and tourism. We badly need taxreform, but just reducing income taxes on individuals and corporations isn’t really reform…it justcontinues to tweak tax codes which are cumbersome, difficult to understand and hard to use. We’vehad enough blue ribbon panels on this to last a lifetime and most of them have come to a lot of thesame conclusions. I don’t understand why we aren’t dusting them off and considering them.For real tax reform to occur several things must occur.First, we need to give serious thought to the various tax categories and what percentage of ourrevenues should come from each category. For instance, we currently receive 50 percent of ourroughly 20 billion dollars in state revenues from personal income tax. 4 percent comes from corporateincome taxes. 27 percent is obtained by sales and use taxes. Are they configured in the idealpercentages? If not let’s decide the right ratios? While at the task let’s look at the revenue sources forlocal governments and determine which taxes should be right for them.Any new tax code needs to be simple to understand and needs to be efficient to enforce. For instance,the idea of taxing services sounds great but how difficult is it going to be to collect taxes from the guywho cuts your yard or repairs your washing machine…really small service providers? Tax reform mustbe transparent with no hidden exclusions and preferences given one group. It must be fair to allsegments of our society. And it must be broad based, with the lowest rates possible. Finally, it needs tobe futuristic, trying to anticipate where our state economy is going and how we should plan for it so wedon’t get stuck in a time warp like we’re in currently.EducationWe can’t discuss the state we are in without considering education where most agree reforms areneeded. We expend 56 percent of our General Fund Budget on education, with k-12 getting 38 percent,the UNC System 13 percent and our Community Colleges just 5 percent.We got very excited last year when we graduated 80 percent of students who started the ninth gradewithin four years, an improvement from just 67 percent a few years ago. Our annual SAT score lastyear was 997, compared to the national average of 1010. 84 percent of us have at least a high schooldiploma, but only 26.5 percent of adults have a college or post-graduate degree. Upwards of 60 percentof our high school graduates need remediation when they go to college.There is much good going on in many classrooms across our state but there are too many ineffectiveteachers and too many ineffective principals. We need to reform education and sadly our educators arenot leading the charge for reform. If our children are going to compete we have to put a laptop or tabletin the hands of every one. When textbooks can cost as much as 300 dollars apiece we can employcurriculum software that allows every child to learn at his or her own pace for less money. Teachersmust be retrained to become mentors, coaches and curriculum enrichment professionals instead of
6standing in front of a class all day lecturing. And there are on-line assessment tools available so thatstudents can be measured every few weeks to see how they are progressing and where they need help.There are school systems in our state already doing this…we can replicate it statewide. And GovernorMcCrory is correct in saying we put too much emphasis on the need to have a college degree to be asuccess in life. Only 26 percent do. We must help our students learn skills they can use in theworkforce.Our university system also needs reform and we are glad to see President Tom Ross encouraging andembracing it. Only 59 percent of those who enter our public universities graduate within 5 years. Inspite of the fact that our public universities are among the lowest in tuition rates the average persongraduates with 25,000 dollars in debt to begin their work life. There is strong evidence we don’t utilizeclassroom space well, there are too many electives that delay students getting the courses they need foron-time graduation and our universities have not been accountable enough. Recent revelations at UNCChapel Hill demonstrate we cannot just abdicate curriculum and course selection to faculty. I thinkRoss and the Board of Governors have gotten the message they must be better stewards with thedollars they receive and funding needs to be allocated based on graduation within a reasonable periodand specific goals like more teacher training.I mention Community Colleges last because I believe they are the greatest bargain in education in ourstate. We could ease some of the enrollment pressure on our universities by encouraging our youngpeople to spend their first year or so of college at their local community college. They would gainsome maturity, earn some money to save for matriculation and could get a feel for what is required incollege. Our 58 Community Colleges are also the best places to train or retrain workers. Rather thanreinvent the wheel we hope the discussions about renewed vocational training in high school will becoordinated with our community colleges.Just a few words on the political climate. Democrats ruled our state, with a few exceptions, for morethan 100 years but voters grew dissatisfied with the increased cost of government coupled withlackluster leadership and threw them out of power. For the past two years we’ve seen a Democraticgovernor and Republican controlled legislature cross legged with each other. When we elected PatMcCrory to be Governor we hoped for more harmony. His track record as a moderate Mayor wasappealing.Expect to see a continued move to accountability in all sectors of government. We might not have thewholesale budget cuts…and we certainly hope we won’t ever again see the inefficient across the boardcuts… but if we are going to improve technology, repair and rebuild our infrastructure and conduct thereforms we’ve been talking about there will be needs for funding. Since there won’t be any new taxesthe money is going to have to come from improved efficiency within government. I am already seeing signs that all is not happy between the legislative and executive branches. There isalways some tension between the two houses of the legislature and between the legislature and thegovernor, but for us to solve our problems we need them to get along.If there’s one thing I’ve learned in fifteen years of producing and moderating NC SPIN it is that wecannot find solutions when people are not willing to come together for open, honest, civil and balanceddiscussion of our issues. If we are more interested in our political party or its agenda, if we are more
7determined to win with someone else losing, if we are unwilling to listen to other viewpoints we willbecome just like our Congress and that spells disaster for a state with the problems we’ve got. We mustdemand our leaders be open to more than just their agenda.We have great needs and we’ve been beaten up quite a lot over the past few years. But we are a greatand resilient people who can and will rise to the occasion. It is time for our leaders to provethemselves worthy of our great citizens, to be willing to make hard choices for the common good andto invest our resources where they will get the biggest bang for the buck for the most of us. We can’tget there if we choose up sides and fight with each other. We won’t get there if we shy away from thechallenges or if we give in to special interests. We have elected some good people and we reallybelieve they want to do what is right. We hope they will. Our job is to keep them on the right course