A Candidate's Guide to Key Issues
in North Carolina Public Policy

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Introduction

By Roy Cordato, John Locke Foundation Vice President for Research
Every two years since 1996, coinciding with North Carolina's races for governor and lieutenant governor, council of state, and the general assembly, the John Locke Foundation has published a revised edition of Agenda, our public policy guide for candidates and voters. Typically as we enter the campaign season, candidates for public office in North Carolina are faced with a daunting task: to develop informed positions on dozens of public policy issues. This year is no different. In the pages of Agenda 2012 we provide a concise and easily digestible guide covering dozens of specific issues, from taxes and spending to energy policy and education. More »

Budget, Taxation, and the Economy

State Tax Reform — Income Tax
North Carolina's state income tax penalizes people's income generating activities by reducing the rewards to work, saving, investment, and entrepreneurship. In a market setting, these are all activities that lead to the production of goods and services, spur economic growth, and generate employment. The income tax discourages these activities relative to non-income generating activities — leisure and consumption. The negative effects of the income tax are due to its high and steeply progressive rate structure and its poorly defined base. Its rate structure drives a "wedge" between the rewards to work effort and the rewards to non-work activities; the higher the tax rate, the greater the wedge, i.e. the greater the penalty against additional work effort. The design of the tax base results in the returns to saving and investment being double taxed. The combination of the two reduces the state's economic growth potential and depresses job creation. It is possible, though, to restructure the state's tax code such that some of these biases are eliminated and others are at least ameliorated. More »

State Tax Reform — Sales Tax
North Carolina's sales tax system needs reforming. At the present time, there exists a hodgepodge of taxes on consumption and sales that show very little consistency or forethought. There are economic principles of taxation that should guide the formation of our sales tax system and that, if followed, would make the system more conducive to economic growth and prosperity. Unfortunately, they tend to be ignored. Some purchases that are part of the tax base should not be, while other kinds of purchases that should be are not. Also, sales taxes or special excise taxes of different kinds are used apart from the main body of the sales tax to punish and reward consumption choices. In addition to being bad economics, this is inconsistent with the role of taxation in a society that respects individual liberty. More »

State Tax Reform — Corporate Income Tax
North Carolina's corporate income tax violates basic principles of sound economic policy and open government. It not only imposes a second and even a third layer of taxation on many people's incomes, but it is hidden, dishonest, and inconsistent with informed decision making in a free and democratic society. Ultimately, the tax serves as a tool of business subsidization and central planning. Most of the major economic incentive schemes launched by North Carolina state government have centered around granting exemptions from the corporate income tax in the form of tax credits. Politicians have come to see the tax as a way to gain power over market outcomes through the process of granting exemptions. More »

State Spending Restraint
A majority of North Carolinians support a cap on total state spending at inflation and population growth. This expresses a healthy understanding that more government spending, whether borrowed or from immediate taxation, diverts resources away from personal consumption and the private sector. It also acknowledges that government spending ought to become more, rather than less, cost-effective over time, as occurs in other sectors of the economy. More »

State Tax Burden
Taxation is the taking of property and earnings in exchange for governmentally provided goods and services or for redistribution. Legislators may also structure taxes as a policy tool to manipulate constituent actions for or against particular goods or services. North Carolina state officials, for example, offer tax breaks for companies they deem particularly desirable while placing sin taxes on an array of items such as alcohol, sweets, and tobacco. More »

Federal Aid Dependency
Since the onset of the Great Recession, federal legislators have rapidly expanded debt-financed aid-to-state programs. North Carolina is no exception to the trend of states with greater dependence, and federal aid is now roughly equal to general funds as a source of state revenue. (Two states, Louisiana and Oklahoma, now receive a majority of their revenues through federal aid. ) Federal aid erodes state sovereignty since federal officials often use the threat of reduced aid to dictate state policy. But it has two other, less obvious effects which merit attention since they tend towards long-run fiscal shortfalls. More »

State Unfunded Liabilities
When you promise to pay someone in the future, you have a debt with him. However, were you to use cash accounting, as North Carolina's government does, you would not record it as such, because no cash changed hands. While that may strike you as bizarre, state retirement benefits work in precisely this manner. In North Carolina, for example, state legislators and government employees have promised themselves retirement health benefits worth at least $35 billion — more than two thirds of annual state spending — and without recording these promises as ongoing expenses. People in North Carolina are now indebted for this defined benefit, while state officials have put aside just $684 million to cover it, 2 percent of the obligation. More »

Economic Growth
North Carolina's entire "economic development policy" should be replaced with "economic growth policy." Unlike economic development policy, economic growth policy would not focus on one business, industry, or region of the state over another but, would adopt policies to maximize economic growth rates for the state. It is overall economic growth that creates employment opportunities drives down unemployment rates, creates real prosperity, and lifts people out of poverty. More »

Gas Tax Allocation
It's no secret that North Carolina has the highest gasoline tax in the region. Drivers here going on long road trips are encouraged to wait till they cross state lines, regardless of direction, before filling up. Contrary to public expectation, not all of those tax revenues go into road and highway needs. More »


Education

Standards and Curriculum
In 2012, the N.C. Department of Public Instruction will introduce new curricula and standards for all public school students. This will include the new North Carolina Essential Standards for social studies, science, arts education, and world languages, among others. In addition, the state will be one of 46 states and the District of Columbia to implement the Common Core State Standards in K-12 mathematics and/or English Language Arts. More »

Testing Policy
Between 1996 and 2012, the N.C. Department of Public Instruction authored, field-tested, administered, and analyzed nearly all end-of-grade and end-of-course tests under the ABCs of Public Education accountability program. The elimination of several tests and adoption of the Common Core State Standards in English and math will diminish the state's test development role significantly. More »

Student Achievement
School accountability comes in two forms. Either parents keep schools accountable by "voting with their feet" or states compel public school districts to administer standardized tests. Simply put, as educational options increase, the value and necessity of testing decreases. Likewise, as long as states such as North Carolina maintain stringent limitations on parental choice, test scores remain their primary method of keeping schools accountable to taxpayers. More »

School Choice
In North Carolina, public education is a core function of state and local government. The state constitution, in the words of the N.C. Supreme Court, recognizes the right to a "sound, basic education" for every child in the state. But public education need not and should not be delivered by government monopolies, as a diverse array of home, charter, and private schools are demonstrating across the country and here in North Carolina. In the end, no system for delivering goods and services functions well without providing a means for consumers to make their desires known and express their level of satisfaction. More »

Charter Schools
Charter schools are tuition-free public schools that have more freedom than traditional public schools, but are required to meet certain state regulations, such as participation in the accountability program, the ABCs of Public Education. In 1996, the N.C. General Assembly passed charter school legislation. Sixteen years later, charter schools are among the most popular and successful schools in the state. More »

Public School Finance
Will Rogers said, "Lord, the money we do spend on Government and it's not one bit better than the government we got for one-third the money twenty years ago." This is especially true for money that we spend on public education. Despite an over 260 percent increase in real per-pupil spending since 1970, it has become clear that more money alone will not yield better results. More »

Class Size
Support for reducing class size usually cuts across political and ideological divides, garnering accolades from legislators, policymakers, and parents alike. Nevertheless, the relationship between class size and student achievement has been the subject of scholarly debate for decades. While several large-scale studies suggest that students benefit from class size reductions, a number of high-quality studies conclude that smaller classes are not the "magic bullet" that many believe them to be. More »

Federal Education Policy
Before passage of the Elementary and Secondary Education Act (ESEA) in 1965, the United States Congress generally adhered to the principle that the federal government had no authority to undertake functions and duties not enumerated in the U.S. Constitution. Because the power to fund or regulate public education is not expressly stated in the Constitution, Congress relied on state and local governments to superintend the education of the citizenry. As an acknowledgement of this fact, many states, including North Carolina, included passages on public education in their laws and constitutions. More »

Child Care
North Carolina's child care subsidy programs represent a fraction of the nearly $18 billion operating budget managed by North Carolina's Department of Health and Human Services. Amid concerns about the state's economic woes, however, some have begun to question whether government should spend hundreds of millions of dollars a year to subsidize child care expenses for a relatively small number of children. More »

Childhood Health
As childhood obesity rates continue to rise, the debate over the role of public schools in promoting healthy lifestyles has intensified. Public health advocates contend that schools can curb obesity by banning the sale of junk food and soda. Their more radical proposals include taxes on unhealthy foods and beverages and zoning regulations that prohibit certain businesses from operating near schools. Over the last five years, however, research studies have reached a near consensus — stricter laws and regulations imposed by government officials do not reduce childhood obesity rates in any significant way. More »

Early Childhood Education
One of the most controversial issues in the past few years has been the growing role of the state in providing preschool opportunities to North Carolina children. All too often, proponents of state-run early childhood education programs spend more time tugging heartstrings than recommending sound public policy. More »

Teaching Profession
No system of public education can thrive without a high-quality teacher workforce. The problem is that state education bureaucracies enforce certification and licensure rules that seldom distinguish excellent teachers from poor ones. Indeed, a large body of research shows that certification status, advanced degrees, years of experience, education school courses, and teacher test scores are unreliable indicators of teacher quality. Unfortunately, the state continues to use these criteria to determine who can and cannot teach in North Carolina's public schools, as well as how much we pay them. More »

Higher Education Policy
North Carolina takes great pride in her university system. Nevertheless, the persisting recession is affecting all aspects of the state's economy, including UNC and its students. People who enrolled in UNC schools just a few years ago now face a daunting duo of uncertain job prospects and very real student loan payments. More »


Government Regulation

Regulatory Reform
Much has changed for the good concerning North Carolina's regulatory environment with the passage (and override of Gov. Bev Perdue's puzzling veto) of the Regulatory Reform Act (RRA) of 2011, tort reform, medical malpractice reform, and workers' compensation reform. Nevertheless, given the state's history for imposing onerous regulatory burdens, much more remains to be done. More »

Eminent Domain
Eminent domain is the government's power to seize private property for public use. It is a constitutional power; the Fifth Amendment to the United States Constitution states, "Nor shall private property be taken for public use, without just compensation." What that means, however, is that the Founders envisioned the property seized to be used only for a public use after justly compensating the owner. More »

Occupational Licensing
Most people think of occupations requiring licenses as those like medicine and law. North Carolina, however, has made it state's business to certify auctioneers, barbers, librarians, manicurists, and over a hundred others. The neighboring states of Virginia, Georgia, and South Carolina are less restrictive. More »


Environment

Hydraulic Fracturing
The presence of natural gas in shale rock formations, such as in the Deep River Basin in Lee, Chatham, and Moore counties, has long been known. Hydraulic fracturing ("fracking"), a process to extract natural gas from shale, has been around since the 1940s but has been cost-prohibitive. Very recent technological advances in combination with horizontal drilling have turned fracking into a low-cost method to recover natural gas. It has revolutionized the industry, bringing jobs and booming economies to local drilling sites and energy independence to the shale-rich United States. But North Carolina is one of just two states in the union that bans the process. More »

Renewable Energy Portfolio Standard
In 2007 the North Carolina General Assembly passed far-reaching electricity regulations, typically referred to as Senate Bill 3. At the heart of this bill is a 12.5 percent "renewable energy and energy efficiency portfolio standard." The renewable portfolio standard requires utilities to provide customers 7.5 percent of their electricity through renewable sources of energy, such as wind, solar, or biomass. These are all forms of energy that are significantly more expensive than traditional fossil fuels and nuclear power that North Carolina's utilities voluntarily choose when they are left free to pursue truly efficient energy. More »


Health Care

Health Care Reform
The Patient Protection and Affordable Care Act (PPACA) was passed in 2010 in a hurried process that allowed for little understanding of what was in the 2,700 page document. Currently, the constitutionality of that law is being assessed by the Supreme Court, causing state lawmakers and health care providers much consternation. As the nation waits to see what the future of health care may look like, it is imperative that the states continue to take action at the state level to improve health outcomes and lower costs. More »

CON Laws
North Carolina and 34 other states have what are called Certificate of Need (CON) laws. The purpose of CON laws is to restrict entry into the market for medical facilities and equipment. If you are a health care entrepreneur and you want to do anything, from adding a new wing or extra beds to an existing hospital, to opening an office that offers MRI, X-ray or other services, you need a "Certificate of Need" from the state. The stated purpose of the law is to eliminate duplication of services in an attempt to reduce health care costs. In reality it protects existing facilities from competition. More »


Local Government Reforms

County Tax Increase Elections
In 2007, county commissioners asked the legislature to give them more taxing authority. Ever increasing demands for services, especially related to population and student growth, created pressure for additional revenue sources. The legislature responded by providing counties with the authority to increase the county sales tax by one-quarter cent or to increase the land-transfer tax by 0.4 percent, but only after an advisory vote of the people. At the time, this seemed like a reasonable solution to the budget pressures on county government. Unfortunately, legislators did not foresee how some county commissioners, desperate for more money, would game the system in order to get the "public" to vote for a tax increase. More »

Urban Rail Transit
Public transit systems in North Carolina have become less about helping citizens move around their communities in the way they desire and more about planners gaining enough political power to impose their transportation preferences and land use fads on those citizens. And this starts at the top. US Secretary of Transportation Ray LaHood recently admitted that his Livability Initiative "...is a way to coerce people out of their cars." More »


Other Issues

Highways and Interstates
The "good roads" state is quickly turning into the "traffic congestion" state. While North Carolina ranks 3rd among the 50 states in money spent per mile of roads, the money is not spent well. Our rural and urban interstates are poorly maintained and congested. One reason for the deterioration of the state's roads is that the General Assembly has not dedicated all highway-related revenues to highway construction and maintenance. More »

Privatization
Privatization is an umbrella term to describe techniques that increase competition in the public sector. Private sector entrepreneurs must constantly look for ways to cut costs and improve efficiency to maintain a competitive advantage. State agencies, on the other hand, are often the only service provider or, when there is competition with the private sector, they have unfair access to taxpayer funds. State agency personnel secure agency income, not by satisfying customers, but by satisfying special interest groups who lobby for and legislators who pass their agency budgets. Taxpayers and citizens alike benefit from privatization through lower costs and improved quality of services. More »

Compensation for Sterilization Victims
From 1929 to 1977, the State of North Carolina forcibly sterilized about 7,600 of her own people for possessing "undesirable" genetic traits in the name of eugenics. The practice, whose names derives from the Greek eugenes, meaning "well-born, of high stock," was a program pushed by Progressives in the early 20th century intending to deliberately further human evolution by preventing undesirables from reproducing and thereby fostering the reproduction of "desirable" members of society. More »

Judicial Elections Funding
North Carolina has a public (meaning taxpayer-financed) campaign financing system for appellate court judges and three Council of State positions: Auditor, Commissioner of Insurance, and Superintendent of Public Instruction. In recent years, the U.S. Supreme Court has struck down similar systems. In late May 2012, a federal judge struck down the state's matching funds system for appellate court candidates. By all appearances, North Carolina's system is unconstitutional. More »


Suggested Resources
The brevity of this briefing book obviously precludes lengthy discussion of many of the important and complicated issues that face state and local policymakers. We recommend that interested North Carolinians visit the following Locke Foundation Policy Reports and Spotlights, and that they contact one of the public policy research organizations in the next section for additional information. More »


About the John Locke Foundation

The John Locke Foundation is a nonprofit, nonpartisan policy institute based in Raleigh. Its mission is to develop and promote solutions to the state's most critical challenges. The Locke Foundation seeks to transform state and local government through the principles of competition, innovation, personal freedom, and personal responsibility in order to strike a better balance between the public sector and private institutions of family, faith, community, and enterprise.

To pursue these goals, the Locke Foundation operates a number of programs and services to provide information and observations to legislators, policymakers, business executives, citizen activists, civic and community leaders, and the news media. These services and programs include the foundation's monthly newspaper, Carolina Journal; its daily news service, CarolinaJournal.com; its weekly e-newsletter, Carolina Journal Weekly Report; its quarterly newsletter, The Locke Letter; and regular events, conferences, and research reports on important topics facing state and local governments.

The Foundation is a 501(c)(3) public charity, tax-exempt education foundation and is funded solely from voluntary contributions from individuals, corporations, and charitable foundations. It was founded in 1990. For more information, visit www.JohnLocke.org.


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The views expressed in this report are solely those of the authors and do not necessarily reflect those of the staff or board of the John Locke Foundation. For more information, call 919-828-3876 or visit www.JohnLocke.org.

©2012 by the John Locke Foundation

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