Gov. Mike Easley and members of the General Assembly will again have to tangle with a significant state budget shortfall when they return to work later this month, and millions of dollars from North Carolina’s share of the national tobacco settlement will likely help close the gap.
Budget analysts expect a difference of at least $1.26 billion between projected revenues and expenditures for the upcoming session. Since the century began with near-annual enormous deficits, lawmakers have regularly intercepted millions of dollars in payments from tobacco companies to two of the state’s special funds, which were designated to administer the money. The Tobacco Trust Fund and the Health & Wellness Trust Fund were to each receive one-quarter of the payouts to the state, with the former compensating tobacco farmers for economic losses and the latter designed to promote anti-smoking initiatives and other health programs.
In 2002 Easley took $110 million from the two funds to balance the budget for the remainder of that fiscal year. The two-year budget plan passed in 2003 seized another $130 million from the two trusts.
But Easley and legislators have failed to touch the foundation that they designated to receive the other half of the state’s tobacco settlement money: Golden LEAF (Long-term Economic Advancement Foundation). The Rocky Mount-based nonprofit has received $412.6 million so far, with a mission to foster economic development in the “tobacco dependent” regions of North Carolina.
Easley has said in the past that because Golden LEAF is organized differently from the Tobacco Trust and the Health & Wellness Trust, the government has questionable legal authority to seize its money. Golden LEAF’s board of directors are appointed by the governor, the speaker of the House of Representatives, and the Senate president pro tem.
When Easley helped negotiate the national settlement in 1998, he lobbied the General Assembly to create Golden LEAF to distribute half of the state’s projected $4.6 billion, over 25 years, from major tobacco companies. Easley said in an August 2002 press conference that he wanted Golden LEAF created because the state needed an aggressive economic development engine, “one that operates outside the grasp of political pressure, as this one does.”
But while Golden LEAF has been protected from actual legislative seizure of its funds, Easley’s vision that it be sheltered from political pressure turned out to be fantasy. In October 2002 Carolina Journal reported that State Sen. President Pro Tem Marc Basnight, wrangling with a $1.5 billion budget shortfall, threatened to intercept $40 million of Golden LEAF’s money if it refused to fund a $150 million biotechnology investment plan. The foundation, in response, devised a $85.4 million plan to fund biotechnology projects which promised Basnight “an economic stimulus program of investments and grants” that would leverage $350 million in outside investment into the state.
Comments by Golden LEAF board members demonstrated their protectiveness over their resources, and that they believed more than Easley that they were vulnerable to government confiscation of their funds. Michael Almond, a director from Charlotte, told the Winston-Salem Journal before the biotechnology initiative, “I’m not sure that I would vote for any economic stimulus package if they take our money.”
Almost a year later, in a June 2003 meeting of the Golden LEAF board, directors engaged in a self-evaluation session and discussed what they should do in the future. In one segment board members were asked to identify the most successful thing the foundation had done. According to meeting minutes, “‘protecting money from legislative interception’ was the top vote getter for the most successful things accomplished by the foundation.” Most members believed that “thinking too small” was the least successful thing the foundation had done.
In another evaluative exercise Golden LEAF directors were asked to list things they would like the foundation to keep doing, to start doing, and to stop doing. Ranked most important by board members for the foundation to “keep doing” was “protecting the foundation’s income stream.” Most directors wanted Golden LEAF to “start” marketing the foundation better “to the people we serve,” and wanted it to “stop being deterred by negative media.”
At a board of directors retreat in Southern Pines in February 2004, members still exhibited concern about outside forces influencing their decisions. Among comments about managing distribution of money was that directors should “resist political pressure to award funds.” Participating members were also asked to list strengths and weaknesses they perceived in Golden LEAF’s board of directors. “Political sensitivity” was listed as one of the board’s weaknesses.
Faced with the scheduled sunset of tax increases on the highest income bracket and on the state’s sales tax, Easley and the General Assembly are likely to eye tobacco settlement funds once again to overcome the budget shortfall this year. It remains to be seen whether they will target Golden LEAF this time, and if they do, how fervent its board will be in protecting their funds.
Paul Chesser is associate editor of Carolina Journal. Contact him at [email protected].