For Members Only is published monthly by NCCBI when the General Assembly is not in session  


Collins, Mitchell to receive NCCBI awards 
BET founder Johnson to keynote Annual Meeting

North Carolina’s business community will bestow its highest honors on one of the state's leading African-American businessmen and on one of the state's most noted jurists during the 62nd Annual Meeting of NCCBI in Raleigh next March 17.

The association will present its 2004 Citation for Distinguished Citizenship to Bert Collins of Durham, the president and CEO of North Carolina Mutual Life Insurance Co., and its 2004 Citation for Distinguished Public Service to former North Carolina Supreme Court Chief Justice Burley Mitchell Jr. of Raleigh. The awards will be presented during the luncheon session of the annual meeting at the Raleigh Civic and Convention Center.

Robert L. Johnson (right), founder and CEO of Black Entertainment Television (BET) and principal owner of the Charlotte Bobcats, the pro basketball expansion team that begins play this November, will deliver the keynote address at the event.

“Bob Johnson is a spellbinding speaker and one of the nation’s most innovative business leaders,” said NCCBI Chair Sue W. Cole of Greensboro. “He’s bringing the NBA back to Charlotte and bringing a lot of attention to our state,” Cole added. “I can’t wait to hear him speak at the Annual Meeting.”

Johnson founded BET in 1980 as a cable television network geared to serve the information and entertainment needs of African-Americans. The company has grown to become the leading African American-operated media and entertainment company in the United States, and reaches 75 million homes. 

In 2000, Johnson sold BET to Viacom Inc. for approximately $3 billion. Following the sale of BET, Johnson formed The RLJ

Companies. Under The RLJ Companies umbrella, Johnson owns or holds an interest in companies operating in the hospitality/restaurant, real estate, fast food, gaming and entertainment/media industries.

Collins (left), one of the Bull City's premier civic leaders, has served in various leadership capacities at N.C. Mutual since joining the company in 1967. He has served as president & CEO since 1990 and was senior vice president for seven years before that. He oversees N.C. Mutual operations in 23 states, and instituted programs that caused premium revenue to grow from $70 million to $100 million in 2002. With nearly $10 billion of insurance in force and more than $27 million in reserves and surplus, the 105-year-old company is the nation's oldest and largest African-American managed life insurance companies. It is the oldest life insurance company with headquarters and home office in North Carolina.

Collins, a native of Austin, Texas, graduated from Huston-Tillotson College there in 1955 and received an MBA from the University of Detroit in 1962. He was working as a CPA in Detroit in 1967 when a friend persuaded him to visit Durham; he wound up taking a job there with N.C. Mutual and has been with the company ever since. He also received a law degree from N.C. Central University in 1970.

Collins has served in many civic capacities. He has served on the boards of Mutual Community Savings Bank, the Life Office Management Association, and NCCBI. He has served as chairman of the trustees at N.C. Central and a member of the board of visitors at N.C. Central's School of Law, Duke University and N.C. A&T University.

Burley B. Mitchell Jr. (left) retired in 1999 as the chief justice of the state Supreme Court, a post he had held since 1995, to head the appellate advocacy and government relations groups of Womble Carlyle Sandridge & Rice. Before becoming chief justice, he served as an associate justice from 1982 to 1994, as secretary of the state Department of Crime Control and Public Safety from 1979 to 1982, as a judge on the Court of Appeals from 1977 to 1979, and as a district attorney from 1972 to 1977. He began his career in government service in 1969 as an assistant state attorney general. Mitchell received his bachelor's degree from N.C. State University in 1966 and his law degree from the UNC School of Law in 1969. He also is a U.S. Navy veteran.

Almost all seats gone for Economic Forecast Forum

With nearly 600 confirmed registrations received by mid-December, almost all available seats for the 2004 Economic Forecast Forum have been taken and event organizers announced that further registrants may have to be placed on a waiting list. The second annual event, co-sponsored by the N.C. Bankers Association and NCCBI, will occur Monday, January 5, at the Embassy Suites Hotel in Cary.

”We are overwhelmed and overjoyed at the response to the Forum,” said Bankers Association President Thad Woodard. “We initially expected a crowd of perhaps 500 but we quickly surpassed that. Fortunately, the hotel has confirmed to us that they can provide additional room to seat up to 600 people. As of today we are pretty close to that number, so we may have to start a waiting list and accommodate as many people as the facility physically will hold,” Woodard added.

“To me this is a reflection of the acute interest among business people in economic trends into 2004,” said NCCBI President Phil Kirk. “There are signs of a strengthening economy, but I think people are wanting to know how strong the recovery will be and where exactly we can expect to see the improvements.”

To inquire about reservations for the 2004 Economic Forecast Forum, call the Bankers Association in Raleigh at 919-781-7979. Seats are $50 each, which includes the luncheon and all conference materials.

Presenters at the Forum will include Graham Denton, President, North Carolina, Bank of America; State Treasurer Richard Moore, who recently was appointed to the executive board of the New York Stock Exchange; and Appalachian State University professor Dr. Harry M. Davis, Economist for the NCBA. Governor Mike Easley has been invited to participate.

Although winter weather can be uncertain, event organizers said the Forum would be held even if there were snow or ice. However, the Embassy Suites hotel in Cary where the event will be held is very near major transportation arteries that usually receive the first attention during inclement weather.

The hotel is located just off Harrison Avenue about half a mile south of the Harrison Avenue exit off Interstate 40. After exiting I-40 at Harrison Avenue (Exit 297) and turning south, go through the first stop light and turn right into Harrison Oaks Boulevard and the hotel is located half a mile on the right.

Because of the large crowd, attendees should plan to arrive early so they can be seated by the noon starting time.

If you are attending the event, please be sure you have marked your calendar for the date, time and location of the Forum.

NCBA and NCCBI wish to recognize the platinum sponsors of the Forum: Bank of America, BB&T, Blue Cross and Blue Shield of North Carolina, and RBC Centura. We also wish to thank the gold sponsors: BellSouth, First Citizens Bank, Gateway Bank & Trust / North Carolina's Northeast Partnership, GE Mortgage Insurance Company, GlaxoSmithKline, Haynsworth Baldwin Johnson & Greaves LLC, Kilpatrick Stockton LLP, Management Assistance: Programs & Services (MAPS), Progress Energy, Sprint, and U.S. Trust Company N.A.

Kirk addresses Appalachian State graduates
"Much of life is about choices, and it is our fervent hope that your education here at ASU has given you the ability to make the right choices," NCCBI President Phil Kirk told 800 graduates and an audience of 7,000 in the keynote address at the Boone university's winter commencement exercises in the George Holmes Convocation Center on Dec. 13.

He told them that "our choices take us in many directions. There are temptations involved in our choices.  Many times we take the path of least resistance. We are afraid to rock the boat.  Do not accept the status quo. Look for better ways to do things," Kirk said.

Kirk, who was introduced by Interim Chancellor Harvey Durham, urged the group to become leaders in their communities.  He said, "A leader develops goals and a vision.  Armed with a strong sense of values and high morals, an effective leader motivates and pushes and encourages.  Leaders must inspire trust and confidence.  They must be good listeners, hard workers, competent, optimistic, realistic, flexible, and trustworthy."

The speaker urged his audience to "be kinder than necessary--and make it a habit to do nice things for people who will never find out.  Our character can be measured by how we act when no one is looking."

He concluded by urging the graduates to consider public service as a career or part-time challenge.  "It is easy to criticize our public officials and they receive plenty of it. . .some deservedly but much of it is unwarranted. As we know, the few who make mistakes, the few who are dishonest, and the few who put personal gain receive the most attention.  Generally speaking, those who do their job in an efficient, honest way do not make the nightly news or the front page of the newspaper. That's life, that's human nature, and we are not going to change that perception."

Please welcome these new and returning members
Companies that joined or rejoined NCCBI in November, along with the name of the key executive at each company include: AC Corp., Charles Coker, Greensboro; Ashe County Government, Dan McMillan, Jefferson; Athol Manufacturing Corp., Mark A. Morris, Butner; Bank of the Carolinas, Robert Marziano, Mocksville; Beaufort County Hospital, Bill Bedsole, Washington; Bostic Development Inc., Steven Johnson, Greensboro; Bushhog America Inc., Mark Domske, Salisbury; Cannon & Gruber, Realtors, Harriet Gruber, Atlantic Beach; Carillon Assisted Living, Karen Moriarty, Raleigh; Carolina Classic Boats, Mac Privott, Edenton; Carolina Hurricanes, Matt West, Raleigh; Copland Fabrics Inc., Jason C. Copland, Burlington; D & L Appliance Parts Co. Inc., Ralph B. Brackett, Charlotte;

Dan K. Moore Lumber Co., Dan K. Moore, Jr., Lexington; Donlin Counseling Services, Don Cheek, North Wilkesboro; E.J. Pope & Son Inc., E.J. Pope III, Mount Olive; Eastern Federal Corp., George Royster, Charlotte; EVCO Construction Co., Everette Curlee, Charlotte; Farris Cooke & Associates PA,  Bob Farris, Charlotte; FNB Southeast Bank, Ernest Sewell, Reidsville; Gene Pleasants Agency Inc., Gene Pleasants, Raleigh; General Steel Drum Corp., Robert G. Bradford, Charlotte; H & H Distribution Services Inc., Jerry W. Hudson, Charlotte; Harnett Forward Together Committee, Johnson Tilghman, Lillington; Hepaco Inc., Mark Boland, Charlotte; Howard Keys, Howard J. Goldberg, Charlotte; Hunt Electric Supply Co., Hon. R. Sam Hunt III, Burlington; J. Arthur Dosher Memorial Hospital, Edgar Haywood III, Southport;

Johnson & Wales University, Arthur Gallagher, Charlotte; Johnson Law Firm PLLC, Sharon Johnson, Greenville; Kernodle Clinic Inc., Kevin Bilson, Burlington; Leath Marketing, Sales & Consulting LLC, Clifford T. Leath, Chapel Hill; Limited Brands Inc., Scott Kriss, Columbus, OH; Logix Group, Garry E. Williamson, Raleigh; Maria Parham Medical Center,  Michael L. Shields, Henderson; Marsh Pottery LLC DBA Carolina Pottery, Tim Marsh, Fort Mill, S.C.; Minges Bottling Group, Jeffrey Minges, Ayden; Minuteman Food Marts, D.M. Campbell Jr., Elizabethtown; N.C. Manufactured Housing Institute, Steve Zamiara, Raleigh; N.C. School Food Service Association, Gretchen Wilson, Washington; New South Waste Inc., Carole McLeod, Charlotte;

North State Bank, Larry Barbour, Raleigh; Novartis Pharmaceuticals Corp., Steve Mitchell, Apex; Office of Raymond D. Coltrain,  Raymond D. Coltrain, Salisbury; Office of Robert M. Lewis, Robert Lewis, Salisbury; Office of Louis M. Pate Jr., Hon. Louis M. Pate Jr., Mount Olive; Pappas Properties, Peter Pappas, Charlotte; PHT International Inc., Stephanie Broom, Charlotte; Prim Development Inc., Tommy Hester, Henderson; Regency Park Corp., Eric M. Salomon, Cary; Reins-Sturdivant, Wayne Myers, North Wilkesboro; Roxboro Area Chamber, Adrienne McLean, Roxboro; S.C. Hondros & Associates Inc., Sam Kleto, Charlotte; Scott & Jones Inc., Elwood Jones, Calypso; Snug Seat Inc., Kirk L. MacKenzie, Stallings; Sockwell and Associates, Susan Jernigan, Charlotte; Stearns Automotive Group, Dale Stearns, Burlington; Taylor Business Products, Pat Taylor, North Wilkesboro; Town of Elkin, Eddie Smith, Elkin;

Transbotics Corp., Claude Imbleau, Charlotte; Tri-Arc Foods, Tommy Haddock, Raleigh; Tri-State Trading, Theodora J. Sexstone, Charlotte; United Way of North Carolina, Jim Morrison, Raleigh; Universal Manufacturing & Logistics Inc., Maureen Herrington, Grover; Willis Smith Co., Stewart Smith, New Bern; Wilson Medical Center, Christopher Durrer, Wilson; Withrow Asset Management LLC, Chris Withrow, Charlotte and The Wooten Co., Amy Bergner, Raleigh.


Names in the News

Magazine mourns loss of key staff member
The NCCBI family was saddened by the sudden death on Nov. 16 of Steve Johnson, the magazine’s advertising sales representative for Charlotte, the Triad and Western North Carolina. Johnson, who joined the magazine staff two years ago after a long career with the Salisbury Post, died at Carolinas Medical Center in Charlotte after suffering a dissected aorta, the same heart condition that recently claimed the life of actor John Ritter. Johnson, 57, was chairman of the Rowan County Planning Board and active in many civic activities in the Salisbury area. A Salisbury native, he and his wife, the former Libby Thomason, had two children and two grandchildren. “Steve Johnson brought tremendous professionalism to NCCBI and his aggressive marketing efforts were a key factor in the magazine’s financial success over the past two years,” said Editor Steve Tuttle. “He also will be missed because he was a good man, someone you enjoyed working with every day.”

Asheville attorney elected Golden LEAF chair
The board of directors of the Golden LEAF Foundation has elected William “Billy” Clarke, an Asheville attorney with the firm of Roberts & Stevens, as its new chair. Clarke, who is a founding member of the Golden LEAF board, succeeds S. Lawrence Davenport of Pactolus. The board also elected Richard Holder of Kinston, president of Harvey Fertilizer and Gas Co., as vice chair; Michael A. Almond of Charlotte, president and VRO of the Charlotte Regional Partnership, as secretary; and Debbie E. Worley of Princeton, a farmer, as treasurer. The Golden LEAF Foundation was established in 1999 and administers half of the money received by the state from its settlement with cigarette manufacturers. Since its inception, it has made 256 grants totaling $102,020,646.41 to non-profit organizations and government entities throughout North Carolina to help communities make the transition from a tobacco-dependent economy and create new job opportunities in economically distressed areas.

State Government News

Details emerge on incentives bill passed by special session
Meeting for its third special session of the year, the General Assembly on Dec. 10 approved tax incentives designed to lure a 200-job Merck & Co. vaccine plant to Durham and to cement R.J. Reynolds Tobacco Co.'s plans to add at least 800 jobs in Winston-Salem. Observers said the legislation sends a signal that North Carolina is serious about recruiting new industries and is willing to be competitive with other states in economic development incentives.

The Senate approved the package by a 32-4 vote and the House followed suit on a 76-18 vote. The overall cost to taxpayers of the proposed incentives exceeds $240 million. However, Commerce Department officials estimate the Merck plant will increase the state gross domestic product by $66 million a year, and ultimately will bring a net benefit in state taxes of $20.6 million over a 20-year period.

The package would give Merck up to $24 million to acquire and develop 256 acres in Treyburn Corporate Park in Durham County, plus $12.8 million in other incentives, including a $4.8 million rebate on state sales taxes on building materials and equipment. In return, Merck has pledged to invest up to $300 million in the vaccine plant. The sales tax rebate also would go to other pharmaceutical and biotech companies that invest at least $100 million and employ at least 100 new workers.

The legislation extends for 13 years the cigarette export tax credit that is set to expire next year -- a move worth about $78 million to RJR. That provision also would give an equal amount to Philip Morris USA. The package also would give Reynolds $4 million in annual job tax credits for up to 12 years.

The Senate added a provision to set up a bond authority to study ways to attract biotechnology companies to North Carolina and to recommend specific incentive packages. The measure spends no money. Under pressure from Lorillard Tobacco Co. in Greensboro, the Senate also added a provision that expands eligibility for the export credit to sales in U.S. territories. Lorillard would benefit as much as $200,000 a year.

A detailed look at the new legislation begins on page 14.

Some workers’ comp rates declining this year
Companies with good experience ratings for their workers’ compensation insurance should see their premiums fall by 1 percent in 2004 while companies in the assigned risk pool will see a 5 percent increase, Insurance Commissioner Jim Long said. The change in rates reflects a compromise settlement that Insurance Commissioner Jim Long reached with the North Carolina Rate Bureau, the organization that represents all workers compensation insurance companies in the state. The Rate Bureau had requested an 8.2 percent increase in rates for voluntary loss costs and a 19.5 percent increase for the assigned risk rates. Long said the settlement will save businesses $92 million over what they would have paid under the requested rate structure.

Auto emissions testing spreads to eight additional counties
The state’s new auto emissions testing program expands to eight more counties effective Jan. 1. The new counties include Alamance, Chatham, Franklin, Lee, Lincoln, Moore, Randolph and Stanly. Emissions tests currently are required in 15 counties: Cabarrus, Catawba, Cumberland, Davidson, Durham, Forsyth, Gaston, Guilford, Iredell, Johnston, Mecklenburg, Orange, Rowan, Union and Wake. New counties will be added to the emissions testing program each January and July, eventually including 48 counties by 2006. Counties were selected for the program based on air monitoring data as well as the number of registered vehicles and commuting patterns.

Federal Issues
Study reveals how overhead costs harm manufacturing

Higher labor costs are one major reason why U.S. manufacturers have trouble competing overseas, but a new study shows that non-production costs – corporate tax rates, employee benefits, tort litigation, regulatory compliance and energy costs – also are a big drag on productivity. The study by the National Association of Manufacturers shows that these external, non-production costs add about 22 percent to unit labor costs  -- nearly $5 per hour worked -- relative to our major foreign competitors, and are the primary competitive challenge facing manufacturers today.

“Severe global competition has caused manufacturing product prices to decline for the past seven years while non-production costs are skyrocketing,” NAM President Jerry Jasinowski said. “We are essentially shooting ourselves in the foot competitively by making it too expensive to make products in America.” The finding is part of a new study, “How Structural Costs Imposed on U.S. Manufacturers Harm Workers and Threaten Competitiveness,” by economist Jeremy A. Leonard.

The study concludes that the raw cost index for U.S. manufactures is $24.30 an hour. That compares with $8.11 in Mexico, $16.92 in Japan, $5.34 in China and $16.41 in Taiwan (see chart above). However, after factoring in overhead costs such as corporate taxes, employee benefits and other costs, the differences widen. The overall difference becomes $24.30 an hour in the U.S. compared to the $16.02 an hour average among our nine largest trading partners.

The study found that U.S. manufacturers mostly are penalized by:
 Excessive corporate taxation.

 Escalating costs of health and pension benefits.

 Escalating costs of actual or threatened tort litigation.

 Escalating compliance costs for regulatory mandates, particularly those related to workplace safety, pollution abatement, and corporate governance.
 Rising energy costs, particularly natural gas.

Thomas J. Duesterberg, president and CEO of the Manufacturers Alliance/MAPI, said the new study for the first time provides a comprehensive analysis of the unique cost burden carried by U.S. manufacturers. “Now that the magnitude of these underlying costs pressures is understood, it is important that federal and state officials begin to address them with new pro-manufacturing policies,” he said. “Foremost among these should be tax, regulatory, health and legal reforms.”

The Leonard study introduces a “raw cost index” for manufacturers that compares the competitiveness of U.S. producers with those in its nine largest trading partners, and compares costs before and after the cost multipliers have been weighed. “This study dispels the myth that most of our industrialized partners face higher manufacturing costs than we do,” Leonard said. “Shifts in international trade trends have generally been masked and our report shows that American trade is increasingly with developing countries where production costs are considerably lower than in the U.S. Our corporate tax burden is heavier than in eight of our nine largest trading partners, and pollution-abatement costs are significantly higher than in most other developed countries, including the so-called ‘green’ economies of Western Europe.”

“There are many self-proclaimed friends of manufacturing expressing concern who are nowhere to be seen when these excessive non-production costs are on the table,” said Jasinowski. “Taken together, external non-production costs have offset a large part of the 54 percent increase in productivity achieved since 1990. It is imperative that our elected representatives at all levels take a hard look at the costs created by their actions – and sometimes lack of action – and the impact on our economy. We simply must forge a more pro-worker, pro-manufacturing climate if our industrial leadership is to be maintained and strengthened.”

Despite a clear return to competitive pre-eminence in the 1990s due to strong innovation and productivity gains, the position of U.S. manufacturers in global trade has shown a marked deterioration in the last five years.

Import penetration of the U.S. market has risen markedly since 1980, and more rapidly since the 1997-98 financial crisis in Asia and Latin America. We now have a trade deficit in the goods sector equal to one-quarter of all output of the domestic manufacturing sector.  At the same time, the U.S. share of global export markets has fallen from a high of nearly 14 percent in the 1990s to about 10.7 percent in 2002.

The new Medicare legislation: What does it mean to you?
The press has been full of stories and analyses of the new Medicare Prescription Drug and Modernization Act of 2003 signed into law by President Bush on Dec. 8. Some of your employees may have approached you with questions about what the law will mean to them and how it will impact their retirement. Below is an analysis of the new law prepared by the NAM that specifically addresses questions that business people may have.

Medicare, though a public program (that mostly provides health benefits to seniors), affects all employers regardless of size. Employers and workers support Medicare through both payroll taxes (currently 2.9 percent, divided evenly) and income taxes. Manufacturers are also among the biggest current providers of retiree health coverage.

Medicare faces a future funding crisis as increasing numbers of seniors (including the huge "baby-boom" generation) join the program over the next 30 years. In addition, continued advances in medical and pharmaceutical technology will both advance the health and well being of seniors, but at an uncertain future cost. Without aggressive reforms, Medicare will literally swamp the federal budget in the future. This legislation takes the necessary first steps toward ensuring Medicare's long-term viability.

Without question, this new law is far from perfect, but it is good for seniors and present or future beneficiaries. It is also good for the employers and workers who pay payroll taxes and for those employers who sponsor and those retirees who receive retiree health benefits. It is also good for the future workers who will help support tomorrow's retirees.

Key Highlights

Medicare Reforms - The new Medicare reform law will help assure that Medicare can meet its future obligations through increased emphasis on preventative health care (initial screening physical and better management of chronic health conditions), reducing the regulatory burden Medicare imposes on physicians, hospitals, pharmaceutical and device manufacturers, and by creating the seeds of future beneficial private competition both between private entities and ultimately with Medicare itself. It also offers new choices to seniors, an essential element to future competition.

Drug Benefit - The bill also provides for new consumption-based prescription drug coverage to be provided by competing private insurers with a federal fallback. Significantly, the new benefit is comparable to private drug coverage including an emphasis on individual responsibility. The bill also provides flexibility in benefit design and assistance to employers who sponsor retiree health coverage.

Basic Drug Benefit - The bill provides for a base drug benefit of 75 percent of the cost of pharmaceutical drugs consumed between $250 and $2,250. Medicare beneficiaries would be wholly responsible for their drug spending between $2,250 and $3,600. Beneficiaries would be responsible for 5 percent of all drug expenditures above $3,600. Low-income seniors (defined by both income and assets) would have no gap in coverage and minimal co-payments.

Retiree Health Care - Employers sponsoring retiree health coverage as good as or better than Medicare would be credited for 28 percent of Medicare-eligible retiree drug spending between $250 and $5,000. Employers could also wrap around the Medicare benefit or pay their retirees' premiums for new private Medicare Preferred Provider Organizations. Significantly, there is no maintenance of effort mandate to force unwilling employers to provide retiree health coverage. The assistance to employers is not taxable.

Health Savings Accounts - Creates Health Savings Accounts (HSAs), available to both active and retired workers from companies of all sizes to manage their out-of-pocket health care expenses. Similar to the Archer Medical Savings Account (MSA) demonstration project, HSAs will not be restricted in the total number of accounts, size of the sponsoring employer or age of the account holder. HSAs potentially could revolutionize benefit design and health care.

Prescription Drug Discount Card - A new prescription drug discount card will be available to all beneficiaries by early 2004. Discounts are projected to be 25 percent or more off of the cost of prescription drugs.

Private Competition with Medicare - Limited direct private competition with Medicare in six geographic areas would begin in 2010.

Income Testing - The new Medicare reform law will introduce income-testing to Medicare Part B premiums beginning in 2007.

Cost Containment - Creates a trip wire if the general revenue share of Medicare spending exceeds 45 percent. President must then submit legislation to change Medicare sufficiently to lower the percentage below 45 percent. Also creates an expedited procedure for House and Senate to consider the bill.

Pharmaceutical Industry - The new Medicare reform law seeks to speed the entry of generic drugs into the market, but also better protects existing patent rights than would have previous proposals. The new law allows the importation of prescription drugs from Canada, but maintains the important safety protection of requiring the Department of Health and Human Services to certify first that such importation would be safe to consumers.

Durable Medical Equipment - The new law will freeze durable medical equipment payments between 2004-2008. Competitive bidding would be introduced in 10 of the largest metropolitan statistical areas (MSAs) in 2007, 80 in 2009, and more widely in the years beyond. The HHS Secretary is authorized to exclude certain noncompetitive areas, such as rural states or regions, from competitive bidding.

Rural Health Care - The new Medicare reform law also provides substantial relief to rural health care providers.

Ongoing Concerns

Implementation - If the devil lies in the details, then hell may well be found in the implementation of this complex, nearly 700-page law. The NAM and our coalition colleagues [the Employers' Coalition on Medicare (ECOM) and the Alliance to Improve Medicare (AIM)] will carefully monitor the staged implementation of this new law.

Fiscal Concerns - Critics have rightly pointed to the financial implications of adding a new benefit to a foundering but massive entitlement facing a vast influx of new beneficiaries. Medicare's inadequate coverage desperately needed to be broadened to include prescription drugs, an essential element of modern medicine. Retiree health coverage - a mainstay of private coverage today - would likely disappear absent federal intervention due to rising costs and pressures brought through federal accounting rules. This new coverage will help reduce medical/surgical interventions and has made possible the initial reforms vital to Medicare's sustainable future.

Future Reforms Required - The Medicare Prescription Drug and Modernization Act of 2003 is the base and basis for future reforms and will necessarily have to continue to change as the numbers of Medicare beneficiaries greatly increases in future years. The NAM and our members will have to be particularly vigilant as spending on Medicare and other entitlements increases in the coming years.
 

On Capitol Hill
An update on political issues provided
by the National Association of Manufacturers
 
OMNIBUS SPENDING BILL POSTPONED: The House-passed (242-176) FY04 omnibus spending bill was delayed in the Senate in December. In an effort to ensure quick passage when the Senate, Sen. Majority Leader Frist (R-TN) filed a cloture motion on the $820 billion package, thereby limiting debate. Frist expects final passage to occur shortly after the vote. The bill failed to gain unanimous consent after objections by Minority Leader Daschle (D-SD) and Senate Appropriations ranking member Byrd (D-WV).

SENATE DEFERS ACTION ON 30-YEAR TREASURY REPLACEMENT: The Senate adjourned in December without acting to replace the “defunct” 30-year Treasury interest rate used for pension calculations. The current “fix,” enacted in 2002, expires at the end of the year. Prior to adjourning, however, the Senate approved a motion to proceed to consideration of H.R. 3108 in January with limited amendments. Specifically, the Senate could only consider amendments on the discount rate, relief for deficit reduction contributions and relief for multi-employer plans. We thank our members for all your support; and plan to redouble efforts next year to ensure that this critical issue is addressed.

AFL-CIO FIGHTS NEW FINANCIAL FILING RULES: The AFL-CIO recently filed suit in federal court to block updated Labor Dept. regulations requiring large unions to file more detailed annual financial reports beginning on or after Jan 1, 2004.  It’s unfortunate the union is doing so, because enhanced disclosure will help union members better exercise their self-governance rights and detect financial mismanagement and misconduct by union officials.  To see rules, go to www.olms.dol.gov.

FCC POSTPONES CERTAIN NEW AND NARROWING RULES: The Federal Communications Commission (FCC) has for several years been working on greater spectrum efficiency in private land mobile bands by narrowing the bandwidth used by private, internal-use radio. In February 2003, the FCC adopted mandatory conversion deadlines for licenses and other stringent requirements. The FCC, however, recently postponed the effective date of prohibition on accepting new/modified wideband applications, meaning that licensees will: 1) have additional time to apply for such systems; and 2) licensees should act now in case the FCC reimposes a deadline. This issue, while very technical, has major cost implications for many companies.


Here is a summary of H. 2 Job Growth and Infrastructure Act prepared by the General Assembly’s staff:

Main Points

 Appropriates $24 million to a nonreverting fund to be used for site infrastructure for major industrial projects.
 Makes various changes to the Job Development Investment Grant (JDIG) program.
 Extends the Bill Lee Act sunset and other deadlines for major pharmaceutical manufacturing and bioprocessing facilities.
 Authorizes annual sales tax refunds for construction materials for major pharmaceutical manufacturing and bioprocessing facilities, effective Jan. 1, 2004.
 Extends the sunset on the cigarette exportation tax credit from 2005 to 2018 with the additional requirement that the taxpayer use the N.C. State Ports. The credit may be claimed by successors in business and modifies the base year determination.
 Allows a corporate income tax credit for tobacco manufacturers who export cigarettes to foreign countries, who use the N.C. State Ports, and who maintain employment levels in the state that exceed the corporation's employment level in North Carolina at the end of 2004.
 Establishes an authority to study and make recommendations for creating a credit enhancement program for financing construction of infrastructure for life sciences manufacturing facilities.

Issues in Detail

Major Industrial Site Infrastructure
The act creates a nonreverting Site Infrastructure Development Fund in the Department of Commerce to fund site acquisition and development and other capital expenses related to major industrial development. The act would appropriate $24 million to the fund for Fiscal 2003‑04. A Site Infrastructure Development incentive may be in the form of a restricted grant or forgivable loan directly to a business or a grant to a government or nonprofit agency to administer the incentive.

Projects built with this appropriation are exempted from state construction requirements and state purchase and contract requirements except when public funds are expended. In those cases, the state's policy of minority participation and state's minority participation goal of 10 percent applies. Projects are also exempted from that part of the State Environmental Policy Act requiring detailed environmental impact statements when public funds or public lands are used for projects and programs significantly affecting the quality of the environment.

To qualify for a site development incentive, a business must employ at least 100 new fulltime employees and invest at least a $100 million of private funds in the project. A business must also provide health insurance for its full-time employees and have a history of compliance with OSHA and programs implemented by the Department of Environment and Natural Resources.

The Department of Commerce and the Economic Investment Committee[1] will administer the selection process, including developing appropriate criteria for evaluating applicants. Section 1.3 of the act exempts them from rulemaking procedures in administering this program. Site development incentives can be awarded only if necessary to secure the project in this state. Before approving an application, the committee must find that the price to be paid for the site is appropriate and not excessive. Section 1.4 of the act provides that the JDIG conflict of interest restrictions will apply to the site infrastructure development program as well.

Once an incentive is awarded, Commerce will enter into an agreement with the business to provide site development within available funds. The agreement must include a provision prohibiting a business from receiving a payment or other benefit under the agreement when the business has received notice of an overdue tax debt and the overdue tax debt has not been satisfied or otherwise resolved. The agreement is binding on both parties. The agreement must include performance criteria, remedies, and other safeguards to protect the state's investment. The Attorney General must review and approve each agreement.

After a site development incentive is in effect, the Department of Commerce is responsible for monitoring the business's compliance with performance criteria and for carrying out the clawback process if there is a default. The Department of Commerce is required to report quarterly to the Governmental Operations Committee on the details of the program, including projects that receive incentives and any defaults and repayments. This report must also be made available to the public.

Job Development Investment Grant Changes
Part 2 of the act makes several changes to the JDIG program. Section 2.2 provides that, in determining whether a business has increased or maintained employment, the Economic Investment Committee can decide to look at a division or unit of a business rather than the entire business. Choosing this option means that if the entire business decreases employment, it may still qualify for a grant for a division or unit within the business that increases employment. The committee can choose this option only if it is necessary to secure the project and the contract contains terms to assure that the business does not create eligibility by transferring existing jobs to the project.

Section 2.3 repeals the wage standard as it applies to the JDIG program. This proposal arises due to several concerns. First, at the time a business applies for a JDIG grant, the wages to be paid are just projections. Second, the law has been interpreted to require the jobs to meet not only the current wage standard, but also future wage standards, which can fluctuate annually. This creates a great deal of uncertainty as to the prospect of actually receiving a grant in future years of the contract. Third, while there is no wage standard for tiers one and two and the wage standard is set below the county average for prosperous tier five counties, the mid-range counties must meet the actual county average. With sudden and severe dislocation, the wage standard may block incentives for a project that would be vital to economic recovery for a county suffering from dislocation of manufacturing industries. Finally, because grants are awarded at the discretion of the committee, the committee can use its judgment to assure that grants are not awarded to inappropriate, low‑wage projects.

Sections 2.1, 2.4, and 2.5 are more technical. Section 2.1 clarifies that the base period for measuring performance under a grant agreement can be any 24 months starting when performance begins – it is not limited to calendar years. Section 2.1 also adds the definition of enterprise tier to the statute. Section 2.4 clarifies the procedure for publication and public comment on proposed changes to the JDIG criteria. Section 2.5 clarifies that payments under a grant can begin on a future date after it is awarded, as long as they begin within six years.

Extend Bill Lee Credits for Certain Major Industries
In 2002, the General Assembly extended the sunset date on the Bill Lee Act until Jan. 1, 2010, for certain interstate air couriers and also increased various time frames in the Bill Lee Act from two years to seven years. The rationale for these extensions was that the interstate air courier industry, and the construction of a hub in particular, face many regulatory, administrative, and legal hurdles not generally faced by other industries. Due to these extra burdens, there is generally a longer period between the time that a project is announced and a location is selected and the time the facility is placed in service.

Effective beginning with the 2004 tax year, Part 3 of the act makes the same extensions for eligible major industries. An eligible major industry is either of the following two industries if the taxpayer will invest at least $100 million in acquiring, constructing, or equipping a facility to engage in the industry: Bioprocessing and Pharmaceutical and Medicine Manufacturing and the Distribution of Pharmaceuticals and Medicines. If the taxpayer does not in fact invest the required amount, it forfeits the benefits of the extensions and must repay the credits.

Major Industrial Facility Sales Tax Refunds
Part 4 of the act creates an annual refund of state and local sales taxes paid on construction materials and fixtures for facilities that involve the investment of more than $100 million by the taxpayer and are primarily used for either of the chosen industries. The taxpayer must apply for the sales tax refund within six months after the end of the state's fiscal year. The refund would become effective for sales taxes paid on or after Jan. 1, 2004. If, after obtaining a refund, the taxpayer does not end up investing the required amount, the taxpayer forfeits the refund.

Cigarette Exportation Tax Credit
Part 5 of the act extends for 13 years the sunset of the corporate income tax credit for manufacturing cigarettes for exportation enacted in 1999. The credit is a dollar amount per cigarette exported for those manufacturers who export at least 50 percent as many cigarettes in the taxable year as they did in calendar year 1998. The dollar amount ranges from forty cents to twenty cents per 1,000 cigarettes exported. The credit is capped at the lesser of $6 million per year or 50 percent of the manufacturer’s corporate tax liability for any given year. The credit was set to sunset for cigarettes exported on or after Jan. 1, 2005 but the act changes that to 2018. Part 5 also provides that the taxpayer must export cigarettes through the State Ports.

It allows a successor in business to a corporation that claimed the credit to continue to claim the credit. In this case, the amount of credit allowed is determined by comparing the exportation volume of the corporation in the year for which the credit is claimed with all of the corporation's predecessor corporations' combined base year exportation volume. This provision becomes effective for cigarettes exported on or after January 1, 2005.

It expands the credit by allowing the credit to be claimed for the exportation of cigarettes to a possession of the United States or a commonwealth of the United States that is not a state. This provision becomes effective for taxable years beginning on or after January 1, 2004.

Prior to enactment of the cigarette exportation tax credit during the 1999 Session, the issue was raised as to whether or not that tax credit would violate GATT, one of the international trade agreements. The General Assembly staff was of the opinion that the tax credit would violate GATT, while counsel for one of the four tobacco manufacturers disagreed. This issue has not been resolved, and the proposed credit in this act presents the same issue. It is clear, however, that any challenge to either the current credit or the credit created in Part 6 of this act must come from a foreign government. If a foreign government were to challenge the credit, then the U.S. Justice Department could sue North Carolina. If the Department were to win, the federal statute provides that relief would be prospective only and persons who had already used the credit could not be required to repay it. Private citizens have no cause of action on the issue.

Enhanced Cigarette Exportation Tax Credit
Part 6 of the act would allow a corporate income tax credit for tobacco manufacturers who export cigarettes to foreign countries, who use State Ports, and who maintain employment levels in this state that exceed employment levels at the end of 2004 by at least 800 full-time employees. The credit is a dollar amount per cigarette exported for those manufacturers who meet the eligibility requirements. The credit amount is equal to forty cents per 1,000 cigarettes exported. The credit is capped at the lesser of $10 million per year or 50% of the manufacturer’s tax liability for any given year. The credit may be taken against the corporate income tax or the franchise tax, or a combination of the two, at the election of the taxpayer. Once made, an election is binding and applies to all carryforwards of the credit. The taxpayer may make a different election each year for credits earned during that year. Unused portions of a credit may be carried forward for 10 years.

The credit created in Part 6 differs from the credit allowed under Part 5 in several key ways. This credit has a higher cap ($10 million as opposed to $6 million), a longer carryforward period (10 years as opposed to five years), and may be taken against the income tax and/or the franchise tax (as opposed to only the income tax). In addition, the credit requires job creation whereas the credit currently allowed under G.S. 105‑130.45 does not. A taxpayer may take either this credit or the one in G.S. 105-130.45; a taxpayer may not claim both credits for the same activity.

Life Sciences Revenue Bond Authority
Part 7 of the act creates a Life Sciences Revenue Bond Authority in the Department of State Treasurer, effective when the act becomes law. It is step one of a two‑step process. First, the authority will study the best method for establishing a credit enhancement program for construction of infrastructure for life sciences manufacturing facilities. After the authority reports its findings and recommendations to the General Assembly by May 1, 2004, the act anticipates that in the second stage the authority would administer any program enacted by the General Assembly.

One example of a credit enhancement vehicle would be revenue bonds. Under existing law, the state and local governments can issue tax‑exempt industrial revenue bonds for manufacturing and pollution control facilities. The bonds are retired with payments from the private business that will use the facility. The private business benefits from paying tax‑exempt rates, rather than the taxable rates it would pay if it borrowed the money itself. Under Part 5, the authority will consider using industrial revenue bonds and other approaches to credit enhancement in order to encourage the expansion of the life sciences manufacturing industry in this state.

The findings portion of Part 7 identifies the life sciences as including biology, zoology, agronomy, biochemistry, genetics and molecular biology.