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Wednesday, 16 February 2011 20:10

Golden LEAF on the chopping block

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It’s no secret that the state budget is in a tight spot. In the few weeks the General Assembly has been in session, a raft of new laws already have hit the legislative floor, most proposing cuts in varying degrees of severity.

But perhaps the most debated has been Senate Bill 13, a Republican-penned proposal called the Balanced Budget Act of 2011. The bill calls for several money-moving measures that would dip into special pots of money in an effort to relieve the deficit — the most controversial being a proposal to raid the coffers of the Golden LEAF.

Golden LEAF has handed out hundreds of millions in grants during the past 12 years. Its purpose: use proceeds from the lawsuit against tobacco companies to help tobacco-dependent communities transition away from the ever-diminishing returns of the once-bumper crop and into other economic markets.

As the crown jewel of King Tobacco’s reign, few areas have benefited from the funds as much as the western counties. Haywood County alone has received more than $2.7 million in grants from Golden LEAF to fund projects such as the new Regional Livestock Market, a covered arena at the fairgrounds, a sewer line upgrade along Champion Drive in Canton and the Buy Haywood program, which helps local growers market and sell their products.

Jackson County has gotten more than $3.5 million to fund projects, though a good share of that was for regional efforts such as WNC EdNET, a program to bring broadband technology into public schools in six western counties.

Over the years, Golden LEAF has taken in $867 million and doled out just more than half of that as grants and scholarships, keeping the rest invested. Every year, the pot gets another influx of funds from the structured tobacco settlement, and that money is invested for future use.

For WNC, said L.T. Ward, that money has been invaluable, and losing it would be a hefty blow. Ward is the vice president of WNC Communities, the group that, among other things, is the driving force behind the Regional Livestock Market that’s scheduled to open next month in Canton.

The market will offer a place for local cattlemen to sell their livestock, something that’s currently missing from the regional landscape. Such a market is vital for the many former tobacco farmers who have now turned to cattle to replace their lost or dwindling profits.

That particular project got $600,000 from Golden LEAF, and more than that from the Tobacco Trust Fund, whose yearly allocation is also on the chopping block in SB13.

“If the Golden LEAF was not there, the numerous innovative ideas that are continuing to come forward would not because of lack of funding or encouragement,” Ward said. “We obviously would’ve been short of budget considerably.”

But lawmakers in favor of the bill — Republicans all, the vote was split directly down party lines — are quick to point out that no one is proposing a permanent shutdown of Golden LEAF. It’s more, they say, like a one-time emergency payment.

“We’re just taking this year’s allocation for the Golden LEAF,” said Rep. Jim Davis, R-Franklin. “The Golden LEAF still has $560 million. Their principal is still there.”

And while Davis stopped short of praising the fund outright, which many Republicans, particularly those outside rural areas, are wont to refer to as pork spending and corporate welfare, he was adamant about the proposal’s status as a temporary budget measure to cover this year’s shortfall.

But for those closest to Golden LEAF and its benefits, they’re afraid that the one-time measure will be a gateway to endless diversions of the foundation’s money away from the economically depressed communities it was created to help.

And it’s important to note that the money would be diverted for this year’s budget, which is already balanced. Next year, a $2.4 billion deficit, according to the most recent estimates, still lies in wait.

 

Robbing Peter

If you’re looking for a more vehement opponent of SB13 than Dan Gerlach, it would likely be a futile search. As president of Golden LEAF, he’s understandably worked up about the idea of swiping the foundation’s annual paycheck, and he’s worried that it won’t stop there.

He’s sympathetic, he said, to the legislature’s plight. There’s a pretty big gap between what they’ve got and what they need, and the cash to fill it has to come from somewhere. But he’s concerned that funneling it away from long-term economic drivers such as  Golden LEAF will only lead to more fiscal heartache in the future.

“The thing we’re defending against is the precedent that it would set,” said Gerlach. “Once you start diverting funds from their original purpose into the state’s general fund, it’s easier for this to happen again and again and again. We’ve been good stewards of this money, we should be allowed to continue to do so.”

That is precisely the argument that Democratic lawmakers are making, that while once in an emergency might be appropriate, it opens the floodgates to a slippery slope of fund rediversion that will eventually bleed the original funds dry.

“The first dip into that money is the hardest,” said Rep. Ray Rapp, D-Mars Hill. After that, he said, a dip back into the well becomes easier every time.

 

Unintended consequences

For Rapp, however, opposition isn’t just about the slippery slope argument, but about the unintended consequences that he sees this bill fostering.

“The funds just are not going to make that significant a difference in the overall savings, but it sends that chilling effect. We’re losing funding from a key economic development source, so it’s especially hurtful for us,” Rapp said.

That chilling effect he’s talking about is one Mark Clasby knows well. Clasby is the economic development director in Haywood County, so he spends a lot of his time courting businesses from around the region and around the nation to set up shop in Haywood County. And diversions like this that take money away from funds that could — and do — entice businesses into the region create a sense of uncertainty that could frighten away potential industry.

“Golden LEAF has been instrumental in recruiting businesses,” said Clasby.

“If you don’t have that kind of funding, then you have almost stagnation. You don’t have the opportunity to have development so you can create new jobs so you can make life better for individuals.”

Not everyone agrees, of course. Brian Balfour, an analyst at conservative thinktank Civitas, has long followed — and opposed — Golden LEAF precisely because it does offer government incentives to businesses.

“I would argue that the use of these incentives causes more uncertainty,” said Balfour, because it creates an economic picture that’s at the mercy of politicians, rather than the market. “It creates an uneven playing field. What that does is it politicizes more of the entrepreneurial decisions and the way the economy grows.”

Instead of incentives, said Balfour, what the state’s economy really needs is deregulation.

Proponents of funds such as Golden LEAF, however, would counter that, after tobacco’s quick exit, WNC in particular desperately needed some help to fill the massive economic gap the departing crop left in its wake.

To hear George Ivey tell it, Golden LEAF, along with the Tobacco Trust Fund and the NC Agriculture Development and Farmland Preservation Trust Fund, have been invaluable in helping revitalize rural areas left destitute by tobacco.

Ivey is a grant writer, consultant and project manager in Haywood County who has been closely involved with many of the area’s Golden LEAF recipients, including the Regional Livestock Market.

“Those three funds are really the primary funders of a lot of projects throughout the state and throughout this region,” said Ivey. “Without them, I honestly don’t know where you turn, because they both have the money and understand the role that farming plays, not only for farmers but in the larger community.

“Those three funds understand that tobacco is gone but agriculture is still the No. 1 driver of the North Carolina economy.”

And that’s pretty much the argument made by the foundation itself: we’re helping to revitalize the rural economy at no cost to the taxpayer; let us keep doing it. Indeed, it is the ready defense Dan Gerlach has for his foundation’s mission and existence.

“Our investment earnings have been over $214 million on the investments that we make,” said Gerlach. “We have paid for grants that didn’t have to come from any taxpayers pocket.”

The subtext there is clear: isn’t a 12 percent return that’s being put back into economic development better than just dumping cash into the general fund?

And that’s a hard argument for Republican lawmakers to counter. In fact, few are trying to do so. But many are pointing at the $2.4 billion hole that’s looming on the horizon in next year’s budget, making the strong point that it has to be filled somehow, and it’s easy to see why Golden LEAF is an enticing cash cow indeed. Compare that to cutting teachers, for example, or community college budgets.

“We have to get our fiscal house in order,” said Davis. “It’s going to be painful, and our job and our mission is to spread the pain.”

 

 

What is the Golden LEAF fund?

A quick look at the history of Western North Carolina will show that there is no crop more important than tobacco. The plant has left an indelible mark on the mountain landscape, first with the streams of money it brought, and then the economic hole it has left.

Today, though tobacco itself no longer occupies a place of prominence, its economic effects are still rippling through the mountains, mostly in the form of grant money from Golden LEAF.

For the last 12 years, the region’s tobacco-dependent communities have been reaping the spoils of a massive lawsuit brought by 45 states against major tobacco companies over healthcare costs caused by tobacco use.

In North Carolina, that’s totaled nearly $1.7 billion so far, with 50 percent going straight to the Golden LEAF. The foundation — officially dubbed the Long-Term Economic Advancement Foundation — was set up to funnel that money back into the state’s tobacco-dependent communities.

While other states dropped their settlement cash straight into the general fund from the outset, North Carolina shied away from that approach, setting up Golden LEAF and other stewards — notably the Tobacco Trust Fund — to look after and dole out the settlement cash to tobacco-dependent areas in an effort to foster economic growth.

 

Local spending

Haywood County Agriculture and Activities Center Association, Inc.: $275,000

Construction and upgrades at the multi-purpose arena at the Haywood County Fairgrounds.

Haywood Community College: $1,573,109

Establishment of the Western Regional Advanced Machining Center at the Regional High Technology Center (RHTC).

Haywood County: $60,000

Created the Buy Haywood Market Development Project to develop a comprehensive plan to brand Haywood County tomatoes and peppers.

Haywood County Schools Foundation: $250,000

Expanded the machinist training program at Pisgah High School to meet the demand for highly skilled machinists.

Haywood County Economic Development Commission: $85,000

Funded the Buy Haywood Market Development Project which helps develop markets for Haywood County farmers.

Haywood Vocational Opportunities, Inc.: $300,000

Helped Haywood Vocational Opportunities, Inc. (HVO) expand its operations and secure additional contracts for production of medical supplies.

Haywood County Economic Development Commission: $15,000

Funded statewide feasibility study to identify demand for a poultry and rabbit processing facility in WNC.

Haywood County Schools Foundation: $50,182

Purchased an office mill and lathe for Pisgah High School metals program.

Town of Canton: $100,000

Expand and upgrade the Canton’s wastewater infrastructure in the I-40 Corridor at Exit 31.

Southwestern Community College: $75,000

E-commerce marketing plans and strategies for a three-county area.

North Carolina Center for the Advancement of Teaching: $930,186

Funding for the North Carolina Center for the Advancement of Teaching’s continuing effort to increase the number of National Board Certified Teachers.

Jackson County: $135,000

Funding for the Jackson County Green Energy Park.

Western Carolina University: $200,000

Western Carolina University’s innovative product development plan for the health care industry.

Western Carolina University: $37,000

Support for the Kimmel School Construction Training Program at Western Carolina University.

Southwestern N.C. Planning & Economic Development Commission: $2,205,539

Funded high-speed broadband connections to schools and counties in a six-county area.

Total: $6,291,016

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