(upbeat music) - [Announcer] Major support for Carolina business review provided by Grant Thornton operating in more than 100 countries.

Our tax audit and advisory professionals specialize in helping companies unlock their growth potential, colonial life, providing benefits to employees to help them protect their family their finances, and their futures.

High Point university the premier life skills university, focused on preparing students for the world as it is going to be.

And Sonoco, a global manufacturer of consumer and industrial packaging products and provider of packaging services with more than 300 operations in 35 countries.

Well, given that we have shaken off the old year of 2020 and began a new in 2021, what do the state's finances look like in the Carolinas?

How healthy are revenues and how does that translate into the health of our communities?

Hello, again, I am Chris William and welcome again to the most widely watched and longest running source of Carolina business policy and public affairs seen across the Carolinas for over three decades.

Now thank you for supporting it in a moment.

He is the chief financial officer for the state of North Carolina the honorable Dale Falwell, treasurer of North Carolina.

- [Announcer] Gratefully acknowledging support by Martin Marietta a leading provider of natural resource based building materials providing the foundation upon which our communities improve and grow.

Blue Cross Blue Shield of South Carolina and independent licensee of the Blue Cross and Blue Shield association.

Visit us at SouthCarolinaBlues.com.

The Duke Endowment, a private foundation enriching communities in the Carolinas through higher education, healthcare, rural churches and children's services.

Barings, a leading global asset management firm dedicated to meeting the evolving investment and capital needs of its clients.

Learn more at www.barings.com.

(upbeat music) On this edition of Carolina business review an executive profile featuring Dale Folwell North Carolina treasurer.

(upbeat music) - It's not too late to say happy new year.

So happy new year, thank you for watching.

And a welcome to your honor.

The honorable Dale Falwell joins us now safely.

It looks like from his office in Raleigh, your honor welcome to the program and I'm glad to see you again sir.

Let's start with a fairly broad question.

Mr. Treasurer, you have the very broad knowledge of not just finance but North Carolina's finances, its general revenue.

You spend time in the general assembly for awhile.

You were in local political leadership.

So there's not much you don't know about how things work when it comes to public finance.

How do you feel about the prospects about North Carolina, specifically, not the Carolinas in general but North Carolina's economic prospects in 2021?

- Thank you for having me, Chris and crew, the balance sheet of North Carolina is in great shape, but we have some significant headwinds facing us associated with how we flatten the economic curve of our state especially in rural North Carolina.

And especially with those that have to make their living with their hands and their back and their feet.

As we think about your question, as your viewers know we applied for and received over $4 billion of COVID care act money and on two separate occasions the digital assembly propriate that money.

We have nearly $2 billion budget surplus from the previous year.

That's gonna come in handy as your viewers know that States and local governments and all States are facing budget shortfalls.

And that surplus is gonna come in handy as the general assembly attempt to balance the budget for this year, we have nearly a billion dollars of rainy day fund, and it's just by the grace of God that we got this far down into the alphabet in terms of bad storms last year and North Carolina not be more affected by that.

And we have nearly $2 million in the unemployment trust bond.

That's a far different story.

Then I went and visited with you seven years ago.

As you know in charge of that agency, eight years ago we have nearly 2.7 billion of unemployment debt.

That debt was paid off surplus was built.

And that became very important to your viewers especially those that employers and businesses that were paying those types of food and students are charging.

So we're in great shape but we have to focus on transparency and consistency and be willing to challenge assumptions as it relates to how we get the joy of achievement back into our company.

- So, and we will, I promise your honor, we're gonna impacts some of the policy around that.

But I wanna get back to the overall sense of feeling you have, if you were to if you have to hold your feet to the fire and say, well this year I think the economy is gonna do X.

What do you think X is?

- I think certain parts of the economy are going to do it extremely well.

And I think that, as I said if once the backside gets properly rolled out in North Carolina, you know, we can get back to educating kids and opening our businesses back up.

And it's all really, really based on that.

- Let's talk a little bit about local Government commission.

And before we do that, I'm sorry.

There's so many things I've got this checkbox next to, the State Pension Plan almost $115 billion grew by my calculation almost 9%.

But I noticed in some of your material it was more about 11%.

So what's the difference?

What's that two percentage points difference.

Would that be all income total return or what was the actual audited return last year of the State Pension Plan?

- It's a fantastic question and the estimated return is 11%.

Then the difference between your number and our number is simply the fact that the plan paid out nearly 6.5 billion of gross benefits last year.

So when we look at what the value of it was versus what the value is we have to take into account the money that left the plan the plan's paying it out nearly $550 million every 30 days to those who have taught protected or otherwise served.

And that's over six and a half billion in gross benefits per year.

So the pension plan is $115 billion has never been to this level.

It's one of the best funded pension plans not just in the United States, but possibly in the world and with all the angst and anxiety that our teachers and troopers and other public servants are facing.

The safety and security of their pension plan is not one of them.

And that becomes very important to the rating agencies as we hope that every state would have a triple bond rating but having a very strong pension plan is vitally important as we move forward.

Then when I report to Chris very quickly I'm standing on the shoulders of all the hardworking folks with the investment management division and previous state treasurers who have always conservatively manage this plan and never pretended to have a crystal ball.

- So congratulations that is no small feat given what happened last year, even though equity markets and fixed income markets did pretty well last year, but that enables the state of North Carolina and your office to do a few things.

And one is you're going to be reporting to the general assembly with next 30 days or so the borrowing capacity for North Carolina.

But the other thing before we get to that, your honor is this idea of some of the local and smaller municipalities that are facing I'll call it insolvency or certainly an uphill battle when it comes to finance.

So local government commission is also one of your big responsibilities.

Give us a sense of how many communities in North Carolina at least are at risk financially.

And how is that a contagion that spreads or what does that mean for the larger state?

- You might remember a few decades ago.

I would Warren Buffet said in his annual report you can't tell who doesn't have the bathing suit on until the tide goes out.

And I think you remember that.

And what, in context of your question, the tide has been going out especially a rural North Carolina for about 20 years as these communities, that the population but now the tide went out even quicker with COVID-19 and the impact.

We have a County, for example Tyrrell County in the Eastern part of our state, that's population is the size of Myers Park hospital in Charlotte.

And between St. Patrick's day in July 4th the sales tax revenue fell 26% and half the property that County doesn't pay property tax.

These are some of the challenges that are facing rural North Carolina and as chair of the local government commission as well as chair of the state banking commission.

This is a very hacked concern.

The rural North Carolina in general, especially Eastern rural North Carolina, as I say, Shalom and Charlotte sound very similarly and they're spelled similarly.

But the fact is that they're in far different boats today and we have pressures that are facing Shalom North Carolina inside the city of Charlotte.

So this is a very serious problem.

And your viewers may remember just a few months ago that barons did a major piece about the $1 trillion hole that's happening and see I never could be banner white.

- Go the other way.

- Anyway, the $1 trillion hole that some communities across North Carolina are facing.

- Well I don't wanna underplay it sir.

And it is important to people that live in those communities and surrounding communities.

How important is it in the bigger picture?

And again, back to this idea of if we have some small communities that either through racial inequities or economic mobility or the lack of economic mobility or the difference between urban and rural divide.

So how, I guess, can you help us understand how these smaller communities or even mid-sized communities that have this financial challenge, is that specific to them, or does that mean that this is again, I wanna use the term, is this a contagion that could catch across the state?

- It could.

I think of in terms of the body, we all know the importance of a strong torso, but we also had to have strong legs and arms.

And that's what I consider these communities and rural North Carolina to be.

And it all comes back to the basic level of services that access to good public education, access to global health care and access to clean water and for the sewer and electricity rates.

I mean, all this thing connects, especially in rural North Carolina, as we tried to help them out of the what's happened to them especially since in the last year with COVID.

- Do you get the feeling that the members in the general assembly unbalance and not just by drawing political lines or party lines, are they sympathetic in a year that as you described earlier, sir, with a $2 billion surplus plus plus that there will be more sympathy and more generosity when it comes to deploying funds to those communities that need it here now, right now, in fact?

- I think they are, we were able to get the viable utility fund legislation passed last year which puts a few million dollars into helping some of these water sewer systems.

Some are which within 50 miles of where you're sitting right now in 50 miles from where I'm sitting.

So they are very, very aware of what's going on in rural North Carolina.

And I have found that their doors and their minds as well as their hearts are open even though they may not live in those areas.

Because as I said earlier these are very important functions of our entire state in terms of our entire economy.

And not only them, but the North Carolina municipalities the (indistinct) association, the UNC school of government, all of us with the local government commission are working hand in hand to figure out what's right get it right and keep it right on behalf of some of these distressed communities.

And by the way, there's nearly 200 that are either on the unit assistance list or the watch list.

That's out a 1300 entities that report to the local government commission.

The local government commission was formed after the bankruptcy, the mash bill during the depression.

So it's a hundred counties, 550 cities, water and sewer districts, airport authorities, universities and hospitals, for example.

- Well, it's still somewhere around and there's a back of the napkin estimates but still about 14, 15, 16% at risk communities.

Is that an average how does that average compare nationally to other States like South Carolina?

- Well, the North Carolina is a unique state in terms of local government commission.

Most States never even had anything for decades but these numbers I'm giving you Chris and for your viewers, these are numbers are based on all it's generally that were completed in 2019.

They don't reflect what has happened with COVID.

For example, when I was given the numbers for County where their sales tax revenue fell 27% over a three month period of time.

So I think that as far as the headwinds of facing these communities, they're gonna get stronger, (indistinct) - For a couple of years, and this is not gonna be a surprise to anyone that's known you for any period of time.

You have been beating the drum about pricing transparency and certainly that's the case in healthcare to the detriment of a relationship and apologies.

But these are my words detriment to the relationship that treasurer's office may have with healthcare providers in the state.

But, nonetheless, you've got a little coverage when an executive order came out of the white house the Trump white house to support pricing transparency.

What is the risk that the new administration will unwind that executive order in that put you back at square one when it comes to looking for transparent pricing in healthcare?

- Well, let's be very clear with your viewers.

My concern is not with people who actually do the work of providing healthcare is where the multimillion dollar executives of these multi-billion dollar companies as your viewers may have seen before.

When I attempted and find out how much the state of North Carolina is paying for itself care this was what was returned to me as the state treasurer.

This is the master charge of this that shows that of what we were supposed to pay for healthcare.

- That's not a prayer problem, right?

That's all being redacted.

- That's all being redacted.

And so now what we have is we have the in the United States court of appeals the executive order to bring transparency to healthcare they won at the lower level.

Now they wanted the US court of appeals and it's should be shocking to your viewers to know that their response to losing those cases, to bring transparency to healthcare get rid of the secret contracts, hospital association says we continue to believe that the disclosure of private lane negotiated rates does nothing to help the patient understand what they actually pay for healthcare.

I said it before, and I'll say it again anyone who's on the side of sacred contracts and non-transparent healthcare is going to be on the wrong side of history.

Bill Gates says it, or in some respects Warren buffet says it.

Everybody knows that 20% of their income is going toward something they don't understand the price and the value of and we're all we're trying to do is get rid of secret contracts, push the power to the consumer and for your viewers let me tell you what I think that would be.

That would have been an economic gold rush in North Carolina.

If we were known as the state with transparent healthcare not just for state employees or for all employees of any company - Are you getting hospitals to come to the table, doesn't sound right, but do you get hospitals again more sympathetic to having a conversation about that?

- I have said openly that the association that controls all the hospitals is the cartel.

That's a very strong word but if you go to the Webster's dictionary a cartel is an association which is formed to restrict prices and limit competition.

That's exactly what's happening is the cartel optimization of healthcare in North Carolina.

And what happens when you have the consolidation of healthcare in the fewer hands what you have is you have lower quality you have lower access and you have higher cost.

Those are exactly the three opposite things that we desire on behalf of those that teach protect.

And otherwise, sir.

- On the issue of health care, you are a COVID survivor.

So again, congratulations and good fortune for you and your family and for the treasurer's office of course.

How do you with that recollection and with that experience that you've had how do you rate North Carolina's response in deploying the COVID vaccine?

- One of the worst in the country our response is more reflective about the vaccine roll out of a third world country and not the most popular state in the United States.

I'm 62-years-old.

I can't remember ever going to a hospital to be vaccinated.

We should have had a plan that over the developed over the last 11 months, that pushed the power down to the people who have been vaccinating our citizens for a hundred years, primary care physicians, pediatricians all pharmacies, not just some pharmacies and push the power in the backseat, down to the people that are most accustomed to administering vaccines.

We don't know where the vaccines are.

We don't know how many have been destroyed because of the inability to find arms, to put them in.

And at the same time, just a few miles from where you're sitting, we have tried medical which has 130,000 patients and no vaccines.

And you can stay the same thing up until last week about Wilmington health.

We're having major hotspots in our prison and correctional facilities and our adult living facilities.

I mean, this is turned into an epic disaster and it's no time to be pointing fingers at the federal government or back to the State government.

I hope the Governor will take control of every vial of vaccine that still remains in the state, and every time a viral vaccine arrives in North Carolina that he will and we'll know exactly where it's going.

We have to get these vaccines into the arms of those that needed the budget.

- On that same issue.

And we could unpack that and go down that rabbit hole, but we're gonna run out of time.

On that same issue Dr. Mandy Colin was on this program recently talking about all those challenges not just around public health, but around mental health.

What happens to mental health now that it's a compound effect of COVID.

And what I mean by that, your honor is the idea that many folks are not just discouraged but the idea that public health has had this lockdown and exasperated mental health providers both public and private, how does that factor into what we should be doing for public and mental health?

- Well, it's another compounding negative impact on mental health.

And that's why at the state health plan, I as chairman of the board, as well as the board trustees over a year ago, before anyone had ever heard of COVID we increased the payout for primary care physicians and for mental health specialists.

We think that primary care physicians and mental health specialists are pluses to the health and wellbeing of our communities.

And that's why we did that.

- Can you do more of that?

- Yes, well, in addition, the board of trustees, for example just approve the elimination of the deductibles for people who go to our perkier pricers.

We don't want there to be any financial barriers for people to get the Medicare and the mental health that they so desperately need, especially in this COVID world.

In on March 1st, you have announced that you will have a report for the general assembly on the governor's office around about the health of North Carolina.

When it comes to issuing bonds.

The general idea is a statute says 4% of the general revenue it should not be issuing more than, and I'm not gonna get this right in your honor.

So please help correct this.

But the bonds in North Carolina are held at a limit of 4% of a general revenue.

Where is the state's health around bond issuance?

And the second part of that question is, when we've got transportation needs and education needs that are stout indeed, how do we factor that into what North Carolina should be doing with bonds and deploying that?

- Great question.

And some of your viewers may be asking you what a bonds would have state pensions what a state healthcare has to do with business and has everything to do with business.

As you know, the largest business in North Carolina is the state government.

The second largest they're the counties.

The third are the cities and the fourth are those school districts.

So anytime that you do anything from the efficiency standpoint that helps business helps those entities.

It's also helping everybody more importantly many of your viewers who have businesses one of their biggest expenses, the property taxes, you know the biggest expense of whoever they pay property tax to are pension healthcare pharmaceuticals, and interest, and principal and debt.

But you asked me specifically about the debt affordability commission which is one of the 21 major duties and responsibilities that I have a state treasurer.

We are compelled every year to issue at that affordability study.

And for your viewers, that would be just like an analysis of what their own credit limits would be in their personal life.

And we are one of the few States that have these for a very long period of time just like the local government commission.

And by the way, I wish the federal government had identified portability mission, but they don't.

But that affordability commission sort of in the old school days many bikes that we used to ride had governors on it.

And that governor kept the engine from overrevving.

So that, that affordability study is sorted to keep the state from over revving and getting out over its skis in terms of borrowing money.

- Is the state close to the limit?

- The the general fund the state is not close to their limit DLT because we've talked about the overspending and mismanagement DLT before the DLT is basically maxed out with credit card for the next 10 years.

But we just issued over 1.7 or refunds $1.7 billion for the bed and North Carolina during the month of November job last year.

So we are actively taking advantage of lower interest rates and trying to figure out what's right, did it right.

And to keep it right and to make sure that we don't over-read our engine because the rating agencies equivalent for your viewers have a credit score or sanitation grade for a restaurant rating agencies are very concerned about well-funded pension plans.

They're very concerned about not getting out over your skis as far as issuing debt.

And if you issued debt, they wanna see a solid plan for paying it back, not just refunding it.

- We have less than a minute left, your honor.

I wanna ask you as a former school board member and Forsyth County Winston Salem, and also again could go back to the experience that you had early on in the pandemic, around being a COVID survivor.

How would you approach getting kids back in schools?

What would you suggest?

- Transparency, consistency, the ability to challenge assumptions, and to know that one size fits none in many instances.

The situation we have in some parts of the state, as far as opening schools are far different than what they might be in Charlotte.

I attended cook elementary school.

That school has a capacity of a thousand kids because it was later in virtual middle school and now has 200 children in it.

So there's an elementary school inside of a school district that could socially distance and have full delivery of classrooms.

- Okay and that's gonna have (indistinct) I am sorry, sir.

That's gonna have to be the last word, but thank you for taking a whole half hour and spending time with us.

Thanks for your leadership and please stay healthy.

You know, that doesn't mean you can't re-catch it.

So make sure you continue (laughs) now that you need me telling you that but best of luck to you going forward.

- Thank you for having me.

- [Announcer] Major funding for Carolina business review provided by High Point University, Martin Marietta, Colonial Life, the Duke Endowment, Barings, Grant Thornton, Sonoco, Blue Cross Blue Shield of South Carolina, and by viewers like you, thank you.

(upbeat music)