By Clayton Henkel

NC Newsline

It’s been 30 years since former North Carolina Treasurer Harlan Boyles published “Keeper of the Public Purse,” a brief examination from the conservative Democrat about how money was raised and spent in North Carolina on behalf of the people. Boyles held office for 24 years, maintaining North Carolina’s AAA credit rating while guiding the investment of $70 billion in state and pension funds.

Boyles’ conservative approach was revered by many and shaped the management style of current state Treasurer Dale Folwell.

Folwell, a Republican and former state lawmaker, has displayed his own reserve by keeping an unusually large portion of the state pension funds sitting in cash.

Folwell is not on the ballot this November, but his cash-heavy investment approach most certainly is with both the Republican and Democrat seeking the office.

Rethinking the state’s investment strategy

Republican Brad Briner is an investment manager and current member of the UNC Board of Trustees. Briner believes that the single most important task for the next state treasurer will be finding a way to “remedy the chronic underperformance” of the North Carolina Retirement System.

According to Briner, the retirement system has averaged a 6.2-percent annual return over the past 20 years. Similar sized states have enjoyed average annual returns of 7.6 percent. Briner believes the central reason for this lackluster performance is “an irrational love for risk-free fixed income investments.”

Briner believes that the state can generate better returns for North Carolina’s state employees and retirees through better asset allocation. Notably, Briner also believes it’s time North Carolina move away from a sole-fiduciary governance model. He points to a 2014 study that recommended a board of trustees model, chaired by the state treasurer.

“This (the current system) essentially means that the state treasurer can make investment decisions without consulting with anyone else. As a general matter, small groups make better investment decisions than solo actors,” Briner writes on his website in explaining his support for such a shift.

Briner’s opponent this November is state Rep. Wesley Harris (D-Mecklenburg). He’s doesn’t believe that shift to a different governance model benefits the state’s public employees or retirees.

“You know, this is a position that is elected by the people. And so, the people get the say and that is something that I hold near and dear,” said Harris in a recent interview on PBS State Lines.

For those who believe one person (or solo trustee) can be corrupted, Harris said the same can be true of a group of political appointees.

“We have seen that with our UNC Board of Trustees that has done a terrible job politicizing the crown jewel of our economic development system, our UNC system. And so, I want to keep the power of the office with the people so that they can hold those elected officials accountable, not rely on gerrymandered maps and political appointees,” Harris said.

But like Briner, Harris believes that too much of the pension fund is sitting in cash, especially when you look at comparable states.

Harris, the only PhD economist in the legislature, has said he will use his economic know-how to expand the state’s capacity for investment. He’s also said he will work to increase the public’s understanding of the state’s finances so they can hold their government accountable.

Briner has pledged that as treasurer, he will focus on profit and not “woke” politics. Like GOP officials in other parts of the country, Briner has rejected environmental, social and corporate governance (known as ESG) as a sensible strategy.

“The ESG crowd has driven a lemming-like abandonment of sectors like traditional energy sector that — like tobacco a generation ago — creates compelling returns for the non-politicized investors who remain,” explains Briner on his campaign website.

Harris has said that his focus is getting the returns that the pension plan needs, while investing in companies that are not harming the state.

“You need to be smart in making sure you have a diversified portfolio, but that you are investing in companies that represent the values of our state,” said Harris.

Former Republican Governor Jim Martin has cautioned both against investing in the market more aggressively.

“Where would state retirees be if the market had collapsed, as some fear it soon will under massive pressure from the $35 trillion federal debt? In such a scenario, cash is king,” wrote Martin in a recent op-ed in The Charlotte Observer.

Stabilizing the state health plan

Beyond the state pension plan, the next treasurer will also manage the State Health Plan. In early August, Folwell shared with reporters that the legislature needs to reimburse the plan $250 million in COVID costs.

Explosive spending related to GLP-1 weight-loss medications (like Wegovy and Saxenda) has also added pressure to the plan’s financial stability.

Folwell has warned that the health plan’s operating reserves will drop below required minimums next year.

With an aging state workforce, higher healthcare costs are to be expected. Both Briner and Harris have suggested that preventative care could help lower the risk.

Briner also acknowledges this is uncharted territory.

“(With) the state pension plan, we can look at it at 47 other states, and we can shamelessly copy from them. On the health plan side, we don’t really have that option,” said Briner in an interview with State Lines.

Briner adds that the state’s transition from Blue Cross to Aetna to take over management of the plan “is a step in the right direction.”

Harris has advocated for investing in state employees. By attracting younger professionals with better pay and better benefits, you have a larger pool of healthy workers paying into the system.

EMPAC, the political action committee of the State Employees Association of North Carolina (SEANC) has endorsed Harris. Previously they supported Folwell, a Republican.

“No elected official other than the governor has more of an impact on state employees and retirees than the state treasurer,” said EMPAC Statewide Chairman Mark Dearmon in making the organization’s endorsement. “We must have a champion in that office who will put our needs ahead of greedy Wall Street managers and hospital CEOs. Wesley Harris is committed to doing that.”

The North Carolina Association of Educators’ PAC, the NCAE Great Public Schools Fund, has also thrown its support behind Harris.

Parting advice for Briner and Harris

Folwell had hoped this November he would be the Republican gubernatorial nominee facing Democratic Attorney General Josh Stein to replace outgoing Governor Roy Cooper. Voters opted instead for Lt. Gov. Mark Robinson in the March primary.

In his final five months in office, Folwell is still seeking to have an impact.

“We’re going to pay out $7 billion in gross benefits this year out of all these plans. That gives you an idea of the enormity of this,” Folwell said in his monthly “Ask Me Anything” call with the North Carolina reporters.

Folwell has urged the legislature to pass “reference-based” pricing to further save the state health plan money.

As for those who suggest his agency has too much cash under the mattress, he said they are exposing the department to risk when it is in the check-delivery business.

“There are no mattresses at the treasurer’s office. Everything that we have here is invested, and the amount of money that we have invested in short-term investments has been yielding over 5 percent this year.”

Folwell has pledged to serve as a resource whoever takes his seat and become the next “keeper of the public purse.”

“We have extended opportunities for both people who are running for treasurer to attend these meetings either in person or virtually because this is a very important role,” said Folwell. “I would look forward to any treasurer candidate or the next treasurer in North Carolina to come in and sit down and have a mathematical conversation about how we got here.”

Deputy Editor Clayton Henkel manages the NC Newsline website and daily newsletter, while also producing daily audio commentaries and the weekly News and Views radio program/podcast.