Lawson for Congress

North Carolina’s educational system is in serious trouble, including within our Fourth District. Both as a parent and Congressional candidate, education is an critical issue.

We have firsthand experience with education from many perspectives. My wife taught elementary school in Durham while I was in medical school, with four of those years at E.K. Powe on Ninth Street. Even in those days, Powe had a challenging student population. We gradually learned that despite her best efforts to help her children, what happened at home was even more important than what happened in school. There are excellent examples of local programs and schools that do make a difference through a more holistic approach, but traditional public schools alone are insufficient to address the challenges faced by our most threatened children.

Today, our children attend public school in Wake County, where we’ve seen firsthand the damage wrought by the death of neighborhood schools and ever-increasing bureaucracy. At the same time, we’ve seen a growing trend towards greater centralized control and reduced local freedom. Some would suggest that centralized control provides better accountability and assessments. In North Carolina, however, our educational bureaucracy has been more interested in protecting itself and pretending it’s making progress than actually dealing with the difficult problems facing our children.

The problems of education must be addressed at every level of government: federal, state, and local. At the federal level, many applaud No Child Left Behind (NCLB) for providing accountability based upon standardized tests. Others applaud it for its inexplicable logo, also clearly left behind.

While there is value in states keeping themselves accountable, federal supervision is not the answer — the requirements of NCLB have perverse consequences that work against our children.

For example, take Wake County’s constant redistricting dilemma. In discussions with folks within the Wake County Public School System (WCPSS), it’s clear that the county wants to prevent schools from missing their NCLB performance goals at all costs. Since federal funds only account for about 10% of our state’s educational budget, and 6% of the budget in Wake County, the heavy-handed punishments and school “takeovers” required by Washington make NCLB a much bigger stick than a carrot.

But in response to that stick, when the county faces children with serious educational needs, it pursues short-term punishment-avoidance strategies. Instead of focusing the energy and resources on holistically addressing those needs, the county uses the smokescreen of “diversity” to justify busing that spreads children across the county, diluting the “problems” and allowing schools, on average, to hit their targets.

From my medical background, I consider this behavior malpractice. Think about it — when you have really sick patients who need focused attention, you put them in an intensive care unit. Would it make sense to spread the sickest patients throughout the hospital so, on average, everyone appears to be doing “ok”? That would be a recipe for disaster, as it is in our schools. Not only is an hour-long bus ride a tremendous waste of time, it’s also bad for the budget and the environment. Finally, parental involvement and school volunteerism are eliminated when schools are across the county instead of across the street.

So at the federal level, NCLB and the Department of Education have got to go. Ultimately, federal involvement only gives us unfunded mandates and unintended consequences. The Department of Education consumed $62 billion last year, which is money that never should have left the states in the first place. When you consider we only received about $1 billion in federal educational funds along with the strings of federal control, we would have been much better off keeping our tax dollars here for our children.

At the state level, we need to insist on transparency and accountability in our state’s educational system. Even though NCLB requires statewide tests, our state has created tests that are not nationally normed, and are actually “dumbed down” so that students “at grade level” in North Carolina are below those in South Carolina:

In addition, states with already low standards have done nothing to raise them. Oklahoma and Tennessee once again share the cream puff award, with both states earning Fs because their self-reported performance is much higher than can be justified by the NAEP results. States with nearly equally embarrassing D minuses included Mississippi, Georgia, and North Carolina. Once again, we discover that Suzy could be a good reader in North Carolina, where standards are low, but a failure in neighboring South Carolina, where standards are higher.

How useful is that? Since we’ve proven ourselves incapable of holding ourselves accountable even with a federal mandate, we need to take control of our state’s educational bureaucracy so that we can have an honest assessment and deal with the consequences. Instead of “rolling our own” with respect to tests, why not just use the nationally-normed Iowa Test of Basic Skills?

We also need to break the state’s monopoly on providing educational services. Monopolies in any industry provide poor service, high costs, and low quality. Education is no different, and our parents and children of all socioeconomic backgrounds deserve freedom of choice with educational dollars. Choice must include freedom to “opt out” and home school, as well.

At the local level, we need school board representatives to be accountable across the county through “at-large” elections, as opposed to just representing the interests of their district. Unfortunately, since North Carolina leaves so little local control to the counties and municipal governments, making this change requires legislation in Raleigh. Please contact your local representatives and evaluate potential candidates based upon their supporting At-Large Elections for WCPSS Board of Education. Also, please sign this electronic petition in support of this legislative initiative.

Our legislators in Washington spend a lot of time and taxpayer money talking about the great things our federal government does for us. This recent release from Rep. David Price’s Web site illustrates how he was able to bring $14.5 million “back” to our District to fund a variety of projects, for a variety of purposes.

Some of these projects are appropriately the role of government. The problem is that none of these projects are the role of the federal government. Why must we always go begging in Washington to get some of our money back for projects that should be funded by our state and local governments?

Can we survive without begging a bankrupt federal government for help? Can the people of North Carolina, and the 4th District, really take care of themselves, and each other, while making our community a better place?

The more people I meet in my congressional campaign, the more convinced I am that we are capable of making the world, and our community, a much better place. I’ve written previously about the fantastic work being done at Durham Nativity School. More recently, I’ve had the pleasure of spending time with Graig Meyer, a local educational activist in Chapel Hill who founded and runs the Blue Ribbon Mentor Advocate Program.

BRMA demonstrates the best aspects of public/private partnership, and today is successfully bringing out the best in our next generation. Graig started BRMA in 1995, and it is specifically focused on closing the “achievement gap” for disadvantaged students in the Chapel Hill/Carrboro school system.

It operates on a “strength based” framework, where the mentor recognizes that while challenges exist in the student’s life and environment, the best foundation for improvement is identifying and cultivating areas where the student has strengths and natural abilities. In other words, “What’s the hook?” that allows that student to grab on, discover him or herself, and start exploring the world from a true position of strength.

Another key attribute of BRMA is that they identify students who seek out adult attention, and family situations where the parent is eager to participate in the process. In that fertile environment, a mentor can gradually change the sense of what’s possible and literally give a child an entirely new life.

The duration of the mentoring relationship is the single most important predictor of success. Recognizing that fact, BRMA mentors commit for at least two years, for two hours per week. Also, BRMA provides twelve hours of training to ensure mentors are ready to benefit themselves, and the student, as much as possible in a truly mutual-growth process.

So how well does it work? Well, the numbers are startling: 100% of BRMA’s students have graduated and gone on to post-secondary education. Sixty percent of BRMA students have the same mentor from fourth grade (when the program begins) until high school graduation. That’s a great example of a program that just flat-out works.

So how much federal money is required for BRMA? None. It receives no federal funding or grants. Two-thirds of its operating expenses are paid for by the school district, and private funds are raised every year for a variety of summer and after-school events, as well as college scholarships. Right now, 91 students in grades 4-12 enjoy a mentoring relationship, and 80 high school students are participating in a separate Youth Leadership Institute organized by BRMA.

Graig Meyer is a fantastic example of a committed individual whose focused and disciplined leadership has organized other committed individuals to help provide new opportunities for an entire population of children. BRMA’s success is rewarded by a vibrant and growing program, and in the tradition of “social entrepreneurship”, we need to celebrate and recognize this success so it continues to grow.

Right now, BRMA is recruiting mentors for the upcoming year, and hopes to identify another 20 volunteers this spring. If you are a graduate student, young professional, empty-nester, or retiree in Orange County who wants to help a child build a foundation for the future, please visit the BRMA Web site to sign up and learn more.

We all face challenges, and problems, in life. Many of today’s children face tremendous problems that need focused, caring attention. I think Graig put it best when he said, “We want to give children the strengths and the skills to walk away from their problems.”

This morning I had the pleasure of visiting a retired Duke general surgeon, Dr. Joseph Moylan. Dr. Moylan was a highly respected attending when I was in residency at Duke, and I hadn’t seen him for years when we recognized each other at a local coffee shop last month. After reintroducing ourselves, Dr. Moylan shared his new “job” since retirement: founder and president of Durham Nativity School.

I’ve had a long fascination with education. My wife taught fourth grade in Durham while I was in medical training, and four of her five years were at E.K. Powe Elementary on Ninth Street. Powe had a diverse student population with lots of social challenges, and every year we agonized over the difficulty of reaching children whose home situations included hunger, homelessness, physical and substance abuse, absent parents, and a general apathy towards education and basic social skills.

The limitations in public education are such that my wife’s optimism as a first-time teacher gradually gave way to pragmatic realism, and at some point we realized that her eight hours per day the classroom (plus the typical assortment of before- and after-school care) was not enough to raise a child successfully in the absence of engaged and concerned parent(s). While some still believe we can “outsource” social problems to governmental institutions, the harsh reality is that government has never proven to be an effective parent.

The model at Durham Nativity School is different, and worth celebrating. From the moment Dr. Moylan walked me around the halls, things immediately stood out. All the boys were neatly attired in shirts and ties, with real knots. I wasn’t tying a tie in the sixth grade, so these young men were already ahead of me. He introduced me to two of the students, and each reached out his hand, looked me straight in the eye, gave me a firm handshake, and said, “Welcome to Durham Nativity School. My name is …”.

At that point, I was floored. My wife and I have noticed how rare it is for children and young adults to look us in the eye nowadays, and the message of insecurity and duplicity communicated by those who refuse to make eye contact is a sad commentary on self-image and self-confidence.

Then I watched them change classes. The bell rang, and instead of a mad scramble between classrooms and lockers, there was an orderly movement of young men culminating in each class lining up outside its respective door for the next class. The teacher then appeared at the door, also dressed in business attire, and each student received a handshake and a greeting while entering the classroom. Dr. Moylan then shared with me that the Headmaster greets each child at the main door upon arriving in the morning with — you guessed it — a handshake, welcome, and shared commitment to do one’s best during the course of the day.

We then sat down in Dr. Moylan’s office so I could ask some tough questions about how this place really worked. The office wasn’t much — no Herman Miller Aeron chairs, just furniture that reminded me of my startup days when we furnished our office with used dorm furniture from the Duke surplus store. Clearly, chairs and desks for the President are less important than the educational mission. That’s a good sign.

Dr. Moylan shared some lessons learned, and perspectives on the curriculum, that reflect seven years of iterative improvement on an established model. There are over 40 Nativity Schools in the country, and all of them focus on identifying and serving children who would otherwise fall through the cracks of the public educational system. Admission criteria include academic potential (even if the student is currently “underperforming”), as well as financial hardship. Graduating fifth-grade applicants are then taken through a orientation/screening program starting in February and lasting through the summer, when the new sixth-grade class is identified.

After seven years, their record is remarkable. They take incoming sixth graders functioning at a 4-5 grade level, and graduate eighth graders functioning at a 9.5-10.5 grade level. Their graduates earn scholarships at private high schools such as Cary Academy, Durham Academy, Ravenscroft, or even boarding schools like the Asheville School. While transitioning from an underprivileged background into competitive and often wealthy private schools has its own challenges, the challenges of upward mobility for both students and parents were deemed preferable to the social challenges of public high school.

While they initially experienced more attrition than other Nativity Schools, with classes of 15 dropping to 10 at graduation, they objectively studied their performance and identified the home situation as the root cause of most attrition. As a result, their program now includes a dedicated social worker who works not in the school, but in the homes with the parents. They’ve also discovered the value of engaging the parents directly in the school through volunteer activities and mentoring opportunities.

The final critical variable is their curriculum. It’s an extended day program, from 8am to 6pm with a heavy focus on language arts, mathematics, and faith-based, character building activities. Students spend one-half day per week performing community service, and learn that no matter how challenging their situation, there are those who are even less fortunate. Mentors and volunteers from the community also play a critical role, and on average 40 volunteers give one hour to the school every week.

Not only are the days long, but the curriculum is year-round, as well. Camp experiences and field trips during the summer take the students out of often hazardous neighborhoods during peak times of gang activity. A recent trip took them to Washington D.C., where they had the chance to meet Colin Powell:

So how much does all this goodness cost Durham and North Carolina taxpayers? Nothing. How about American taxpayers? Nothing. Durham Nativity School receives no federal or state funding. The students receive a $66,000 education over three years, and a chance at a radically different future, thanks to the devotion and generosity of highly-motivated staff and private donors. To whom much is given, much is expected, and the motto for Durham Nativity School says it all: “Educating tomorrow’s community leaders.”

Durham Nativity School accepts 15 students per year. Last year, they only had 38 applicants for these 15 positions. If you know of an at-risk young man who would benefit from this unique opportunity, he has nothing to lose, and everything to gain, from applying. The application process for next year has already started, so interested students, parents, and guardians should contact the school as soon as possible.

Finally, if you’re looking to make a charitable or time contribution that will be highly leveraged for maximum impact, I strongly recommend Durham Nativity School. Isn’t it great that the government does not have a complete monopoly on education?

Here are the current numbers that shape our reality:Current National Debt: $8.9 trillion ($5.0 trillion held by public, $3.9 trillion by government)

National Debt in 2006: $8.5 trillion ($4.9 trillion held by public, $3.6 trillion by government)

Interest Expense on National Debt in 2006: $406 billion ($222 billion on debt held by public)

Largest departments by expenditure in our federal government (2006):

Department of Defense: $633.9 billion
Health and Human Services: $627.4 billion
Social Security: $593.1 billion
Department of Veterans Affairs: $113.8 billion

Note that since Social Security should be paid out of a completely separate, and sacrosanct, trust fund, it should not compete for tax receipts. Therefore, the interest payment on the national debt (at $406 billion) is effectively the third largest “department” in the federal government!

How does this compare with the size of the economy?
GDP (2006 current dollars): $13.2 trillion

Our debt, which is being used to fund operations, is 67% of our national “income”. It’s one thing to borrow money to invest in an asset you expect to appreciate in value, or to generate income. That’s called leverage. But consistently borrowing money just because you can’t balance your operating budget — well, that’s called stupidity.

Where do we get the money that we spend (2006)?
Individual Income Taxes: $1.0 trillion ($1.8 trillion including earmarked deductions)
Corporate Income Taxes: $350 billion
Additional Deficit: $247.7 billion

Tax payments by AGI and percentages (2004):
Top 1%, with AGI >= 328k, pay 37% of taxes
Top 5%, with AGI >= 137k, pay 57% of taxes
Top 10%, with AGI >= 100k, pay 68% of taxes

Sources:
http://www.treasurydirect.gov/NP/BPDLogin?application=np
http://fms.treas.gov/fr/index.html
http://www.ntu.org/main/page.php?PageID=6
http://www.bea.gov/national/index.htm#gdp

We can’t begin to address our fiscal crisis unless we question the role of government. That questioning can’t stop at the federal level, although it needs to start there. Since states can’t create money, they have a built-in limit on their ability to grow. But the federal government, with its unique ability to monetize its debt, has shown itself unable to exercise even the smallest shred of self-restraint.

But hey — maybe I shouldn’t be so concerned with these figures. In fact, since we’re acting as if the national debt doesn’t really matter, why don’t we just do away with the income tax entirely and fund our government ENTIRELY with borrowing? What does it matter if we add to the deficit by $250 billion with tax receipts of $1 trillion, or just borrow $1.25 trillion? That way we can have our cake and eat it too.

On the other hand, there’s someone else who doesn’t see it that way. His name is David Walker, and he’s our Comptroller General in charge of the Government Accountability Office. His recent report, which provides a none-too-sanguine perspective, was written up last week in the Financial Times. I’d encourage anyone who isn’t yet concerned with our government’s profligacy to the point of insanity to read these two articles.

Some have claimed that a Constitutionally-restrained federal government would be more expensive than the “single state” alternative driven by an all-powerful federal government. The typical rationale is that supporting fifty state bureaucracies is more expensive than a single national bureaucracy for any issue or department in question.

I strongly disagree. History has shown that a Constitutionally-limited federal government and state governments operating in the context of the 10th Amendment are vastly more cost-effective. Why am I so sure? Four reasons:

1) We survived the first 140 years as a nation without a federal income tax, and state taxes during that time were far less than the 30-35% (at least) federal tax burden we shoulder today. Historically, the burden has not been “shifted” from states to the federal government — it’s just been increased at every level to the point of threatening our economic viability as a nation.

2) Every time the federal government picks up a new area to regulate or fund, it typically steps on the toes of, or competes with, existing state regulations and agencies. Education, transportation, and energy are perfect examples. But if a state hasn’t seen fit to regulate something, why is relying on a newly-omniscient Guardian of the Public Good in Washington a good thing? And when the Feds *do* show up at the party, it’s not like the state bureaucrats just give up and retire. You still have Departments of Education and Departments of Transportation in every state. Can you show me an example of a federal department, that if eliminated, would require creation of new bureaucracies at the state level? Other than the Department of Defense, I’ve come up empty.

3) The federal government’s other favorite trick is the “unfunded mandate”. That involves passing a federal law that requires the states do something, but doesn’t provide funding to do it. The RealID act is a perfect example — how are the states going to fund this national ID card? Well, that’s your state’s problem. Maybe they can just reduce Medicaid benefits so we can all afford to smile and show our papers. Oh and did I mention Medicaid? The federal government has decreed that your state has to provide that to illegal aliens, as well. There’s irony in there somewhere, if only I could find it.

4) Most importantly, the federal government ALONE has the power to run an unbalanced budget funded by borrowing and printing new dollars in a fiat currency. Sure, state and local governments can float bonds for capital expenditures like schools and roads, but they can’t just “borrow” money like the feds through the Federal Reserve System to finance an operating deficit. Like I said, try that technique yourself at home. You won’t like the results!

Why do folks line up to go into federal government? That’s where the power, and the funds, are. It pains me to read my Congressman’s Web site, and see him trumpeting the fact that he’s bringing home $300,000 in federal appropriations to fund our local county’s mental health program.Why did that money leave the state in the first place? Where did it come from? Assuming we should be funding it, shouldn’t we be funding it ourself, in a way that respects our local needs and priorities? If we weren’t sending 30% of our incomes to D.C., we’d have a lot more wealth to deal with things at the state and local level.

Even more importantly, our federal government makes fleecing the public through corporate and special interest lobbying much more cost effective. If corporations had to lobby for corporate welfare and protectionist policies on a state-by-state basis, they might actually be motivated to compete based upon creating value in the marketplace instead of legislating and regulating current and potential competitors out of business.

Then take a look at the quality of your state government. Why do many people fear an increased role for state government? Well, if you’re like me, you look at your state government and are underwhelmed by its intelligence, competence, and integrity. (North Carolina is a particularly good example of using state government as a stepping stone to incarceration. Crazy stuff.) State and local governments are widely perceived to be the minor leagues, which is exactly opposite of what our founders intended. The action should be at the local level — that’s where elected officials are closest to the needs and priorities of the citizens!

A Constitutional federal government would encourage more competent state governments. First, there’s nowhere to hide. If a hurricane is bearing down on your coast, and you can’t expect to scapegoat FEMA’s incompetence when the disaster response is, well, a disaster, you might have a workable emergency plan in place. But to the extent that state governments learn dependence on Washington, they are less motivated to take care of themselves.

Second, the issues and responsibilities upon state governments should be greater. Elevating the responsibilities of the state and local governments will encourage more competent folks to seek office. And if it doesn’t, the free market will work as our Founding Fathers and Mothers intended — there are still fifty states from which to choose.

Many individuals appear unwilling to think about their role and involvement in state government. I understand that people might not just want to pick up and leave if the state government doesn’t meet their high expectations. But it’s your state government! It is, and should be, more accessible than the federal bureaucracy in Washington. So your involvement is necessary to ensure that the state approximates your values and priorities in its execution.

Relying on a “benevolent dictatorship” in the form of an omniscient and increasingly-powerful federal government is a dangerous game. Evidence to date suggests that it doesn’t work all that well. While we have functionally ignored the 10th Amendment to our Constitution for some time now, I’m hopeful that enough people are waking up to the dangers of centralized power that we’ll again legalize the Constitution and the 10th Amendment.

If Congressional University had a curriculum, Preventing Economic Growth 101 would be a required class. If we assume that our government is filled with educated people, it would seem that they have been taught hostility to entrepreneurship and job creation.

I serve on the board of a young company that specializes in job creation, and at yesterday’s board meeting, we spent an inordinate amount of time discussing the impact of the IRS’s Section 409A regulations. Basically, companies can grant stock options as a form of noncash compensation to give employees a meaningful stake in the company’s growth. Tax laws encourage granting options at “fair market value”, meaning that the option’s strike price at the date of grant equals the stock price on that date.

But what is the stock price? For a publicly-traded company, the answer is easy. But private companies have no liquid market for their stock. They might be just a business plan, a prototype, or a family business that is looking to expand. The private business is worth what a new investor will pay to buy stock, but any estimate of a stock price between actual fundraising events is just that: an estimate. But thanks to the IRS, we now have specific guidelines for how private companies can value their stock. Fortunately, we have excellent attorneys who can explain these regulations. If you’d rather not read all of the guidelines, here is a sample:

There are significant negative tax consequences if a company pays deferred compensation that does not comply with the requirements of Section 409A. First, the employee is subject to regular income tax on the value of vested deferred compensation even before the compensation is paid. This obviously can create significant economic hardship for an affected employee… The employee is also subject to tax every year thereafter on any increase in value… Second, the tax imposed on this compensation is increased by an excise (penalty) tax that is equal to 20% of the amount of the deferred compensation. Finally, employees are potentially subject to interest on these taxes. While the taxes are imposed on the employee, they also affect the employer because the employer may have an obligation to withhold the taxes from the employee’s cash compensation and is subject to penalties if this is not done. The employer also has an obligation to correctly report the income on the employee’s W-2 and may be subject to penalties if this is not done. (Courtesy of Hutchison Law Group’s Section 409a Valuation Handout)

Lots of ominous words in there: comply, hardship, penalty, obligation, withhold… wait a minute, we’re just trying to create jobs here! So not only did our Board spend an hour reviewing the implications of these regulations, we will convene a subsequent conference call to determine which way to proceed. Perhaps restricted stock grants will be preferable, and avoid some of these headaches, but that will take some additional conversation to explore.

Why does this matter for our economy? Every board meeting involves some element of discussing “compliance” issues. Whether it’s GAAP, IRS, SEC, SOX, or some other acronym, the cost of dealing with regulations is significant. Imagine if the time were instead invested in assessing the company’s operations, opportunities, threats, or strategic plan? What if we were less concerned with protecting ourselves as a board and a company, and more concerned with creating value for our customers and being successful in the marketplace?

Would there be more or fewer companies in that scenario? Would we create more or fewer jobs? Even our attorneys (who are truly excellent, by the way, there’s no sarcasm intended there) would prefer helping more companies start and working on advancing their success then trying to clean up behind this growing regulatory burden at a tremendous expense to their clients.

At the macro level, we’re seeing more public money being raised outside the United States’ equity markets than ever before. At the micro level, we’re seeing companies all over the country defend themselves from regulatory quicksand instead of serving the customer and attacking the market. Never before have the interests of large multinational corporations been so favored over small companies and new startup opportunities. A multinational can afford an army of attorneys and accountants, and can restructure operations to take advantage of tax havens overseas. When will our government stop strangling the goose that lays the golden eggs of domestic entrepreneurship and job creation?