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January 21, 2019 12:00 am
State senators have elected Republican Phil Berger to a fifth consecutive term as the Senate’s top officer. The state House has elected Republican Tim Moore to a third term as House speaker. Rick Henderson, Carolina Journal editor-in-chief, discusses the potential impact of these leadership elections on the next two years of state legislative action, including relations with Democratic Gov. Roy Cooper. Some governments use selective taxes to fund public pension liabilities. This creates potential problems, as professor Thad Calabrese of New York University documents in the recent book For Your Own Good. Calabrese outlined the potential problems during a recent panel discussion co-hosed by the John Locke Foundation. Voters decided last November that North Carolina should add a photo ID voting requirement to the state constitution. Gov. Roy Cooper vetoed the bill designed to meet that new constitutional requirement. You’ll hear highlights from the legislative debate before a vote to override Cooper’s veto. Partisans on both the left and right make mistakes when they discuss government and its role in both causing and responding to economic inequality. That’s one of the key points of a recent book, The Captured Economy. Co-author Steven Teles, a Johns Hopkins University political scientist, shared major themes from the book during a recent lecture at Duke University. Trump administration efforts to roll back federal regulations are being counteracted to some extent by the so-called ESG movement. The movement involves basing investment decisions on environmental, social, and governance criteria – rather than the traditional goal of maximizing returns. Donald van der Vaart, John Locke Foundation senior fellow, assesses the ESG movement’s impact.
From Cherokee to current attack from the largest city to the smallest and from the statehouse into the schoolhouse Carolina Journal radio your weekly news magazine discussing North Carolina's most of public policy events and issues welcome to Carolina Journal radio I Muskoka I during the next hour, Donna Martinez and I will explore some major issues affecting our state. Some governments use selective taxes rather than broad-based taxes to fund public pensions you hear from an expert who pans that practice, he believes, relying on selective taxes leads to long-term problems for keeping pension plans afloat North Carolina legislators voted to override the governor's veto. They put in place of voter ID law you hear highlights from their debate.
Why did they disagree with the governor about this new constitutional requirement. You hear from one national expert who says both conservatives and liberals are wrong when they talk about the government's role in addressing income inequality. This Johns Hopkins University political scientist says both sides need a better grasp of what he calls the captured economy will discuss the political impact of an investment strategy based on environmental, social and government schools. It's called the ESG movement could have a negative impact for retired government workers. Those topics are just ahead. But first, Donna Martinez joins us with the Carolina Journal headline state lawmakers will return to work in Raleigh at the end of January and at the top of the list of priorities is putting together a new state operating budget but there are lots of other issues likely to be on the table as well. As the months go by, along with a new political dynamic more Democrats having been elected to seats in November.
Carolina Journal will be covering all the action Rick Henderson of course is the editor-in-chief. He joins me now with a preview Rick welcome back. Let's talk first about the big issues we know they have to put together a new operating budget so that will occupy a lot of the time. Other things that you think are going to become items that perhaps they can agree on, or perhaps have a contentious debate over well there so you allow different tracks running parallel here.
First of all, there is the issue of redistricting both for the congressional districts and for the legislative districts that are have to happen under court order in time for the 2020 election cycle and we don't know yet they're probably not in think of the congressional district right away because the Supreme Court has agreed to hear a challenge throughout the case.
North Carolina, in the case in Maryland, US, US Supreme Court, and so because they have agreed to hear those will probably have arguments in a matter of weeks, and a decision perhaps not until June when the court weeps for the summer so that way there's gonna be really no guidance from the court before they'd still have to redraw the districts and so there is not just a matter of what we don't know for going to have to draw a lot. Yes, it would have control districts would loose the congressional level of the this quite possible that there will be July or August before they could even figure out what they're supposed to do so. Oddly enough, they would have to then redraw these districts but in 2020.
After the new sentence yes is the whole process has to start over again with Congress. We know are almost certain the game and congressional seat because population increases in taken place over the past two decades. We almost got one after the 2000 2010 census. We didn't quite get there was definitely going to get one of the 2020 sentences. So there's going to be a lot of jumbling at least the congressional level the legislative level.
Do not change the number of seats but they are going to have to read all the districts again for one cycle.
Only fair to say that once there is some sort of guidance and the legislature takes up the issue of drawing the lines that there's going to be a Biddle fight yes big fight about it and it's probably good occupy the time of the people who were directly involved in the drawing process. Typically, though those are some of the top people in general simply David Lewis Harnett County of the Republican chairman of the rules committee is the top of mantle redistricting in the house and he's the person who basically manages the house calendar so he's gonna be out of action with her doing this in there that sis is sort of thing where the senior members of each chamber in both parties are to be involved in this process and that will take up a lot of time, but again something is not likely to happen until the summer. I want to talk a little bit more about what you see coming in terms of budget negotiations, but to get there we have to talk first about the fact that there is a major new political dynamic in the Gen. assembly.
It was a very good election cycle for Democrats in November. They won a lot of seats so the Republicans still have majorities in both chambers, but those super majorities are gone.
What's that mean for discussion about all sorts of things. Well, there are now 10 more Democrats in the house of the last times the males 5545 sheepdog 6530 5B plus a 65 without appreciate that I, in the Senate. There are six more Democrats before, so we're in a situation in which there is not a vetoproof majority in either chamber and so there will that they stay sort of said as they rolled their eyes and held their noses at the end of December. Well got to work with you people next year that they seem so very enthusiastic about the thought of doing that, there's a big safety valve here for the general assembly that is a few years ago, a law was passed which basically said that if we don't have a new budget on time at the end of the fiscal year. We can continue operating with the budget that was in place previously using the spending and revenue using existing revenues to get there. And so, so long as tax collections keep pace with spending needs. Then this budget battle could go on long be on June 30 with the fiscal year ends of the new and begins and before that happened previously you could have a government shutdown. You could have sleep because you your budget would go away completely, is not as if you pass a continuing resolution as Congress does the general assembly can in the odd given the even-numbered years because the budget just goes away at the end of this fiscal year. They've now given themselves a safety valve which probably means that the singer could stretch well in the summer or fall. With so many more Democrats elected to the legislature.
Does that mean that Democrat governor Roy Cooper will have more influence you will have to meet with you.
He will he will put this what he will choose to doesn't have to. He will choose to do that and where that means the differences it probably there will be a big push to route either eliminate some of the tax cuts that have been phased in over the years to perhaps add a new tear you away from the flat tax we have right now potentially to add different forms of taxation to do things with to do things also sold the spending side there going to be moves to do things to reign in school choice, which may have something to do with losing funding for opportunity or disability scholarships or even perhaps requiring charter schools to have new mandates for service which will then penalize them to the benefit of traditional district schools really a lot of things he's gonna try to do it at the margins to make life difficult for Republicans and for this for freedom oriented growth policies we've had over the past few sessions. Ever since the governor was elected and on the campaign trail as well.
He talked a lot about the issue of delivering healthcare and health insurance and he wants to expand Medicaid and so far North Carolina is a state that is chosen not to do that we can see that pushing and of course we are and there are a few Republicans represented Donnie Lamberth Forsyth County is one of them.
Former hospital executive. The hospitals are going to push very hard for Medicaid expansion because if that happens, hospitals tend to tend to qualify for higher reimbursement levels. So that's what they like. Now that doesn't necessarily mean a good thing for some private practitioners especially for practitioners who are affiliated with the big hospital that works for me is not that there are always trade-offs involved in the big trade-off here is not only would money existing pot of money be moved around differently, even if a lot of it initially comes from Washington, not from us although it all, but the there will be winners and losers. If there's Medicaid expansion and also their stuff course of evidence. Evidence indicating the people who were on Medicaid actually have worse outcomes of people who don't receive Medicaid benefits. So there's the patients who have to be considered to be quite often there. The want to get left out Rick. I know the Carolina Journal is going to be literally covering this daily and we know that that the printed version is a monthly newspaper, but the daily news site Rick Carolina Journal.com you can have continual updates give us a sense of that.
The topics and the people you recovering doing a lot with education issues. As we always do both higher education and K-12 education, an issue that we covered very thoroughly as Atletico's pipeline of that controversy potential if movement on eminent domain and property rights issues which the perennial for us.
Then of course tax and budget.
To me, and we who pays and wears the money going that something will always keep up with the end of January. Those state lawmakers do come back into session in Raleigh Carolina Journal will be there every day covering this for us and Carolina Journal.com we been talking with Rick Henderson.
He is editor-in-chief. Thank you.
Thanks. Don't stay with us much more Carolina Journal radio to come in just a moment government plays a key role in your life affecting your paycheck the way you educate your kids the way you do business. How can you tell if government is doing a good job making the right choices. Spending tax dollars wisely. Carolina Journal.com tackles those questions every day. The John Locke foundation publishes Carolina Journal imprint each month and on the web each day at Carolina.
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John Hood's daily Journal news stories and important public email@example.com and the voices of the newsmakers themselves at Carolina Journal radio imprint on the air and on the web. You can find the information you firstname.lastname@example.org welcome back to Carolina Journal radio I Michiko got many governments assess so-called sin taxes on items such as alcohol and tobacco. Do these taxes represent good public policy. Recent panel discussion tackled that topic. The event was cohosted by the John Locke foundation Western Carolina University's center for the study of free enterprise and the Federalist Society were interviewing panelists to get their take on the issue in this segment we welcome Dr. that Calibri's associate professor at New York University. Thanks for joining us. Thank you for having me. So first of all working to get into the specifics of a chapter that you cowrote for a book on this topic told a title for your own good taxes, paternalism and fiscal discrimination in the 21st century.
But before we get to the specifics of your chapter in general, your sense of sin taxes and whether they represent good public policy. It's sort of imposing an ideal of what you what behavior you think you want from people as opposed to allowing people to make their own decisions. From that perspective in the distortionary effects it has on the behavior of people. I don't find them to be extraordinarily enlightened form of taxation that so was generally the sense that this is not the best way to go your specific chapter in this book dealt with the use of these taxes dealing with pensions to write about that. So my my chapters a little bit of the oddball of the book and that it's not necessarily directed at sin taxes per se, but the chapter focuses on the use of selective taxes now now ironically or incidentally is probably the correct word. Some of those taxes are syntaxes that are used to fund pensions, but the. The bulk of the chapter focuses on a increasing phenomenon in state and local governments who have underfunded pension systems significantly underfunded bees in our pension systems that are mildly underfunded, such as North Carolina's pension systems which are actually quite healthy, comparatively speaking, these are these are pension systems that are in risk in many cases of running out of money in a few years, and when you think of the intergenerational equity of of what that means.
It means that prior generations received benefits that they didn't pay for and that the benefits now have to be paid for by taxpayers who do not receive the benefits. It also means that taxpayers who may be interested in pension reform have a problem so if North Carolina tomorrow wanted to switch from a defined benefit plan to a defined contribution plan. There might be a little bit of fiscal pain.
Pension systems are parked somewhere around over 90% funded. So there's a small liability that would have to be somehow paid off. But if you were in Illinois and wanted to close the pension system you would need tens of billions of dollars. And so it effectively.
The underfunding effectively removes many significant reform possibilities from current and future taxpayers, which I think is a real problem. The, the issuance of selective taxes with pensions. It is interesting because as I said, it tends to be that the cities in the states that have not manage their pension systems well. I look specifically at in depth of the states of Pennsylvania and Illinois.
Obviously, whenever you mention Illinois and fiscal management and health and in the same breath you know you're in for quite the story, but in the case of Pennsylvania Pennsylvania allows municipalities have their own pension systems. They have thousands of local pension systems, and the state for over 100 years has had a system where commercial insurers pay a premium tax to the state and the state distributes the money to the localities and it's intended to offset the pension contributions of the of the cities in Pennsylvania and so what you have is a system where the state was basically collecting money than sending it to the cities and there was no connection between the benefits and the financing of the benefits and so obviously if you were city that was funding the pension system or I'm sorry providing benefits that were lower than the maximum amount the state would pay you back for essentially you had an incentive to increase benefits to your workforce because it was essentially free and now you're in a situation where you have systems that are are well underfunded and so then they they start doing things like taxing increasing the sales tax, increasing the garbage collection taxes, as is another example.
Philadelphia, for example, used they were supposed to use a tax on soda as part of their pension funding arrangement and I might be mistaken I might be misremembering as I say I believe they also at one point had a cigarette tax that was supposed to be devoted to their pension system.
None of those taxes generated the revenue of a suspected so poorly funded pension system continue to be poorly funded. We are chatting with Dr. that Calibri's is associate professor at New York University and talking about the use specifically of these specialized selective taxes to help with pension funds. This seems to fit in with the general theme of how these taxes are distorting proper correct proper tax policy when when these governments do take the sort of steps. What kinds of long-term problems does this create the best selective taxation is usually done as a means of addressing poor management and poor behavior over the past several decades, either the benefits that are far out of line with affordability and sustainability or with the unwillingness to levy taxes at a rate that would properly fund the pensions. There is a debate about what properly funding pensions means. However, you know my my particular opinion is that pensions should be fully funded by by the people who are consuming the services of a government that would imply, as I said that if future generations in future taxpayers wanted to make changes to the systems they would not be on the hook for for money that prior generations failed to put into the system, the, the, the history or the experiences of selection taxation have shown showing the chapter are generally not resulted in better funded pension systems because the reality is if if you are going to place a a fee or tax on some particular service or good and you're not going to also reform and address benefit levels. You're basically just throwing dirt into a deeper and deeper hole and you're not making any progress. So the the lore of of these taxes is that it can provide some kind of way out of these problems without making a very difficult decision and without having difficult difficult negotiations about whether benefits are excessive, proper, etc. so that's that that's it. No one who's implementing these, that there there.
I should say no and there are very few examples of municipalities that have done this when they have improved their pension funding docket that Calibri's associate professor at New York University thinks but thinkest not want Carolina journal radio just a moment.
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These co-author of the book captured economy.
Tellis says organized elites are using government to lock in their economic advantages, markets will increasingly determine the status of the less wealthy but politics will determine that of the more advantaged this would predict exactly the increase in income and wealth of the top and the atrophying it of it that the bottom that we seen over the last 40 years, the predictions of this theory one is the absence of disruptions to the system of political organization. Economic growth will slow down if we believe with some better that the creative destruction is the basic motor of economic growth read that and the ability to tear down existing business models tear down existing firms that have gotten calcified and replacing with entirely new business models, entirely new products right. That process is in the speed with which it operates is the key to economic growth, but the more we see this rinsing, especially the top.
The more that's can slow down. Second, social mobility will decline as the organize lock in their advantaged state action.
While the disorganize cannot third inequality will increase over time as rents generated by organization at the top of the social system, increase those rings will then be redistributed into political organization. Those excess profits. One thing you could do is excess profits is you can take them and invest them back into the political system to either expand your rents or protect them from attack.
So what does Stephen Tellis think we should do the basic argument here is that rent seeking is fundamentally a political problem is a result of inadequate political competition in order to drive economic competition in the absence of effective political competition. What you get is increasing economic oligopoly. So what can we do about the in the argument we make in the book is that you need deliberation right that in general, rent seeking is a failure of effective deliberation. One option Tellis puts forward subsidies for opposing arguments in a political debate. Most areas where there's things that we generally characterize as rents have a political environment in which there's a lot of organization one side and nothing on the other right. So you see things like congressional hearings were all the people are arguing for one position really is all way down to town councils making development decisions where everybody is against building a new apartment building in town and nobody is on the other side to an environment which is not going to be deliberation, right, you don't actually have to make persuasive arguments to policymakers. If there's nobody arguing on the other side so so the basic argument we make is what would be Pro deliberative mechanisms only and permit mechanisms that would both put information in front of policymakers about the cost of these rent seeking arrangements and that would would give them some pressure to do something about one we argue is subsidized countervailing power. If the problem is unbalanced organization right all the organization is on the side of rent seekers and there's no organization on the other while in our democratic society. We have evidence of the kind of thing they can do something about that. That's Prof. Stephen Tellis of Johns Hopkins University, speaking recently at Duke. He's discussing key themes from his book the captured economy. Tellis offers one example of outside groups helping to inform a political debate until recently. In almost every jurisdiction in the country. Teachers unions were likely to be enormously represented whatever any political decision was being made on schools, and almost nobody was organized on the other side right and that made the path of least resistance to do what teachers wanted allowed them often to extract rents from the political process in the form of not so much, actually increasing salaries but decreasing pressures on low performers again.
One thing we had in the United States as we do have this enormous these enormous donations and they've actually invested in a lot of money into creating countervailing power and the former pro education reform organizations are able to show up in Hartford, Connecticut or Baltimore Maryland or DC or New York City and make sure the policymakers have information on both sides of these questions and that turned out to have an enormous effect. What you think L but it's an enormous effect on the politics of that area as well.
Tellis offers another idea for improving the current status of political debates, increasing legislative and executive information capacity. One of the most powerful tools that rent seekers have is the absence of information on the other side and one way to get that is from the outside, creating new external organizations with the other thing is to make government less dependent for its information on outside sources. Tellis offers another suggestion change the rules of the game in particular the involvement of general-purpose actors right so one of the things is almost all these areas are capture a result of the fact that you have special purpose government entities read that turn out to be very easily captured by those they regulate, whether that's in finance with the Securities and Exchange Commission or the FDA with drug companies write one thing you can do is increase the involvement of general-purpose government entities that have an interest in efficiency broadly broadly understood and so one example this is OMB, the Office of Management and Budget has an office called the office of independent regulatory authority.
I think that's right. And what they do is a great central review of already all major regulations and so even though I you into the make it capture over a regulatory agency on its own. That still has to be, they sought to convince OMB that it passes the test of a cost-benefit analysis.
Tellis says the judicial branch could play an enhanced role. We argue in the book for much more my thing is Pro deliberative role for court's right not necessarily striking down regulatory regimes like this on the basis of of economic freedom, but saying if you're going to do that if you're going to regulate and allow the dentist to set their own salaries. Legislators need to put their hand on many do it over and over again right to authorize this is what they want, rather than simply passing this on to unaccountable regulatory words. Tellis also urges people to think beyond left versus right or more government versus less government in order to anyway go in this huge mass of the upward redistributing regulations. We need to think a new ideological term right. Almost all of our last 40 years of American politics have been characterized by a left versus right on the question of whether we should have more government or less writing, whether seven more inequality or less ride that's been the axis of political competition. But the thing that's characteristic of all the issues I talked to before is none of them are really squarely on the side of more or less government right that is, liberals generally tend to be in favor of government activism them against constitutional or other kinds of constraints on government action, but part of the argument of this book is logically in equality with God. As a result of an absence of constitutional constraints in some ways on government and simultaneously conservatives need to get more upset about inequality, especially if they realize how much of inequality is not a result of the absence of government but it's but it's presence that's political science Prof. Stephen Tellis of Johns Hopkins University, speaking recently at Duke. He shared themes from his book the captured economy will return with more Carolina journal radio in a moment a commitment to truth and transparency in government. That is the mission of Carolina journal and we are proud to deliver and now proud to tell you the North Carolina press Association has honored to members of our team with awards reporting and writing, that's right, we really do deliver award-winning journalism we shine the light on government spending, reveal the truth about boondoggles and dig deep into programs paid for with your tax money. We keep you in the know in a way other media outlets don't in our reach and influence are growing to all of our outlets.
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Call 1866 JL FINF0 for your free subscription, welcome back to Carolina journal radio I'm Donna Martinez. More than 820,000 N. Carolinians participate in North Carolina's state pension plan for current and future government employees. This plan is an important component of their retirement plans. That's why the investment strategy is evaluated closely for its returns and potential risks now growing number of states are employing the use of what's called ESG in public investments and that has John Locke foundation Senior fellow Don Vandermark cautioning North Carolina to take steps to protect pension plan participants from that risk. Don joins us now to talk about exactly what it is and why he so concerned.well-connected program okay so what is ESG. ESG stands for environmental, social and governance issues and the investment strategy that describes taking these factors into account in making your investment decisions so proponents claim that there are certain areas where investor should be cautioned against investing. For example, tobacco companies, gun companies and manufacturers fossil fuel energy companies with the idea that I owe you know there's long-term liabilities associated with these industries and you need to be.
You need to be staying away from them now.
Opponents claim that look where investment managers, but do we do this for a living. We take these liabilities into account, and we don't need any additional parameters imposed upon us and we may be violating our fiduciary responsibility to share responsibility, meaning that if someone's investing your money. They may have an obligation to look out for you to make sure there's returns in effect yet that obligation is to maximize returns in and by art. These opponents argue by artificially limiting their ability to make investment decisions. They may be failing and that fiduciary responsibility by failing to realize maximum returns and that's what went on in California. Let's talk about California in just a moment, because I know it capture I and you wanted to talk about this, but this North Carolina have an investment strategy for its pension plan that considers all of these some elements when it invests in fact there is a statutory framework that our treasurer is subject to. Currently our treasurer, Dale Falwell and he was asked about this on national TV. He was among the items on this squawk box. I think it's called, and CNBC program.
I think that's right. And he was asked specifically in her wares North Carolina on considering these ESG factors and Sec. Falwell correctly in my mind responded he doesn't think about him he is is got his fiduciary responsibility and that's what he will adhere to.
Now the statutory scheme was amended in 2009 to actually allow the state treasurer to consider what they called collateral benefits, but essentially were non-investment. It factors in making investment decisions on behalf of the pension plan that thankfully it appears the sector. Falwell is and is not a certified treasurer follows art is not following that but but it is possible that future treasurers and would take advantage of that element of the statute. Absolutely. And I think would be prudent just to remove that part of the statute is clear. Speaking of prudence and the potential risks. Should a future state treasurer decide to follow that to include that in the investment strategy that takes us to the state of California where they actually have been involved in that time tell us what's happening there right California by many metrics would be considered a very progressive state.
However, the CalPERS which is the California pension fund has for a quite a while taken ESG factors into account and most recently the president, who was of staunch supporter of ESG investment strategies was ousted by a policeman and the policeman ran on the platform of not following these yes factors he pointed out. For example, that a prohibition in CalPERS investing in.
For example, tobacco companies caused an $8 billion loss to the fund. So what's what's paired is is that is progressive is California might be.
It comes with a price tag and and and that caught the pensioner's attention and and he will and he asked that this is a very prominent ESG proponent because I guess the $8 billion and other losses are just too much to bear.
We know Don if this is a trend towards this type of an investing across the country or are pension pension investment that companies in those accountable for it. Are they pulling back. There appears to be a push in course my areas in the environmental renewables. That's where things are seems to be a published that since Pres. Trump took office and his his deemphasis. Perhaps, as opposed to, for example, Hillary Clinton's policies of his deemphasis on renewables has led some fund managers. Notably, some big-name investors to to to push harder on fund managers to take into account ESG factors.
Specifically, getting away from fossil fuel energy companies. For example, since we now know based on your research on this, that it is possible for a future North Carolina treasurer to employee.
This is part of the investment strategy even though the current treasurer, Adele Follis, as he does not what we do next in order to protect pensioners from this.
It sounds potentially risky it is and and is simple removal of that provision that was added in 2009 will return the statutory framework to one that is purely geared toward the fiduciaries possible to that is maximizing returns for the retirees and I think that's that's clean and I think that's what sector follow-ups are treasurer, Falwell is pursuing at the right answer.
Is there an appetite to even get into this at the Gen. assembly. I mean you're talking about, and in some ways kind of I'm complex information that is at a financial nature. There's all sorts of things for legislators to try to learn about lot of new people coming into to the session. Is it possible to think that this would get their attention to what I think the example in California is a very instructive line and hope that when more folks find out about it that they'll consider it. In fact, there there are some employee groups are groups that advocate for state employees and state retirees.
One would think that they would certainly take an interest in this, so we been talking with Don Vander var T is a senior fellow in environmental studies for the John lock foundation. He is the former Sec. of the North Carolina Department of environmental quality, now a senior fellow here at the lock foundation. You can read all of his work on a variety of email@example.com and Carolina Journal.com Don Vandermark thanks much for joining us. That's all the time we have for the program this week.
Thank you for listening on behalf of my cohost Mitch. Okay I'm Donna Martinez hope you'll join us again next week for another edition. Carolina Journal radio Carolina Journal radio is a program that the John Locke foundation to learn more about the John Locke foundation donations support programs like Carolina Journal radio send email to development John Locke done or call 66 JL info 166-553-4636 Carolina Journal radio is the John lock foundation Carolina spring I can maintain and Carolina broadcasting system, Inc. all opinions expressed on this program and are solely those not clearly reflect the opinion that organization. For more information about the show. Other programs and services of the John foundation, John Locke.toll-free at 866 JL at night and thank our wonderful radio affiliates across North Carolina and our sponsors. Carolina Journal radio.
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