Republicans Consolidating Power In The States

Late last year, after Republican Gov. Pat McCrory (R) became the only incumbent governor ever to lose a reelection bid in North Carolina, the state’s GOP-led General Assembly passed legislation restricting appointment powers of Democratic Gov.-elect Roy Cooper. But that wasn’t the only recent move by Republicans in the states - or in North Carolina specifically - to reduce the influence of the branches of government they don’t control while strengthening the power of those they do.

 

The legislative action last December in North Carolina capped off months of partisan wrangling that began in March with the abrupt passage - in the first special session called by the state’s General Assembly in 35 years - of HB 2, requiring transgender individuals to use the public restrooms that correspond to the gender of their birth and barring local governments from adopting anti-discrimination protections for LGBT individuals. The bill touched off a national backlash that contributed to McCrory’s historic election defeat. Exit polls showed that two-thirds of voters opposed the law and 64 percent of that group voted for Cooper, according to the Washington Post.

 

The race was still very close; just over 10,000 votes separated the two candidates out of over 4.7 million cast. And the hard-fought contest dragged on for nearly a month after Election Day, with Republicans and the McCrory campaign alleging voter fraud in several counties and obtaining a partial recount in one - though it did little to change the vote tally - before McCrory finally conceded on Dec. 6.

 

Two weeks later the General Assembly, which had adjourned its regular session in July, convened itself into special session again and passed SB 4, ending majority control over the state and county election boards by the governor’s party, and HB 17, requiring the governor to obtain Senate approval of his cabinet picks, stripping him of his power to appoint University of North Carolina trustees and slashing the number of positions he can fill at state departments and offices from 1,500 to 425. Both bills were promptly signed by McCrory, according to LexisNexis State Net’s legislative tracking system.

 

“This is an unprecedented, shameful and cowardly power grab from the Republicans,” said Jamal Little, a spokesman for the state’s Democratic Party, according to the New York Times. “After losing the governor’s office, the G.O.P.-controlled General Assembly is attempting to hold on to power that voters took away from them.”

 

But Republican legislative leaders maintained that the changes had long been needed to restore the balance of power in Raleigh that they say had shifted too far toward the executive branch.

 

“This was clearly a constitutional session,” said House Speaker Tim Moore (R), as the Washington Post reported. “It was fully compliant with the law.”

 

Cooper, however, has filed a lawsuit challenging both SB 4’s election board revamp and HB 14’s cabinet confirmation requirement, and those challenges have been seesawing back and forth in the courts. Both provisions were initially blocked by state judges, unblocked by appeals court panels and then in the case of the election board makeover, re-blocked by the state’s Supreme Court, pending a determination of whether they violate the North Carolina Constitution’s separation of powers clause. Which way the courts will ultimately rule isn’t clear, Michael Gerhardt, a law professor at the University of North Carolina, told the Post, although he noted that during his four years in office McCrory never told the Legislature: “I think I’m too powerful and you should look for ways to weaken my office.”

 

North Carolina Superior Court Judge Jesse B. Caldwell III, one of the three judges on the appeals panel that considered whether to block the Senate confirmation requirement for gubernatorial cabinet appointees, raised that very issue.

 

“If we have an executive branch that’s out of control, out of control, that needs to be reeled in...then why wasn’t this done before?” he asked the attorneys for Senate President Pro Tem Phil Berger (R) and House Speaker Tim Moore (R), the defendants in the case, according to the Progressive Pulse, a blog about North Carolina public policy.

 

One of those lawyers, Noah Huffstetler III, reportedly replied that the change was overdue and that just because it hadn’t been done in the past didn’t mean it shouldn’t be done now.

 

“I think it’s just a good, sound public policy, he said.

 

While the state’s courts have been deliberating last year’s legislative actions, its General Assembly has been considering a series of new restrictions on the executive branch. HB 239, for example, would eliminate three of the 15 seats on the state’s Court of Appeals when they become vacant, denying the governor the opportunity to fill them. Two other bills, HB 240 and HB 241, would transfer the power to appoint district court judges and special superior court judges - who don’t have to reside in the district where they preside so they can be sent wherever they’re needed - respectively, from the governor to lawmakers. All three bills have cleared the House and are in the Senate, according to State Net’s legislation database.

 

Democrats say the bills are clearly politically motivated. As the Progressive Pulse reported, the Court of Appeals is currently dominated 11-4 by Republicans, but three of them are approaching mandatory retirement age, so HB 239 would prevent Cooper from appointing Democrats to fill those vacancies. House Democratic Leader Darren Jackson also noted that no formal study had been done to justify the reduction of the court’s size, according to the blog.

 

But as the Raleigh News & Observer reported, House Speaker Pro Tem Sarah Stevens (R) told the House Judiciary Committee before it approved HB 239 last month that the Court of Appeals’ workload has been diminishing by about 200 cases per year, so there was no longer a need for 15 judges. And Rep. Justin Burr (R), who sponsored all three of the judicial reform measures, told that same committee he’d “always advocated for pushing in this direction.”

 

“I pushed under [Gov. Pat] McCrory and wasn’t successful,” he said. “This is something I’ve looked at for several years.”

 

Nonetheless, if the bills pass, there will likely be more litigation, said Rep. Henry Michaux Jr. (D), according to the Progressive Pulse. And it seems unlikely the courts would be receptive to curbs on their power.

 

North Carolina is not the only state where Republicans - who have complete control of the legislative branch in 32 states and hold both the legislature and governor’s office in 24 - have sought to consolidate their power, however. In Kentucky, where the GOP added control of the House to its existing command of the Senate and governor’s office in November, the Legislature moved to block the state’s Democratic attorney general, Andy Beshear, from filing civil lawsuits, after he sued Gov. Matt Bevin (R) three times last year. In Arizona, Gov. Doug Ducey (R) and the state’s GOP-controlled Legislature passed a bill last year (HB 2537) adding two new justices to the state’s Supreme Court - which had recently upheld voter-approved ballot measures they opposed - and the governor has also eliminated several state boards and commissions, and transferred their powers to his office, as the Hill reported. Florida’s GOP-controlled Legislature is considering HJR 1 and HJR 21, which would seek voter approval of ballot measures limiting Supreme Court justices and district court judges to 12-year terms, and allowing lawmakers to reverse court rulings striking down laws on constitutional grounds with a two-thirds vote, respectively. And Facing South, the online magazine of the progressive Institute for Southern Studies, said 30 bills have been introduced nationwide, mainly by conservative lawmakers, “that constrain the power of courts or heighten the level of political involvement by the legislative and executive branches.”

 

But experts say such actions are nothing new, and haven’t been taken just by Republicans.

 

“This is the oldest trick in the political book, writing the rules to win the game,” Thad Kousser, an associate professor of political science at the University of California San Diego, told the Hill.

 

Kousser cited Democratic President Franklin Roosevelt’s plan to pack the U.S. Supreme Court with justices amenable to his New Deal programs and the partisan gerrymandering routinely engaged in by both parties as just a couple of examples illustrating his point.

 

The Hill also reported that Democrat-controlled legislatures in Massachusetts and New Jersey recently changed rules governing U.S. Senate appointments to restrict the powers of Republican governors in those states, and Nevada Senate Democrats used their narrow majority to bar the state’s Republican lieutenant governor, Mark Hutchison, from casting tie-breaking votes in that chamber. And according to the Washington Post, in 1972, when North Carolina voters elected the state’s first Republican governor of the 20th century, Jim Holshouser, Democrats, who controlled the General Assembly at the time, expanded the powers of the state’s Democratic lieutenant governor. Ten years later, when voters elected the state’s first Republican lieutenant governor of the 20th century, the Democrats attempted to scale back the powers of that office.

 

Kousser said the cyclicality of politics ought to be a consideration for GOP majorities now.

 

“If the shoe’s on the other foot, if we lose power, are we going to face a backlash?” he said.

 

But he also said there generally isn’t much reward for long-term thinking in state legislatures.

 

“Careers are shorter in state legislatures overall, and careers have an end date baked into them in states with term limits,” he said.

Will Regulation of the “Internet of Things” Fall to the States?

There’s a busy world all around us that goes relatively unnoticed much of the time but that could soon be a major focus of government regulation. It’s called the Internet of Things, or IoT, and although it has dominated the attention of the tech industry for the last several years, many in the general public still don’t know what it is or have even heard of it.

 

“Nobody knows what this is, but yet it’s incredibly important,” said U.S. Sen. Brian Schatz (D-Hawaii) at an IoT policymaking event in Washington, D.C. in December hosted by the Center for Data Innovation, as reported in Government Technology. “The reality is that while few people know what IoT is, they are already exposed to it when they cross the street or wash their hands.”

 

As a concept, the “Internet of Things” has been around since the early 80s, when a group of students in the Computer Science department at Carnegie Mellon University wired up a Coke machine to the Internet to keep tabs on its inventory. But there still isn’t a widely accepted definition of what the IoT actually is, according to a report released last month by the Federal Trade Commission. A working definition may be that it is the rapidly-growing network of physical devices -- from cable TV boxes and refrigerators to wearable medical devices and traffic lights -- that can connect to the Internet. It enables home thermostats to automatically adjust to weather forecasts, doctors to remotely monitor patients’ heart rates and stoplights to adapt to local traffic patterns.

 

The FTC report said experts estimate there will be 25 billion such devices in operation this year and twice that number by 2020. A story by Katy Bachman last January in Adweek, placed the latter figure even higher, between 50 billion and 75 billion, which she said would “create 13 quadrillion connections to the Internet and generate 200 exabytes of data a year.” To put that into perspective she noted the Library of Congress houses 5 exabytes of data.

 

That enormous volume of data has sounded alarm bells in Washington.

 

“We’re now in a world where data is being collected all the time,” FTC Commissioner Edith Ramirez said at the 11^th annual State of the Net conference last month, according to The Verge. “We’re bringing these devices into our homes, into what used to be private spheres, and the data that is being generated is increasingly much more sensitive.”

 

The FTC’s report, titled The Internet of Things: Privacy and Security in a Connected World, which was based on a workshop the agency conducted in Nov. 2013, stated that while participants generally agreed the IoT offered “potentially revolutionary” benefits to consumers, they also noted it “presents a variety of potential security risks that could be exploited to harm consumers by: (1) enabling unauthorized access and misuse of personal information; (2) facilitating attacks on other systems; and (3) creating risks to personal safety.”

 

“Participants also noted that privacy risks may flow from the collection of personal information, habits, locations, and physical conditions over time,” the report said. “In particular, some panelists noted that companies might use this data to make credit, insurance, and employment decisions.”

 

The security and privacy threat posed by IoT devices has already been demonstrated. Last summer researchers at the University of Michigan found that networked traffic signals were susceptible to cyberattacks. And in 2012 hundreds of home security cameras and baby monitors were hacked and their video streams posted on the Internet. That cyberattack led to the FTC’s first action against the purveyor of an IoT device, the marketer of the baby monitors, TRENDnet, which ultimately reached a settlement with the agency under which it agreed to beef up its security practices.

 

Despite the evidence of such threats, the FTC’s position, according to its report, is that “legislation at this stage would be premature,” aside from “strong, flexible, and technology-neutral federal legislation to strengthen [Congress’] existing data security enforcement tools and to provide notification to consumers when there is a security breach,” for which the agency has been advocating since at least 2012.

 

The bulk of the FTC’s recommendations lean toward self-regulation. The report states, for example, that IoT companies “should build security into their devices at the outset, rather than as an afterthought” and “limit the data they collect and retain.” It also advises that those companies give consumers choice in what data they share and notify them when there is a security breach.

 

The FTC’s light-handed approach is guided by a desire to avoid stifling innovation and economic growth.

 

“We should adopt a regulatory regime that allows technology, even disruptive technology, to thrive,” FTC Commissioner Maureen Ohlhausen said at last year’s International Consumer Electronics Show (CES), according to Adweek. “Success of the Internet has been driven by the freedom to experiment even in the face of unease. It’s vital that government approach the Internet of things with regulatory humility.”

 

President Barack Obama has called for federal legislation to protect against cyberattacks, including a bill requiring companies to notify consumers within 30 days of discovering a data breach that their personal information may have been compromised, like what the FTC has been seeking for years. With the recent high-profile cyberattack at Sony, some form of that measure could finally happen.

 

But states haven’t been willing to just sit around and wait for Congress to act on the issue. Every state but three -- Alabama, New Mexico and South Dakota -- has already enacted its own data breach notification law, according to the National Conference of State Legislatures. And even if Congress passes such a law, there are plenty of other facets of the issue for states to focus their attention on, such as consumer privacy. By NCSL’s count, for instance, 15 states have enacted laws, which, among other things, prohibit the downloading of information from motor vehicle event data recorders, or “black boxes,” without the consent of the vehicle owners or policyholders (see Bird’s eye view).

 

At the Center for Data Innovation’s Dec. 4 event entitled “How Can Policymakers Help Build the Internet of Things?” U.S. Sen. Deb Fischer (R-Nebraska) advised, “policymakers can’t bury their heads in the sand and pretend this technological revolution isn’t happening, only to wake up years down the road and try to micromanage a fast-changing, dynamic industry.” Many state lawmakers likely share that view.

 

-- By KOREY CLARK

 

More States Looking to ‘Go Green’ In Spite of Banking Woes

This Tuesday, Ohio voters will go to the polls to decide whether to legalize recreational and medicinal marijuana use. But even if the Buckeye State becomes the 24^th (along with the District of Columbia) to legalize some form of marijuana, it will not solve one of the most significant problems facing the burgeoning legal weed industry: the lack of access to banking services that virtually all other legal businesses take for granted. 

 

It is hardly a new problem (See “Legal Weed Outlets Flush in Cash Struggling to Find Banks” in the July 2, 2015 issue of SNCJ). But with Ohio possibly boarding the legal marijuana bandwagon and several states likely to have legalization ballot measures in 2016, it is one that cries for a solution.

 

Since 2012, four states and DC – all of which already allowed medicinal marijuana use - have passed laws legalizing the use by adults of small amounts of marijuana for recreation. Legalization advocacy groups like the Washington D.C.-based National Organization for the Reform of Marijuana Laws (NORML) expect similar bills in between six to eight states next year. This includes California, the first state to legalize medicinal marijuana use (via Proposition 215 in 1996) and home to more than 12 percent of the U.S. population.

 

The prime motivation behind such a relatively rapid push for legalization is simple: money. According to a report released earlier this year by The ArcView Group, a research and investment firm in San Francisco, the marijuana industry took in more than $2.7 billion in 2014, a 74 percent jump from the year before. ArcView predicts that as many as 18 states could pass recreational use laws by 2020, something that could drive cumulative annual revenues as high as $10.2 billion.

 

Much of that is predicated on what happens at the ballot box in California, where voters rejected a marijuana legalization ballot measure in 2010. But with polls showing a majority of Californians now support legalization, proponents feel confident the Golden State may soon be going green.

 

“Should an Adult Use legalization initiative pass in California in 2016 the entire industry could rapidly double in size,” the ArcView report concludes. Another study by New York-based Green Wave Advisors is even more bullish on the so-called “green rush” economy, saying in an October 2014 report that nationwide legalization could push combined medical and recreational retail marijuana sales to over $35 billion a year.

 

If the results in Colorado and Washington - the first two states to make recreational pot legal - are any indicator, it’s not hard to imagine such bold predictions coming true. According to the Colorado Department of Revenue, combined medical and recreational pot sales in August topped $100 million, the first time monthly revenues have reached that plateau. The Centennial State has already taken in over $86 million in marijuana tax revenues this year, more than it collected in all of 2014. Washington, meanwhile, has collected more than $67 million in pot tax revenues in its first year of legalization. Steve Lerch, executive director and chief economist for the state’s Economic and Revenue Forecast Council, told BloombergBusiness in October that Washington expects to take in more than $1 billion in pot-related revenues over the next four years.

 

But while states have no problem processing and banking such large amounts of cash, weed sellers are not so fortunate. With marijuana still barred by federal law, most banks want no part of their money. That leaves the vast majority of dispensaries as strictly cash-only operations – and high-value targets for theft and robbery. It also makes accurately collecting and tracking taxes on those sales much more problematic for state and local officials than for other industries.

 

Colorado has tried to address the situation. In 2014 Gov. John Hickenlooper (D) signed legislation to create a state-chartered credit union that would cater specifically to the state’s nascent legal weed industry. But the legislation had to clear a tall hurdle - federal law requires banks and credit unions to have a master account with the U.S. Federal Reserve in order to process checks and credit cards. The first financial institution created under the new Colorado law, Fourth Corner Credit Union, applied for such an account in December 2014. After months of silence, the Fed rejected Fourth Corner’s application in July, citing marijuana’s illegality under federal law. Fourth Corner has since filed suit seeking to force the Fed to grant them the account. A federal court is scheduled to hear oral arguments on December 28. 

 

Another possible avenue opened up in May with the formation of CannaNative, the brainchild of a trio of Native American businessmen in Southern California who want to unite over 550 Western tribes in the cannabis business. In a statement, CannaNative co-founder Anthony Rivera says the tribes would use their expertise in running casinos on sovereign land to set up financial services for weed dispensaries. In doing so, he says, tribes would use the fast-growing weed industry “to gain true sovereignty” in a way that is both economically and environmentally sustainable.

 

“CannaNative will usher a new age for sovereign nations, as Native American tribes have unique rights that allow for cannabis (marijuana and industrial hemp) cultivation, manufacturing, marketing, sales, use, distribution, medical research and even banking institutions for the rapidly growing cash-and-carry industry,” he said in a statement.

 

But while that might sound good to weed sellers desperate to find a bank, it seems highly unlikely that such a scheme will ever come to fruition.

 

“I don’t see how they would have the leeway to do something like that,” says Khurshid Khoja, the founder of Greenbridge Corporate Counsel in San Francisco, which represents numerous clients in the cannabis industry. “Even with tribal sovereignty there are things they can’t do. I just question how much leeway they would have to exempt themselves from federal anti-money laundering laws.”

 

The answer is very little, according to Brian Pierson, an attorney who specializes in working with Native American tribes for the law firm Godfrey and Kahn in Milwaukee. 

 

“Certainly there is tremendous need in Indian country, and it’s fair for tribes to explore every potential means for economic development,” he says. “But with respect to commercial activity focused on non-Indians living off reservation, there is no judicial authority for immunity or exemption from federal law.”

 

Technology is now also offering potentially much simpler possibilities for weed entrepreneurs. Companies like Denver-based FlowHub and Integrated Compliance Solutions, based in Las Vegas, offer “seed to sale” accounting and point-of-sale solutions that allow cannabis dealers to meet the strict guidelines laid out by the U.S. Department of Justice and the U.S. Financial Crimes Enforcement Network (FinCEN) for ensuring dispensaries are not laundering money or running afoul of racketeering laws. Others, like California-based Hypur, are promoting software they claim can almost fully automate the compliance process for banks, thus drastically reducing the amount of time they take to service a marijuana client.

 

But while technology offers wondrous new tools, it does not by itself solve the basic problem facing financial institutions that work with cannabis companies.

 

“At the end of the day, it is still the bank’s responsibility to make sure there’s no mistakes made with one of these accounts, regardless of what software they are using,” says Beth Mills, Vice President for Communications and Marketing for the California Bankers Association. 

 

That reality is why most observers still look to Congressional action for a resolution. But the wait has so far been frustrating. Multiple bills have been introduced in Congress, including HR 2076 by Colorado Rep. Ed Perlmutter (D). The “Business Access to Banking Act” would grant civil protections for managing accounts with legal weed dispensaries, but it has so far languished in a House subcommittee with no sign it will ever get a vote. With an often dysfunctional and hyper-partisan Congress heading into an election year, its prospects appear dim.

 

But there remains one small ray of hope for those who support a Congressional solution. An amendment to the tentative budget agreement reached last month between the White House and Congress included an amendment authored by Oregon Sen. Jeff Merkley and Washington Sen. Patty Murray, both Democrats, that would bar the Dept. of Justice from using federal funds to go after banks that provide services to marijuana businesses that are operating legally within their own states. It is yet to be seen if the amendment survives the complicated budget negotiation process. Even if it does not this time, NORML Deputy Director Paul Armentano says the expansion of the legal marijuana industry in the states is likely to force Congress’s hand sooner rather than later.

 

“Ultimately, this is an issue for Congress,” he says. “It is federal law that is preventing these state-compliant businesses from gaining access to financial services, and ultimately it is Congress that has to deal with this issue head on.”

 

 

 

 

Follow Rich on Twitter at @WordsmithRich

Budgets In Brief - December 19 2016

VMT Tax Still Possibility in MA

Despite MASSACHUSETTS Gov. Charlie Baker’s (R) veto in August of a provision in a road funding bill passed by state lawmakers providing for a vehicle miles traveled (VMT) tax pilot program, the state hasn’t ruled out the possibility of imposing such a tax in the future. In an email sent to staffers at the Executive Office of Administration and Finance at the time of Baker’s veto, Department of Transportation Legislative Director Michael Berry said, “VMT...may be a tool that is needed down the road.” (REPUBLICAN [SPRINGFIELD, MASSACHUSETTS], LEXISNEXIS STATE NET)

 

MO to Consider Eliminating Corporate Income Tax

MISSOURI state Sen. Will Kraus (R) has proposed legislation to phase out the state’s 6.25-percent corporate income tax by 2019. Kraus said President-elect Donald Trump’s support for reducing corporate taxes could give his proposal momentum. (OZARK RADIO NEWS)

 

-- Compiled by KOREY CLARK

Hogan Intros Transportation, Manufacturing, Ed Proposals:

Maryland Gov. Larry Hogan (R) has unveiled a series of agenda items he plans to pursue in the new legislative session, including the repeal of a law adopted earlier this year that requires state officials to rate and rank proposed transportation projects to determine which should get funding priority.

 

Other plans include attempting to revive a proposal to create manufacturing jobs in high-unemployment areas and doubling the amount of money the Old Line State spends on scholarships for low-income students to attend private schools. All three ideas face an uphill battle in the Democrat-dominated General Assembly.

 

The transportation rating legislation (HB 1013) became law after lawmakers overrode Hogan’s veto in April. But Hogan says the law will “wreak havoc on the entire state transportation system” because the scoring system it will utilize favors projects in urban areas over those in more rural jurisdictions. The law’s supporters counter that it will ensure fiscal accountability while also giving the Hogan administration the flexibility to choose lower-scoring projects over higher-ranking ones if he can justify the decision.

 

Hogan’s manufacturing proposal previously failed during the 2016 legislative session, though a Hogan spokesperson said earlier this month that his office has “worked out some of the kinks” that led lawmakers to reject the original proposal. That plan would have provided a 10-year tax exemption for new manufacturers and their employees in certain areas, including Baltimore, Western Maryland and the lower Eastern Shore.

 

The governor’s education proposal would double – to $10 million over the next three years – the amount the state dedicates to a program known as Broadening Options and Opportunities for Students Today. The plan has already drawn strong opposition from the state teachers union, which wants the program abolished. Last week the union called the scholarship proposal a “Trump-like initiative that sends taxpayer money from public schools to private schools.” (WASHINGTON POST, BALTIMORE SUN, LEXIXNEXIS STATE NET)