Friday, November 18, 2016

For North Carolina’s Treasurer-Elect the Biggest Challenge is Judgment

For North Carolina’s Treasurer-Elect the Biggest Challenge is Judgment

After digesting the results of the recent election I began writing a post about the policy challenges facing the next Treasurer of North Carolina, Dale Folwell.  In preparing my post, I did a bit of research on the Treasurer’s-elect’s views about the state pension.  In the course of my research, I ran across a Facebook post from his campaign that caught my attention.  In celebrating his victory Mr.
Folwell encouraged his supporters to help him retire $500,000 in campaign debt.[1]   Early in the election cycle politicians routinely lend money to their campaigns in order to launch their  bid for public office.  Treasurers Boyles and Moore made small loans to their campaigns which we were retired as they raised funds.  Mr. Folwell did the same thing before going much further in funding his campaign.[2]

According to Mr. Folwell’s election committee at least $350,000 of the debt is owed to Mr. Folwell.[3]  Mr. Folwell probably loaned the remaining $150,000 to the campaign, but we won’t know until the campaign files its fourth quarter report in early 2017.  According to the third quarter report to the State Board of Elections Mr. Folwell’s campaign had raised about $585,000 from contributors, which means that the loans weren’t just for start-up expenses.  A substantial part of his campaign was run on loans.

On Mr. Folwell’s website, he describes himself as a “highly successful investor and financial consultant.[4]  While the loan is large, I figured that  Mr. Folwell could easily afford to make the loan given his statement about his investment prowess.  I decided to check the Investment Advisor Data Base to find Mr. Folwell’s investment affiliations and licenses.  I didn’t find any records.  I checked Mr. Folwell’s Statement of Economic Interest (SEI)[5] filed with the North Carolina Ethics Commission.  I expected the document to show a list of investments or investment income that would provide some indication of Mr. Folwell’s investment portfolio.  Instead of a broad  investment portfolio, I found that Mr. Folwell and his wife own five stocks, a checking account, a couple of homes, and some raw land.  In other words, there wasn’t much of a record for a “highly successful investor.”  Instead, the SEI seemed consistent with Mr. Folwell’s record of public service.

My research has left me with an unsettled feeling.  Our next Treasurer and sole fiduciary of the North Carolina pension plan has a large campaign debt that he’d like contributors to extinguish so he can pay himself back.  It’s less than ideal for a fiduciary to be under any financial pressure when he invests funds on behalf of retirees and other beneficiaries.  On the one hand, paying off the debt may prove easy because contributors might feel they can buy influence by helping the new treasurer replenish his bank account.  On the other hand, he might not be able to eliminate the debt, which would be a blow to his personal financial position.  In other words, Mr. Folwell might have a large hole on his personal balance sheet unless financial institutions, PACs, or others who do business with his office erase the campaign loans.

As a seasoned politician, Mr. Folwell understands that running an effective statewide election requires a substantial amount of money.   Without money, it is difficult to win office in our current political environment.  However, certain means of financing a campaign are problematic, especially when the candidate is running for an office that is predicated upon judgment, prudence, and foresight.  As a “highly successful investor” the newly elected Treasurer should have  known that a high degree of leverage is a risky proposition.  He should have also been aware that soliciting campaign contributions to retire a substantial debt creates potential conflicts of interest with his new duties.

Judgment is the key ingredient for a successful fiduciary.  After seven years in office, our current Treasurer’s judgment failed her.   Treasurer Cowell saw nothing wrong in serving on the boards of public companies while managing the 12th largest pension plan in the United States.  In my view, our new Treasurer’s judgment is already in question.  Mr. Folwell enters office with a large campaign debt hanging over his duties as State Treasurer.


  1. Does the SEI require that mutual fund investments be disclosed? I don't think you provided full disclosure in your critique. A more interesting article may have been why did Blue raise a significant amount of money outside of NC while Folwell raised virtually all of his in NC? You think those Blue out of state contributors had the best interests of state employees in mind? Would you rather have someone who took money from all across the US - and worked on Wall St. or someone who believed in their campaign and self funded? The last two Treasurer administrations were two of the most unethical in NC history. One in particular had their tenure clouded with hints of pay for play as widely reported in the media. In fact, some of his staff even took jobs with the investment companies the pension invested with. I think it would be fair to give the Treasurer elect a chance before muddying the water. State employees were desperate for new leadership given the issues with the current administration. There will be plenty of time for reflection down the road once there are concrete facts to evaluate.

    1. Perfect Game -- You are correct. Mr. Blue raised more of his campaign funds from out of state sources and those donors like most donors probably have expectations, although not necessarily with respect for the pension plan. The Treausrer has many responsibilities in NC. Unfortunately this is true of anyone, including Mr. Folwell, who runs for a major public office. I might well have written about Mr. Blue but he did not win election to the Treasurer's office. Mr. Folwell's method of financing his campaign with large personal loans is rather unique and risky. I hope Mr. Folwell can quickly raise the necessary funds to retire the debt and that he does it as transparently as possible.