Ron Elmer | Candidate Questionnaires - Statewide | Indy Week
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Ron Elmer 

State Treasurer

Name as it appears on the ballot: Ron Elmer
Campaign website: www.ElmerForTreasurer.com
Phone number: 919-749-6737
Email: info@ElmerForTreasurer.com
Years lived in state: 16 years

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In your view, what are the three most pressing issues facing North Carolina’s next treasurer? If elected, how would you address them?

Steady deterioration of the state pension funding ratio.

When Harlan Boyles retired 15 years ago the pension funding ratio was 112.8% or 12.8% overfunded. Today, the funding ratio is 94.8%. In other words, in 15 years the pension has fallen from roughly 13% overfunded to 5% underfunded. What changed? Employees have continued to contribute 6% of every paycheck – so, that’s not the problem. The state and local governments have contributed increasing amounts every year for 10 years – so, that’s not the problem. The stock market has doubled in value the past 15 years – so, that’s not the problem.

The problem is that risky, illiquid, and expensive “alternative investments” have caused investment manager expenses to explode over 1,000% over 15 years from roughly $50 million per year to $500 million per year. Toss in an estimated $400 million of transactions costs eaten up by the 250 external investment managers, and we see Wall Street takes almost $1 billion per year out of the North Carolina pension fund.

NC State Finance Professor Richard Warr estimates that my plan to move more of the investment management internally inside the treasurer’s office using an indexing investment strategy could save the pension fund $500-$900 million each year. This is money the state won’t have to contribute to the pension fund and could be used elsewhere (see 2 & 3 below).
(See NC State Finance Professor Richard Warr’s research report).

Unfunded liability of retiree healthcare benefits.

The Governmental Accounting Standards Board (GASB) will require states to include unfunded liabilities relating to retiree healthcare benefits to be listed as a liability on state’s balance sheets beginning in 2017. This accounting change will require North Carolina to book a liability estimated to be $35 billion. Eliminating $500-$900 million in investment fees and transaction costs from the pension investment program will ease North Carolina’s burden of funding the pension. This $500-$900 million per year could be used to begin building a healthcare retiree benefit fund to eliminate this liability.

The general erosion of salary/benefits for state employees/teachers.

Freeing up $500-$900 million of pension investment expenses and transactions costs would reduce North Carolina’s burden of funding the state pension. This money could then be used for state employee and teacher raises.

What decisions has Janet Cowell made in the last four years that you disagree with? In what ways would your election benefit the citizens of North Carolina?

Cowell has repeatedly increased the allocation of the state pension to “alternative investments.” When Harlan Boyles retired in 2000, alternative investments made up less than 1% of the pension fund. Now, the pension allocates a whopping 30% to these ridiculously expensive, risky, and low return investments. Former state pension Chief Investment Officer Andy Silton agrees the “experiment” with Alternative Investments has been an abject failure and should be discontinued. I will eliminate these “alternative” investments as quickly as possible and return the pension to the conservative and low cost investment program that previously benefited North Carolina for decades.

Over the past five years, the state’s pension fund has grown at a clip of 9.5 percent. Do you approve of Cowell’s approach to managing the fund? Why or why not? What would be your approach to managing the state’s pension fund?

Duke Economics Professor Edward Tower estimates that my plan to move the pension investment management in-house and utilize an indexing strategy would have boosted pension investment returns by $2.5 billion per year over the past 5 years or more than 2.5% higher annual return. This would have resulted in annual returns of over 12% and resulted in the pension assets being $12.5 billion higher. (See Professor Edward Tower’s research report)


In 2014, Cowell battled state legislators and the State Employees Association of NC on the disclosure of information about deals with Wall Street firms managing stocks and bonds. Do you think she was right to refuse such disclosure? Why or why not? Would you push for more transparency about these deals as state treasurer?

Treasurer Cowell was wrong to enter into investment management contracts that do not allow the contracts themselves be disclosed to the people whose money is being managed. Entering into such a contract is a violation of the Treasurer’s fiduciary duty to the 900,000 participants whose money the Treasurer manages. SEANC’s concerns are valid and understandable. Would you give your money to someone who will not tell you how the money is invested or how the manager is compensated? I will not enter into any such contracts. I will meet my fiduciary duty to participants and to the public through transparency and will publish all contracts the state enters into on their behalf online.

Transparency goes beyond disclosure of investment management contracts. Another problem is the failure to publish financial statements for the pension fund. Harlan Boyles published financial statements for the state pension at the back of the Treasurer’s Annual Report. Every year these financial statements included a balance sheet and detailed accounting of investment expenses. Treasurer Richard Moore published these same financial statements in only his first year as Treasurer. Financial statements for the pension fund have not been published ever since. As a CPA, I am astonished at this reduction in disclosures and I have pledged to resurrect the publishing of financial statements for the pension.

One of your duties as state treasurer would be to serve as a fiscal adviser to the state government. What would you recommend to them to improve the state’s long-term fiscal viability?

We must begin to address the $35 billion unfunded liability due to promised retiree healthcare benefits. Government accounting standards will require this liability to be added to North Carolina’s balance sheet beginning 2017. We can begin reducing the healthcare liability by eliminating $500-$900 million of pension investment expenses and using these funds to begin building a retiree healthcare benefit fund.

On a related note: Cowell last year suggested the state could spend up to $1.2 billion in transportation improvements. What would you suggest that the state government spend its surplus on?

We have mortgaged our future by not providing our teachers a competitive wage and benefits. We must invest more in our K-12 education. Experienced teachers are fleeing our state and fewer and fewer college students are choosing to enter the teaching profession. We are only beginning to see the effects of this mistake. The repercussions of this error will be felt for generations to come if we don’t rectify the situation immediately.

North Carolina is currently one of eight states that has a AAA general obligation bond rating from Moody’s, Fitch, and S&P. What is the key to keeping North Carolina’s bond rating high, and how would you achieve this goal as state treasurer?

Having managed bond portfolios, I know that there is direct correlation between debt service levels and credit ratings. North Carolina is about to be hit by two accounting changes required by the Governmental Accounting Standards Board (GASB). We are still awaiting our Treasurer to issue the annual report for the fiscal year that ended nearly seven months ago on June 30, 2015. This report will be our first glimpse at the new pension funding ratio with required calculation changes. The most recent pension funding ratio was 94.8% which translates into a pension liability of roughly $4 billion. A study by Buck Consultants commissioned by the Treasurer’s office estimated the funding ratio could fall 5-10 percentage points resulting in an increased pension liability of $5-10 billion added to North Carolina’s balance sheet.

Next year, GASB will require North Carolina to add retiree healthcare benefit liabilities in the amount of $35 billion to the state’s balance sheet. Thus, over the course of 12 months, GASB accounting changes will add $40-45 billion of debt to North Carolina’s balance sheet.

If we can eliminate $500-$900 million of pension investment expenses by indexing the pension fund and managing it in-house, we can tackle those liabilities head on, chip away at them over time, and retain our AAA rating.


Former Republican Speaker Thom Tillis once said that Cowell, a Democrat, was “one of the most competent elected officials” he knows. How would you work to maintain that level of goodwill with leaders in the legislature and/or other Council of State offices?

The office of State Treasurer is a very special elected position. Financial experience and expertise matter more than political popularity. Dan Blue III is popular within the Democratic Party. However, he is unqualified from a financial experience point of view. Blue’s resume would be quickly passed over by a large investment firm employer considering to hire a money manager. The State Treasurer position should be filled based on qualifications and not by what would essentially be a political catapult. Our last great treasurer was Harlan Boyles. What made Boyles great was he had a 15 year financial career before ever running for treasurer. Unlike Moore and Cowell, Boyles didn’t need to hire either a Chief Investment Officer or pension investment consultants. Thus, when Wall Street came calling, hawking their “alternative investment” schemes, Boyles knew what was bogus and how to say “no thank you.”

I will bring a level of competency to the Treasurer’s Office not seen for 15 years. While I am running for the Democratic nomination, I am not a political pedigree with political allegiances to tender to. I will maintain a level of good will with members of the legislature from both parties by demonstrating the objectivity of a professional in my interactions with them.

Do you think there are any shortcomings of the current state health plan? As treasurer, what would be your approach to managing state employees' healthcare?

The state health plan works fairly well for folks that are single or whose spouses have health insurance through their employers. However, the state health plan does not work at all for state employees who are the sole provider for their families. North Carolina does not chip in a single penny for spouse healthcare coverage – ranking North Carolina dead last among 50 states for spousal healthcare coverage. I think it is appalling that the state health plan board tried to use the state legislature’s mandate to find cost savings as leverage to boost costs to state health plan participants. Instead, the board, which is chaired by the State Treasurer, should have used the leverage from that mandate to negotiate lower rates from healthcare providers.

The State Health Plan’s board hired a consultant that discovered the plan was reimbursing certain providers for various services at a rate of 200% Medicare reimbursement rates. It is unacceptable that a provider will provide a service to the Federal government for one price and charge the State Health Plan twice as much. It has been estimated that linking State Health Plan reimbursement rates to 120% of Medicare rates could save the plan $200-$300 million per year. It appears to me the state health plan board, chaired by the State Treasurer, should stop digging in state employee and teachers pockets in an effort to fulfill the legislature’s cost reduction mandate and instead look at properly managing reimbursement rates.

Identify and explain one principled stand you would be willing to take if elected that you suspect might cost you some popularity points with voters.

The “Innovation Fund” is a pool of money carved out of the state pension fund used exclusively to fund North Carolina based ventures. We must remember that the $90 billion in the state pension fund is not actually “state” money. There are 900,000 state employees, teachers, police officers, and other municipal employees who contribute 6% of every single paycheck into the pension fund. The vast majority of the funding of the pension comes from the employees themselves. Contrary to popular belief, this is not an entitlement. The money in the pension fund is their money, not state money. While, the state and local governments have also contributed to the pension, once the money is in the fund, it becomes the property of those 900,000 current and former government employees.

By state law, the State Treasurer owes the 900,000 participants a fiduciary duty. This means all decisions regarding their money should be made in their best interest. Not North Carolina’s best interest. The Treasurer’s goal should be to find the highest return with the lowest cost available for investment. Carving out a “little” piece, regardless how small, to fund special local projects is a violation of the fiduciary duty owed to those 900,000 current and former employees.

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