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Suits send hospitals down tobacco road

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Tar Heel Tattler – May 2005

Suits send hospitals down tobacco road
By Arthur O. Murray

Hospital administrators concede their billing system is sick. But they don’t think the way to treat it is by a trial lawyer administering the legal equivalent of an eyes-wide-open colonoscopy. Gary Jackson has sued Carolinas Medical Center in Charlotte, Duke University Medical Center in Durham, North Carolina Baptist Hospital in Winston-Salem, NorthEast Medical Center in Concord and Rowan Memorial Hospital in Salisbury on behalf of uninsured patients whom he contends were overcharged.

And the Charlotte lawyer says more lawsuits could be on the way. His cases follow a national attack on hospital billing launched by Mississippi lawyer Richard Scruggs, who initiated cases that led to the master tobacco settlement, in which cigarette makers agreed to reimburse states billions of dollars for years of Medicaid and Medicare costs associated with smoking. In the past year, he has filed about 40 hospital lawsuits in 20 states, contending that their billing systems are unfair.

Jackson, who is not affiliated with Scruggs, is filing similar actions, usually involving emergency care for uninsured patients. The suits contend patients are prevented from negotiating payments and denied pricing information. “If Blue Cross is getting charged $3,000 for an appendectomy, Medicare $4,000, and uninsured patients are being billed $20,000, that’s not reasonable.”

Don Dalton, spokesman for the North Carolina Hospital Association, agrees with the diagnosis but not the treatment. “The system is broken — it’s absolutely broken. But for uninsured people who came and got care in a hospital then to sue because they don’t like the reimbursement system is not a solution.”

Dalton blames Medicare and Medicaid, government programs for the elderly and the poor. Hospital administrators have long complained that the government pays less than the cost of treatment. That means, he says, that fees for other patients must be set high enough for hospitals to recoup those losses.

Critics claim that the main reason uninsured patients get hit with higher charges is that it helps hospitals offset discounts to managed-care plans. But Dalton defends discounts, comparing hospitals to auto dealerships that give them to volume buyers. “Negotiated rates are part of business.”

Furthermore, he says, most hospitals will negotiate with patients who have trouble paying. “But no good deed goes unpunished. Hospitals are trying to change the way they’re doing business, and what we get from the trial-lawyer community is a bunch of lawsuits.”

State gets good return on community colleges

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Economic Outlook – May 2005

State gets good return on community colleges

The community-college system paid CCbenefits Inc. $264,750 to study the economic impact community colleges have on their students and the state. The Moscow, Idaho-based consultant has done similar work for 17 other states and a national study for the Washington, D.C.-based Association of Community College Trustees. CCbenefits President Kjell Christophersen discusses the findings.

BNC: What does this study examine?

Christophersen: We’re basically measuring two things: the economic impact of the colleges — or their contributions to local jobs and income — and an investment analysis from the student and taxpayer perspectives.

What’s different about your economic-impact analysis?

First, we calculate the ripple effect associated with the college operations such as wages, salaries, operating and capital expenditures. In North Carolina, these earnings account for $1.4 billion in the economy. We’ve also added the impact associated with the past students. The community colleges have thousands of past students whose skills are still adding value every year in the work force. We’ve computed that for all the community colleges in North Carolina. We have about 120 million credit hours from those colleges still active in the local work force — and that’s going back 30 years and taking into account attrition factors such as outmigration, retirement, death. The accumulated contribution of those credit hours adds $13.3 billion in annual earnings to the state’s economy.

What did your investment analysis find?

We’re looking at three basic measures. First, does it make economic sense for the students to attend the college? A student invests money today against which he or she will receive higher earnings in the future. The answer to that question is a resounding yes — it makes eminent economic sense. They’re making an 18.6% annual rate of return on their investment of time and money for as long as they’re in the work force. The second measure is whether the community colleges are a good investment for the taxpayers. The year we studied, 2003, North Carolina taxpayers put up $807.4 million to fund the 58 community colleges. Taxpayers make a strong rate of return on that investment. We came up with a narrow rate of return of 16.8% on the taxpayer investment, a benefit-cost ratio of 2.74 and a payback period of only 7.7 years.

What is a narrow rate of return?

We measure only the extent to which tax collection increased as a result of the higher income. Whereas the difference in income might be $5,000, the difference in tax collection might be only $200. So if you can show for a public investment that the narrow taxpayer perspective is a positive one, it’s huge.

How do we compare with other states?

North Carolina schools have tended to be a little bit higher than the national average. The average student tends to be older than in other states. If you’re older and you have more experience under your belt, your rate of return for that incremental step in education is going to be higher.

What is the third measure?

Social factors such as smoking, alcohol abuse, health-related absenteeism, incarceration, welfare and unemployment. There’s a statistical correlation between folks who move from a lower level of education to a higher level of education and the lowering of the incidence of these behaviors. When aggregated across all exiting students, North Carolina will benefit from $184.1 million worth of avoided costs per year in improved health, reduced crime and reduced welfare and unemployment.

How does that translate as a return on investment?

We call this the broad perspective: the value of all future earnings and associated social savings compared with the year’s worth of tax support. Using our model, the benefit/cost ratio generated for the North Carolina system is 17.03 — every tax dollar invested returns a cumulative of $17.03 over the next 32 years.

How have community-college systems used your studies?

Wisconsin’s system used our numbers — after the legislative session had ended — to have $55 million reinstated into the budget. In Texas, the cuts that they got eventually for the year when we did the study were a lot shallower than they otherwise would have been.

So our legislators will see this study?

A study like this is not done just for the purpose of having it look nice and sit on somebody’s shelf.

It’s surprising that they’d take it seriously, since the community colleges paid for it.

ACCT, who paid us to develop the model, is an advocacy organization. We’ve severed our relationship with ACCT. We do the numbers, and wherever the numbers fall, that’s what we report. We’re not advocating for the colleges.

The model is applied to states uniformly?

Yes.

Have you studied CCbenefits’ economic impact on community-college budgets?

We’ve called around to a number of our clients to ask them, ‘What have you experienced since the numbers came out, and what have you done with the study results?’

Speaker refuses to fold on video poker

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Capital – May 2005

Speaker refuses to fold on video poker
By Jack Betts

Where are rites of spring in Raleigh. Every other year when the General Assembly convenes for its long session, the Senate passes a bill outlawing video poker and sends it to the House. And waits. And waits.

This year appears to be no different. Sen. Charlie Albertson filed his bill early in the session, and the Senate began its customary work of trying to get rid of the 10,000 or so video-poker machines that legal authorities say constitute a thorny problem for local law enforcement.

And, as usual, House Speaker Jim Black, whose allies control what comes to the floor, has no interest in outlawing video poker. When Rep. Ronnie Sutton filed a bill Feb. 2 to outlaw the machines, it was referred to the House Rules Committee, a graveyard for measures the speaker has no intention of giving a hearing. “I’m convinced that’s the last we’ll ever hear of it,” says Sutton, a Robeson County Democrat. “The speaker has this thing about video poker.”

Law-enforcement officials say video poker — played in arcades, mom-and-pop shops and convenience stores — is addictive: One electronic-gaming expert calls it “the crack cocaine of gambling.” Thousands of machines wound up in North Carolina after South Carolina banned them five years ago. State law limits winnings to merchandise worth $10 or less. But authorities say machines often are programmed to pay cash — which keeps players coming back and unscrupulous operators flush with their money.

A federal investigation snared Garland Garrett, a secretary of transportation during the Jim Hunt administration whose family owned video-poker machines. He pleaded guilty to violating federal gaming laws and was sentenced last year to five months in federal prison.

Federal officials say Operation Double Black Diamond continues to investigate illegal video-poker activities. Last fall, state and federal authorities found that hundreds of machines were paying cash — confirmation, they say, that video-poker operations often break the law in North Carolina.

So you would think it would be a simple matter for the legislature, a conservative institution that usually pays attention to crime fighters, to act. But you’d be wrong. Sutton’s bill appears to be radioactive, judging by the number of legislators keeping their distance from it. Unlike Albertson’s, which enjoys considerable bipartisan support from 23 co-sponsors — including some of the Senate’s leading lights — the House bill has just three co-sponsors. And no future.

What accounts for such a dramatic difference in the fate of these identical bills? Some believe it’s the hefty political donations the speaker and his political committee have received from video-poker operators. Democracy North Carolina, a campaign watchdog, filed a complaint with the state Board of Elections last year asking for an investigation of the more than $100,000 Black’s committee received from video-machine distributors, truck stops, pool halls, bars and convenience stores.

Black, a Democrat, bristles at the suggestion that most of those donations came from video-poker interests: The donors are involved in many kinds of businesses. And in any case, he says, he would not have known exactly where the money came from — a point that Democracy North Carolina conceded in its complaint: “We must emphasize that we have NO evidence or indication that Speaker Black has any involvement or knowledge of the apparent illegal campaign contributions.” Donor descriptions on his campaign reports “suggest he did not realize they were connected to the video poker industry.”

Several years ago, every member of the North Carolina Sheriffs’ Association signed a petition asking the legislature to ban video poker. One of its most outspoken members is Jim Pendergraph, sheriff of Mecklenburg, Black’s home county. Republican Rep. Joe Kiser, a former Lincoln County sheriff, is a co-sponsor of Sutton’s bill. But Black says, “There frankly is not a lot of excitement about .” Only about a half-dozen sheriffs, he contends, were concerned about the issue. The rest, he adds, were “really more interested in their retirement pay.”

Nobody has budged Black from his position that banning video poker could cost North Carolina thousands of jobs. Take it away, he says, and a lot of small businesses will go down the tubes. A contingent of convenience-store operators recently told him that video poker was vital to their businesses. “They said that for about half their people it’s a profit center that helps them keep the lights on.”

After the Senate passed a bill in 2003 to ban video poker, Black promised to give the subject a hearing. But instead of outlawing the machines, the House passed a bill last year that changed the way they are regulated. The measure beefed up restrictions on their use, including a $300 fee on every licensed machine and a $5,000 fine on every illegal machine, and tightened penalties for cash payouts. N.C. Alcohol Law Enforcement would have policed it. “We passed a bill to restructure regulation,” Black says, “but the Senate was not interested in it.”

Why not? “It put the fox guarding the henhouse, as we say in the country,” Albertson, a Duplin County Democrat, says. “It’s best to just stop it.”

Odds are gambling’s foothold in North Carolina is going to be bigger than video poker. Black gave them a boost in early April by shepherding a lottery bill through the House, where previous attempts had foundered, on a 61-59 vote.

And gambling proponents aren’t likely to stop with a lottery. Since the Cherokee Indians signed an agreement with the state in 1994 that allowed certain kinds of gaming on federal reservations, pressure has built in Raleigh. The tribe now wants live dealers at its casino. Lumbee Indians in Robeson County want federal recognition, which some say could lead to a casino in Eastern North Carolina. A state senator has pressed for racetrack betting one day a year at the Stoneybrook Steeplechase in Hoke County.

Black predicts a lottery will deal a big blow to the video-poker market. “Video poker will sort of phase out — except for people who play video poker for fun and not just to win.”

She has a clear picture of new sports network

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People – May 2005

She has a clear picture of new sports network
By Frank Maley

Naomi Travers will tell you she’s a daddy’s girl. As an only child, she spent a lot of time with both parents. But she gets her analytical bent from her father, who was a weapons specialist in the U.S. Secret Service in Washington, D.C. He’s the one who imbued her with a passion for jazz, reading and sports. “I spent a lot of time sitting next to him watching ice skating and boxing. We went to a lot of college basketball games.”

But logging time as a couch potato doesn’t necessarily prepare anyone to start or run a sports television network. Nor, for that matter, do writing rules for the Federal Communications Commission and negotiating media deals, two jobs she held after getting a bachelor’s in journalism from Howard University in 1987 and a law degree from the University of Maryland in 1993.

Nothing, really, prepared her for what lay ahead when Bob Johnson, founder of Black Entertainment Television cable network, asked her to start Carolinas Sports Entertainment Television, anchored by his new National Basketball Association franchise, the Charlotte Bobcats. She didn’t flinch. “I didn’t feel frightened at all. I felt confident in the concept.”

After finishing law school and clerking for a judge, she had spent two years with the FCC, then three in a law firm representing companies buying and selling media outlets. In 1999, she moved to Washington-based BET, where Travers — whose mother is Korean and father was black, Irish and American Indian — was chief transactional and intellectual-property attorney.

After New York-based Viacom bought BET in 2001, she worked part time for Viacom and part time for The RLJ Cos., which manages Johnson’s investments. In 2002, she switched to RLJ full time.

Her main task after taking over in January 2004 as executive vice president of media rights and entertainment at Charlotte-based C-SET was to negotiate an agreement with Time Warner Cable, the largest cable-television service in the Carolinas. Some basketball fans still see the deal as a rookie mistake that further alienates the team from its fans. Not only is it moving into a taxpayer-funded arena next season and boosting ticket prices an average of 7%, most games will air on a pricey digital-cable channel that reaches only 36% of Time Warner customers in Charlotte.

Travers, 38, admits C-SET — not to mention the Bobcats — would have been better off in a basic-cable package, which might attract more viewers and advertising revenue. But Time Warner didn’t have any basic channels to spare, and the season opener was less than a year away. “We needed to get the business up and running.” She’s encouraged that about 65% of new cable subscribers nationwide opt for digital service. And 75% of C-SET revenue comes from subscriptions paid by cable companies. She expects it to be profitable within seven years.

It still fills a lot of airtime with Bobcats reruns and ESPN News, but it’s building a studio that will allow it to produce sports news. It airs college football games and plans to add college baseball and minor-league baseball. “Slowly but surely, we will have a full complement of year-round programming,” Travers says.

It’s the kind of network her dad, who died of cancer in 1990, might have liked. Sometimes he haunts her work. “Whenever I see any beautiful play or impressive athletic feat, it makes me think about my dad.”

Scientist wants ideas to collide with need

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People – May 2005

Scientist wants ideas to collide with need
By Arthur O. Murray

For Phil Sanger, it’s not enough to engineer better products for hurt or handicapped people. The director of Western Carolina University’s Center for Adaptive Devices hopes he can help create jobs. So far, the center’s five students and five professors have built four products.

They made a sling that allows a quadriplegic artist in Cullowhee to paint with a hand that still has some mobility instead of holding the brush with her teeth. More complicated was a power-wheelchair navigational system for a deaf and blind Buncombe County teenager. Ultrasound sensors detect obstacles and alert him with a vibrating signal from circuits taken out of a cell phone. “There’s an opportunity for business in these technology areas, say, in wheelchair technology. We wouldn’t think of moving a company that makes wheelchairs into western North Carolina. But we could bring wheelchairs in and customize them.”

Sanger, 56, grew up in Lubbock, Texas, the son of an engineering professor at Texas Tech University. He got a bachelor’s in physics from St. Louis University in 1970 and two degrees in nuclear engineering from the University of Wisconsin: a master’s in 1972 and a doctorate in 1977. After a stint at Oxford Superconducting Technology in Carteret, N.J., he took charge of developing the giant, powerful magnets that would drive the Supercolliding Super Conductor, being built outside Dallas to explore what happens when protons crash into one another at nearly the speed of light.

Sanger quit just before Congress shut down the $2 billion project in 1993. Critics clamored that it cost too much and had few practical applications. He kept working on the magnets from 1993 to 1996 at Westinghouse Science and Technology Center in Pittsburgh, then became a program manager at the Northrop Grumman Science and Technology Center there. In May 2000, Sanger became a professor and director of the Advanced Manufacturing Center at Cleveland State University.

He came to Cullowhee in July 2004, partly for its mountain scenery. He also likes teaching and using the school to spur the economy. That’s good, because there’s no shortage of projects for the center. “One of our professors in special education has a list a mile long.”

Home office

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Home office

Landing a headquarters brings bragging rights, but few recruits play hero the way homegrown corporations do.
By Irwin Speizer

A pianist, one of the hallmarks of Nordstrom department stores, plays Debussy’s Clair de Lune, but shoppers accustomed to silk-glove treatment barely notice. The concierge at the plush Park Hotel occasionally suggests to guests that they might enjoy the short stroll to SouthPark mall — it’s only a block — but most prefer to drive. Next to the hotel stands a nearly featureless beige building, the offices on its four floors tucked discreetly behind tinted glass.

Welcome to steel country. No smokestacks belch fume, and no cranes hump rusting hunks of scrap metal. There are no roaring crucibles; no windborne soot stings the eyes. But here, not in a skyscraper but on the bottom two floors of a nondescript building in a suburban office park, is the corporate headquarters of America’s biggest steel maker. Nucor Corp. had $11.3 billion in sales last year. Andrew Carnegie would be proud. So would Harry Houdini. In Charlotte, where it moved from Phoenix nearly 40 years ago, Nucor is helping keep the myth — the illusion — of the headquarters city alive and well.

Its closest steel mill is in Darlington, S.C., 90 miles away. The only one in North Carolina is in Tunis, 235 miles northeast in rural Hertford County. It cost $500 million and employs 400 workers whose average pay is $60,000 a year. It’s also an economic magnet: At least 23 supporting companies have located nearby. Nucor has only 53 employees at its headquarters, a smaller work force than in many Queen City supermarkets. “We’re not a big-impact player in Charlotte,” admits Jim Coblin, the company’s vice president of human resources.

Nevertheless, its presence makes civic boosters swoon. Nucor is a Fortune 500 corporation, one of nine based in or near Charlotte. No other place in North Carolina comes close, they note. Nor do many cities in the country. “Headquarters bring you the brag factor,” says Carroll Gray, president of the local chamber. “Charlotte clearly has a reputation as a business city. Any headquarters we get just amplifies that assertion.”

But bragging rights don’t boost local economies. “Having a headquarters is low on my list of things important to a community,” says Mike Walden, an economics professor at N.C. State University. “It’s much more important to have a highly skilled work force, a good business climate, good infrastructure. I’d put all those ahead of it.” While corporate headquarters generate jobs, including some that pay handsomely, their number can be small, as in Nucor’s case. And though boosters argue that headquarters bring a high level of participation by high-level executives in civic affairs and philanthropy, that’s not always the case.

To be sure, nobody — including Walden — says headquarters are to be sniffed at. Bank of America Corp. and Wachovia Corp., for example, are widely credited with Charlotte’s downtown boom and bringing tens of thousands of jobs to North Carolina. But Walden points out that New York City traditionally has been home of the nation’s largest collection of Fortune 500 corporations, yet it was on the brink of bankruptcy during the late 1970s.

So what’s the true value of having corporate headquarters in a city? Is it worth the effort and incentives to recruit new ones? Nucor provides a reference point. A pioneer in decentralized management, it has wowed Wall Street with its ability to efficiently and profitably run a widespread collection of steel mills with a skeletal corporate staff. Its management style helped make Nucor one of the most profitable steel companies in history, but that same style diminished the importance of the corporate office and its impact on the home community.

“We try to spend most of our discretionary money on programs and charities in communities where we have our production facilities, which is not Charlotte,” Coblin says. “We really try to minimize our presence in Charlotte because we have so few employees here, and they tend to be some of the senior management. We’d rather put our attention where our workers are — the small rural areas.”

Others have followed Nucor’s model, planting corporate offices in places with competitive real-estate prices and decent airline connections. In effect, they are places to park high-priced executives with a way to get them quickly out of town to where the actual work is done. Charlotte’s airport, with its 534-flights-a-day US Airways hub, offers an unusual number of nonstop flights for a midsize city.

It has two types of headquarters. There are the homegrown varieties such as Bank of America, Wachovia (né First Union) and Duke Energy Corp. They have deep roots in the community, large corporate offices and wide-ranging involvement in civic and cultural affairs. At the other end of the spectrum are companies that might have big names on Wall Street but little local recognition or impact. Most — like SPX Corp. — moved here.

SPX is a $5 billion global manufacturing conglomerate that makes products ranging from electronic testing devices to cooling systems for power plants. It employs about 22,000, but only 100 or so work at its corporate headquarters in a suburban office park. SPX contributes to numerous causes but rations its donations based on the size of its local work force. “We don’t take a look at it and say, ‘Because we are based here in Charlotte we want to make a big impression here,’” spokeswoman Tina Betlejewski says. “We have employees all over the world. How do we make sure we have an impact where our employees work?”

So why doesn’t SPX put its headquarters where its workers and factories are? The answer underscores why Charlotte, with few unique attractions, manages to land as many headquarters as it does. Through acquisitions, SPX became a national, then international operation that outgrew its hometown — Muskegon, Mich., a city of 40,000 on Lake Michigan about 70 miles northeast of Chicago. Looking for a new home, it found Charlotte after acquiring United Dominion Industries in 2001. United Dominion had moved to the Queen City from Montreal in 1989, listing the airport as an important attraction.

SPX came to Charlotte because it was an easy place to get away from. Charlotte was business-friendly with affordable housing, it had a good corporate talent pool and smattering of cultural amenities, but, most of all, it had an international airport. “The No. 1 criteria for us was access to domestic and international air service,” Betlejewski says.

Charlotte has a number of other corporate headquarters that are cast from a similar mold but are not big enough to make the Fortune 500. Midrex Technologies Inc., a steel maker that moved here in 1974, runs operations around the world from a Charlotte office with 65 employees. Another industrial conglomerate, Carlisle Cos. moved here from Syracuse, N.Y., in 2001. Despite $630 million in sales last year, it’s barely known in the Queen City. MedCath Corp.’s network of hospitals and testing centers generated nearly $700 million in 2004. None are in Charlotte, where the company was started in 1988.

So why do communities crave big-time corporate bigwigs so much? Why do the three largest metro areas of North Carolina recruit corporate headquarters as part of their business-development efforts? Across the state, economic-development officials say headquarters help sell communities. Their presence creates an image that a city is a player in the corporate world, that it has the right stuff to attract high-powered, highly paid top executives, that it’s a good place to live and work. Or put another way, having a Fortune 500 headquarters is an ego trip. Conversely, losing one can be a monumental downer.

Winston-Salem has been down that road. In 1987, what was then RJR Nabisco moved its headquarters to Atlanta, taking 300 corporate jobs with it. Then-CEO F. Ross Johnson’s departing message was that Winston-Salem was too “bucolic” for a major multinational corporation like his.

Local boosters wondered how Winston-Salem would cope. It turned out, though, that it was RJR Nabisco that needed therapy. After a vicious takeover battle, the headquarters ended up in New York City. Sans Nabisco, the tobacco company’s corporate headquarters returned to the Twin City in 1999, where it operates as Reynolds American Inc., the nation’s second-largest cigarette maker.

In fact, the Triad, long the heartland of Tar Heel manufacturing, was once the state’s corporate center. Winston-Salem was not only home to Reynolds, which made the nation’s best-selling brands of regular (Camel), filter (Winston) and filter-tip menthol (Salem) cigarettes, but of Hanes Corp., which had the best-selling hosiery brand (L’eggs), and Wachovia Corp., the state’s largest bank. Greensboro was home to Burlington Industries, the world’s largest textile manufacturer, and Cone Mills, the largest producer of denim.

Burlington and Cone, both recently bought in bankruptcy, are part of International Textile Group Inc., a private company. In the late 1970s, what is now Chicago-based Sara Lee Corp. acquired Hanes in a hostile takeover. But by the end of next year, Sara Lee will spin off its apparel division — the old Hanes — which will be based in Winston-Salem and give the region its fifth Fortune 500 company. It will replace Wachovia, lost after the merger with First Union, which took Wachovia’s name. The Triad still has the state’s second-largest collection of Fortune 500 companies, with two — Reynolds and BB&T Corp. — in Winston-Salem and two — Jefferson-Pilot Corp. and VF Corp. — in Greensboro.

In its bid to stay competitive in the apparel business, VF has shut down Triad plants, shifting the jobs to low-wage foreign factories. As Don Kirkman, president of the Piedmont Triad Partnership, notes, VF “no longer manufactures much of anything in the Triad.” So is VF less important to the region than Round Rock, Texas-based Dell Inc., which is building a computer-assembly plant that will employ about 1,500 in Winston-Salem?

It’s not an either/or proposition, Kirkman insists. Dell’s arrival, along with the FedEx Express hub being built at Piedmont Triad International Airport, validates the region’s status as a manufacturing center and distribution hub. But having VF’s corporate headquarters shows it remains a viable place for top-level executives to live and work. “We’d love to have more corporate headquarters,” he says. “If you’re talking about headquarters of publicly traded Fortune 500 companies, the more the merrier.”

Traditionally, the bigger the role a corporate headquarters plays in the community, the more likely the company is based near where it was born. Charlotte is a prime example. Its downtown, the tallest and most vibrant in the Carolinas, includes a professional football stadium, professional basketball arena under construction, museums and a performing-arts center. But it would likely not have emerged without the financial investment and involvement of the city’s big three corporations: Bank of America, Wachovia and Duke Energy.

Charlotte tries to coax newcomers into following their example. Goodrich Corp., for example, housed in a generic office-park building near what once was the state’s largest landfill — it’s now a golf course — has participated in local civic efforts even though its employment base is elsewhere. The company employs about 21,000 around the world. Most work in the aerospace industry, with fewer than 200 in Charlotte. In the 2004 United Way campaign, the company pledged $261,000 from about 125 employees, who gave an average of nearly $1,200 each — pledges that the company matched. Goodrich and its employees gave more than $50,000 to the city’s Arts and Science Council last year and kicked in thousands more to other cultural and education efforts.

Raleigh is starting to experience some of that corporate largesse with the help of its only Fortune 500 company, Progress Energy Inc. Progress recently completed a 19-story downtown office tower for its headquarters, and the company is a major player in local arts and civic projects. Those efforts could have been directed elsewhere. Progress is the result of the merger of Raleigh-based CP&L Corp. and St. Petersburg-based Florida Progress Corp. five years ago.

“I can’t think of a single reason why a community would not want a headquarters office,” says Ken Atkins, executive director of Wake County Economic Development, part of the Greater Raleigh Chamber of Commerce. “I’m not sure there are any negatives. They are environmentally clean. They have some of the best compensation packages. The decision makers are part of a headquarters, and they are the same people who decide to support the arts and other community programs.”

Yet the Triangle has hardly suffered economically by lagging Charlotte in the corporate headquarters race. The region often comes out on top in measures of growth, job creation and quality of life, and it continues to show that a community can be strong economically by playing host to regional operations of major corporations.

“We are very different,” Atkins says. “We don’t really compete in the same arena as the Triad or Charlotte. Our growth has come as we leveraged university assets to bring in knowledge-based companies — pharmaceuticals, biotech, software, research and development.” Corporate envy, though, may be at work. As Raleigh has grown, business developers have become increasingly keen on adding corporate headquarters. The underlying angst is that without them, Raleigh might be vulnerable to the “bucolic” tag.

“People who make decisions on where to move company headquarters can live anywhere,” Atkins says. “They tend to live in the nicest places. If you have headquarters, it says you have a great place to live, a good transportation system, good communication systems. How does that differ from, let’s say, a community that attracts low-end manufacturing? That says your community has cheap labor. When you are talking about some of the factors attached to a very labor-intensive low-wage industry, it is not the same thing that a headquarters office is looking for.”

Plus, landing one brings highly paid executives with a lot of discretionary income to spend locally. Fortune 500 CEOs occupy most of the top spots on Business North Carolina’s annual ranking of the highest-paid executives of public companies. Tony Crumbley, vice president of research for the Charlotte Chamber, says well-heeled corporate executives invariably drop some of their cash on community organizations and spur development of arts, education and leisure offerings. “Try to get a plant manager involved in a community,” he adds. “You don’t. It is the corporate heads who drive community involvement. If you want a new arts center, it is the corporate heads who make it happen.”

Walden agrees, saying one of the major benefits of having a headquarters is the potential for tapping into the expertise and finances of the top executives. “CEOs and CFOs are often heavy hitters in fundraising and doing rah-rah things for the local community. Overall, they are helpful to have. I’d rather have more headquarters than less. But they aren’t a sufficient strategy for economic growth and development.”

His is another kind of financial forecast

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People – May 2005

His is another kind of financial forecast
By Joe Rauch

Some might think, after nine years as a risk analyst and hedge-fund manager, Jayant Khadilkar would want a job with a little more precision to it. Something so he wouldn’t always feel like he was milking a white cow in a blizzard. Engineering, maybe, or plumbing.

Not Khadilkar. At 42, he’s CEO of Raleigh-based Weather Predict Inc. “Forecasts are never 100% accurate,” he says. “What we’re offering is forecasts that are more consistent, more reliable than anyone else.”

They’re for customers from his old stomping grounds — stockbrokers, commodities traders and such. A hot summer with heavy air conditioning might drive up the price of utility shares. A fall hurricane could double plywood sales. “I never really left the financial world.”

Customers of Weather Predict, founded in 2000 in Tallahassee, Fla., pay fees — typically several thousand dollars a month — for forecasts that Khadilkar says are more accurate than free ones. Some also pay a share of the profits the forecasts earn them. The forecasts are based on a proprietary system developed at Florida State University and use a patented mathematical model. Customers have password access to their own Web sites, which are continually updated, and can get telephone consulting.

So far, Weather Predict has about 10 customers, including Raleigh-based National Gas Distributors. Khadilkar wants to expand by selling information to retailers and others whose profits are affected by the weather. “If you’re trading futures on, say, natural-gas prices, you want to know when the weather is turning colder. But companies like The Home Depot also need this information so they know where to allocate inventory in anticipation of a hurricane or blizzard.”

Born in Lonavala, India, the son of a civil engineer and a homemaker, he grew up in Pume, a city of 2.3 million about 115 miles east of Bombay. He came to the United States for graduate school and got a master’s in operations research from the University of Kentucky in 1986.

Khadilkar worked for Applied Insurance Research in Boston from 1989 to early 1994 as a risk analyst, then moved to Pembroke, Bermuda-based RenaissanceRe Holdings. The company sponsored research at Florida State University on tracking hurricanes. “All hurricane tracks within the three-day window are pretty much the same. We were trying to reach out beyond that 72-hour window.”

He left in 1998 to manage a hedge fund in Raleigh and, by 1999, saw a need in the financial market for weather data. “I contacted the professor at FSU I had met through Renaissance. I asked if there was any way to use the model he developed for hurricanes with everyday weather.” Answer: yes.

Khadilkar and another investor raised more than $2 million by the summer of 2000 and began business in a garage in Tallahassee. In 2001, he moved the operation to Raleigh, where he lives. It employs 14. He won’t reveal revenue but says the company will be profitable this year. Starting a business wasn’t scary. He and his wife had started Follow the Child Montessori School in Raleigh in 1999. Their two children are easy to spot: They always know when to wear their raincoats.

Even winners are losers with nonrevenue sports

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Sports – May 2005

Even winners are losers with nonrevenue sports
By Chris Roush

The name never has been quite accurate. Nonrevenue sports — the ones at colleges and universities that aren’t football and men’s basketball — usually have generated some money, just not very much. At most places, football and basketball pay the bills for baseball, softball, track and field, soccer, lacrosse, wrestling and other varsity sports.

Now athletic directors across North Carolina and the country have launched initiatives that they hope will make that name obsolete. They prefer another one, Olympic sports, though it’s not accurate either because neither golf nor lacrosse is played during the Olympics.

There’s reason for their optimism. When Dennis Thomas, the commissioner of Greensboro-based Mid-Eastern Athletic Conference, sat down to negotiate a TV contract with ESPN this year, he made an extra demand: Show sports other than football and basketball. “Before, that wasn’t done. You were just happy to get football, basketball and some women’s basketball.”

This time, he got his wish. When the network’s new cable channel, Charlotte-based ESPNU, devoted exclusively to college sports, signed a seven-year contract with the MEAC in February, it agreed to televise an undetermined number of softball, volleyball, baseball and track and field events. MEAC schools include North Carolina A&T State University in Greensboro. Games also will appear on ESPN2 and ESPN Classic.

Why would ESPN care about the obscure MEAC? Well, it has to fill ESPNU’s schedule with something. The network launched in March, joining New York-based College Sports TV in broadcasting only college sports, particularly the nonrevenues. Neither channel is widely available. In fact, neither is offered on the primary cable systems in Charlotte or Raleigh. But if that changes, the two networks eventually could give much wider exposure to sports that typically have been ignored.

Chuck Gerber is executive vice president of ESPN Regional Television in Charlotte, which oversees programming on ESPNU. He says the new network, which plans to air about 300 sporting events a year, will help baseball, softball and lacrosse the most. “That kind of exposure can only help a university. It helps them attract athletes, attract alumni and raise money. If we grow the interest, it’s good for us and good for the institution.”

More TV coverage, however, is only one of the tactics that colleges and universities in the state are employing to boost Olympic sports. They also are offering promotions and giveaways, advertising in local newspapers, selling sponsorships in game programs and on signs at the field or arena and raising ticket prices.

N.C. State University spends nearly $100,000 a year to advertise games for baseball, women’s basketball, softball and other sports, says Charlie Cobb, associate athletics director. At East Carolina University in Greenville, the outfield wall is covered with sponsorship signs. And at women’s basketball games at UNC Chapel Hill, cheerleaders throw T-shirts and souvenir basketballs into the crowd.

Fans aren’t the only ones being targeted. The UNC Chapel Hill board of trustees has proposed hiking student athletics fees, part of which goes to the athletic department, from $98 per student to $248.

The school also increased ticket prices for men’s lacrosse and baseball, men’s and women’s soccer and women’s basketball. Those are the only secondary sports in which it charges admission, which increased from $4 to $5 for all events except women’s basketball, which went from $5 to $7. It also installed 300 seats with backs and cup holders near the floor of Carmichael Auditorium, where the women’s basketball team plays, and sold those for $10 a game. It will install more for next season. In mid-March, Beth Miller, senior associate athletic director for Olympic sports, said she couldn’t say yet how much the increases yielded. “But they’re so far away from becoming self-sustaining that’s not a realistic goal. Our main philosophy with Olympic sports is that we want to put people in the stands and have larger crowds more than it is to generate revenue. But we also want to generate revenue.”

Among state schools with more than 5,000 students, only UNC Greensboro reported a profit from Olympic sports in 2003-04, mostly due to strong baseball and soccer programs. Other North Carolina universities posted wide disparities between revenue and expenses. “If we were actually in the business to generate revenue from these sports, we would all be fired a year ago,” says Chris Kennedy, senior associate athletic director at Duke University.

Kennedy cites the Duke men’s lacrosse team as an example of the uphill battle schools face. Scholarships cost more than $500,000 a year, and then there’s the cost of travel. “Even if you have a sponsorship deal with SDX or someone, it’s going to cost you $800,000 if you want to compete on the ACC or national level.” That’s about $700,000 more than lacrosse generated last year.

Winning helps. Two of the most successful women’s basketball programs, Tennessee and Connecticut, made money in 2003-04, according to financial statements filed with the U.S. Department of Education.

State’s Cobb says baseball and women’s basketball eventually could sustain themselves. The school spent $6 million last year to renovate its baseball field, which should boost attendance. But it’s far from a sure thing. “We’ve got a game tomorrow, and the temperature is supposed to be 39 degrees. Winning obviously helps, but so does nice weather.”

Dead-end drugs show side effects

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Tar Heel Tattler – May 2005

Dead-end drugs show side effects
By Edward Martin

GlaxoSmithKline might have thought it was immune. The drug maker recently played bystander as several Research Triangle Park neighbors took a licking. First, tests indicated Inspire Pharmaceuticals’ new ocular lubricant was no more a sight for sore eyes than a placebo. Then Biogen Idec, which made an acclaimed multiple sclerosis drug, revealed that three users had died of liver damage. In Durham, Icagen quit testing an experimental epilepsy drug because of safety concerns.

But only a few days after Biogen stopped sales of Tysabri, the federal Food and Drug Administration halted GSK’s testing of its code-named 699 multiple sclerosis drug because it worked on a similar principle. “It was chemically different, but the FDA hit the pause button to figure out what happened to Tysabri,” GSK spokeswoman Gaile Renegar says.

Traditionally, for every 10,000 chemical compounds tested, only one is approved for sale. The odds may be getting even longer. Experts blame heightened awareness of drug safety, a proliferation of new compounds and other factors for a rash of canceled or delayed drug launches.

Tar Heel drug makers could use a dose of the antidepressant Zoloft. The Triangle feels the pain more than most drug centers. It has giants like 6,000-employee GSK, which has one of its North American headquarters in RTP, as well as smaller companies such as Inspire, which typically work on early-stage drugs when risks of failure are highest. Chapel Hill-based Pozen recently had a migraine drug approved — but only after two others failed in 2003 and 2004. Cases such as those and Inspire’s diquafosol, which the company had hoped the FDA would accept as a dry-eye treatment, show the hurdles new drugs face.

Inspire applied for permission to test diquafosol in June 2003, says Jenny Kobin, senior director of investor relations. Tests proceeded, and the company hoped to market it this year. But in early 2004, the FDA ordered more tests. The verdict was that diquafosol was no more effective than a saline solution. Inspire stock dropped 45% the day of the FDA announcement.

But not all dead-end drugs are dead. Kobin says Inspire hopes to get FDA approval to sell its dry-eye drug for corneal wounds, such as those left by laser surgery. Sometimes Plan B works out OK, too: Scientists at New York-based Pfizer Pharmaceuticals were testing a drug called sildenafil in the early 1990s for use in treating the heart condition angina when they discovered unexpected side effects. Viagra sales topped $1.5 billion in 2004.

BofA finds it pays to scuttle scandals

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Tar Heel Tattler – May 2005

BofA finds it pays to scuttle scandals
By Frank Maley

Imagine that your bank had paid more than $1.1 billion to make two legal cases go away in the past couple of months. And fessed up to losing credit-card data for up to 1.2 million customers. You might think twice about doing business with it. Charlotte-based Bank of America Corp. did all those things, but it didn’t seem to matter. “It’s funny how it just doesn’t seem to stick,” says Tony Plath, associate professor of finance at UNC Charlotte.

In February, BofA agreed to pay $675 million — without admitting guilt — to end a federal Securities and Exchange Commission investigation of its mutual-fund trading. The SEC had accused the bank and its year-old acquisition, FleetBoston Financial, of market timing, trading shares to take advantage of price differences in different markets, and of late trading, buying and selling shares after markets close.

In March, the bank announced it would pay $460.5 million to settle lawsuits by investors who had bought bonds of WorldCom before the Clinton, Miss.-based telecom giant filed for bankruptcy amid fraud accusations in 2002. The suits contended that BofA brokers sold them bonds when they should have known the company was on the ropes. Also in March, BofA admitted that it had lost computer tapes containing personal information on as many as 1.2 million federal workers.

True, BofA’s stock price slipped 5% in March, but at least some of that could have been caused by other concerns such as rising interest rates. One ingredient in BofA’s Teflon coating is timing. Its problems have come after a series of bigger scandals. “They did the wrong thing at the right time,” Plath says.

While most of the accusations are about technical matters beyond the ken of average bank customers, the company can counter with one easy-to-digest statistic: Net income jumped 30% to $14 billion in 2004. BofA also has been able to manage its bad news. It often employs a standard PR tactic of settling lawsuits — even though some might see it as an admission of guilt. “A lot of what I see them doing, it doesn’t necessarily surprise me,” says Adam Bernstein, a principal at Charlotte-based Carolina Public Relations. “But I’m always impressed with how they’re able to manage it.”