RALEIGH — Gov. Bev Perdue accepted the resignation of Revenue Secretary Ken Lay on Wednesday amid a controversy over the payment of tax refunds that put the state's chief tax collector at odds with the governor.
State Sen. David Hoyle of Gastonia, who is not running for re-election, was named as Lay's successor. Hoyle, one of the most powerful lawmakers in Raleigh, has a reputation as a key ally of business.
The shuffle came after The News & Observer disclosed a controversial policy that prevented taxpayers who had unknowingly overpaid their taxes from getting refunds if the overpayments were more than three years old. Perdue had said she was "incensed" that some taxpayers were not getting full refunds.
In a story Sunday, Lay publicly contradicted the governor over whether her office agreed to a policy of not returning some refunds. Two days later, Hoyle was offered Lay's job.
This is not the first time that Perdue moved to sack or otherwise force out high-ranking officials who displeased her. She forced out Highway Patrol Commander Randy Glover when the patrol was beset with allegations of sexual misconduct. She also ousted Bill Chandler, director of the Division of Alcohol Law Enforcement, when his office went on a spending spree for assault rifles.
"She needed a strong response to the appearance that the department tried to cheat North Carolina taxpayers, which is the political equivalent of a ticking time bomb," said Joe Sinsheimer, a Democratic consultant turned government watchdog.
"By replacing the revenue secretary quickly, she is hoping that the questions will go away about whether the governor's office endorsed this controversial policy," Sinsheimer said.
In announcing Lay's departure, Perdue's statement about Lay, a former IBM and Bank of America executive from Charlotte, was about as frosty as protocol would allow. She thanked him for his service and for "the progress he has made in seeking a new strategic direction for the Department of Revenue."
She then piled on the praise for Hoyle, 71, a longtime Senate power, who had previously announced his retirement. Hoyle, as co-chairman of the Senate Finance committee, wrote many of the tax laws that he will now administer. He is not only friends with Perdue, but he shares an apartment with Senate leader Marc Basnight in Raleigh.
Hoyle said he got a call Tuesday morning offering him the job. "I thought, you know, this is a challenge that might be interesting ... ," Hoyle said. "But Bev and I are very close, and I find it hard to say no to Beverly."
Hoyle was among several lawmakers who had criticized the policy change on overpayments. In an interview last week, he said: "We need to pay everybody we owe, whether people realize they've got a refund coming or not. Let me tell you this, if they underpaid, they'd get a bill and [Revenue] would want payment pretty damn quick."
Revenue secretaries are supposed to be the least controversial Cabinet posts. Lay, a non-politician who had not known the governor before her election in 2008, was chosen in part because Perdue needed someone from Charlotte in her Cabinet. Lay, who had a brusque business style, apparently rubbed the governor the wrong way on several controversies, and he did not have any political IOUs when he ran into trouble.
The latest flap is what cost him his job. Lay claimed that the governor's attorneys had signed off on the policy of not returning tax overpayments more than three years old. In doing so, he contradicted the governor.
The question involved who told what to whom. Lay said the new tax refund policy was approved by Kay Hobart, a deputy attorney general, who then told Eddie Speas, the governor's legal counsel. She is married to Don Hobart, a top adviser to the governor.
Lay declined to be interviewed Wednesday but issued a statement saying it was "a great honor and privilege" to serve as revenue secretary. He called the revenue employees "among the finest in state government" but did not have anything to say about the governor.
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