Research Reports: 2001

Responding to Gov. Jim Hunt's call for $830 million in emergency hurricane relief, state lawmakers have nearly drained the state's rainy day fund. Calls for state tax hikes or a new borrowing binge have only been put off until the 2000 legislative session. But state leaders have no one to blame for the coming budget crisis but themselves. As national data reveal, North Carolina has hiked spending far more rapidly than the average state with little regard for the long-term impact.

A report released last week by the North Carolina Progress Board contained hundreds of long-term goals for the state. But the text was overshadowed by the comments of board member and UNC-W Chancellor James Leutze, who said the report showed North Carolina would never make it to the top tier of states without tax increases. Leutze's remarks were ill-timed and ill-informed but reflect the conventional wisdom about taxes and social progress. It’s wrong.

State lawmakers are being asked to tap the rainy day fund to finance hurricane relief. They should look more closely at the details of the administration proposal. It provides large windfalls to businesses, farmers, homeowners, and others far beyond what is needed to alleviate immediate suffering and repair public infrastructure. A relief plan reflecting better priorities could be financed with budget savings, so the rainy day fund could be used to repay $240 million in illegal taxes.

North Carolina's 1998-99 state budget grew by between 10 percent and 11 percent (depending on the measurement used) compared with the national average for state budget growth of only 5.4 percent. This follows a similar pattern last year. Growth in spending on Medicaid and education fueled North Carolina's exceptional budget increase. Overall, North Carolina spends more of its budget on education and correction, and less on Medicaid, than the average state. This mostly reflects differences in responsibilities given to local government.

Author Jon Sanders studies professor salaries across the United States and finds that the pay of North Carolina's college and university professors, when adjusted for cost of living, is comparable to the pay of faculty in other states. (Not available online.)

As leaders of the N.C. General Assembly discuss the possibility of a special session in December, preliminary indications are that appropriate state spending for hurricane relief will be far lower than expected. The Hunt administration's emergency request for $1.8 billion from Congress was inflated and its assumptions unrealistic. For government infrastructure and aid to those without other access to relief, total cost will not exceed state funds already available for next year.

North Carolina's dramatic election on November 7 selected a slate of federal, state, and local leaders, but slim margins and a focus on personalities and name recognition gave few winners a clear mandate on issues. Polls taken before and after the vote consistently found an electorate that was fiscally conservative and favorable to increased consumer choice in such areas as health care, education, and Social Security. Policymakers should seek consensus on these critical issues.

Three new studies should give North Carolina policymakers pause about the state's current economic development policy. A Kenan Institute survey of international firms throws cold water on the notion that selective tax breaks for big business are an effective means of creating jobs. Along with two other reports, it suggests a different growth agenda: improve core public services such as roads and schools, tackle electricity restructuring, and reduce and reform taxes for everyone.

The lengthy budget negotiations between House and Senate this year resulted in a compromise that gave the Senate its spending priorities this year and the House its tax cuts in future years. Overall, when accounted for correctly, the state General Fund budget will top $13.1 billion in FY 1998-99, representing an 11 percent increase from last year. Spending growth outweighs tax cuts in FY 1998-99 by a ratio of 25 to 1 — but the picture improves somewhat in the out years, when House-sought cuts in sales and inheritance taxes are phased in.

A new six-county study of Smart Start shows little benefit for most children once they reach school. Coupled with the results of three other studies released since early 1998, these findings make the case for significant reform in the state's approach to early childhood policy. Smart Start should be reformed to 1) provide direct assistance to disadvantaged preschoolers and 2) give North Carolina families more resources with which to improve their children's readiness for school.