Research Reports: 2005

In response to a widely cited study by the American Federation of Teachers, Harvard education professor Caroline Hoxby recently released a study of the academic proficiency of charter school students. Hoxby finds charter schools comparing favorably with regular public schools: "charter students are 5.2 percent more likely to be proficient in reading and 3.2 percent more likely to be proficient in math on their state’s exams."

Although state revenue estimates are growing at the rate of about $100 million each month, the North Carolina House managed to pass a $17.1 billion budget that requires even higher taxes than the Senate’s bill. Spending would grow 7.5 percent. Despite this, some representatives claim that the budget is a model of fiscal responsibility because it ties recurring funds to recurring obligations. Fiscal responsibility does not require $778 million in new taxes or $376 million in transfers and new fees. “Reverse logrolling” in the conference is the last best hope for the General Assembly to become responsible.

Once again, the American Lung Association's annual “State of the Air” report misleads the public by exaggerating the data and issuing “grades” meant more to scare than to inform. The ALA claims up to 900 percent more high-ozone days than actually occurred and gives F grades to counties that are having no problem meeting EPA guidelines.

The NC House is considering a bill to raise the state’s minimum wage to $8.50 an hour. While intended to help lower-income workers earn a “living wage,” the more likely result is to boost the earnings of some non-poor workers, including many teens and seasonal workers, while increasing the unemployment rate for many poor and minority workers. Employers will not hire people whose work efforts are worth less in the market than a government-imposed wage. A better policy to boost the earnings of entry-level workers would be to address their educational deficiencies.

Under the Senate’s proposed budget, real spending in the state will grow as quickly over the three years through fiscal year 2007, 13.2 percent, as it did in the three years through FY 2001. The late 1990s benefited from rapid economic growth that allowed the state to cut taxes while spending more. Gov. Mike Easley raised taxes to cover expenses while slowing growth to 0.2 percent in real terms through FY2003-04. Since then, the higher taxes have paid for renewed spending growth. Medicaid spending has expanded more rapidly than education or correction and is accelerating. Growth is faster still outside this core.

The budget proposals from the senate and governor return North Carolina to a path of rapid spending growth. Education and Medicaid continue to expand, but economic development joins them as an important growth area. Government spending on a per capita basis retreated after Fiscal Year 1999-2000, but will be 28 percent higher in FY2006-07 than it was in FY2002-03.

A broad coalition of lawmakers and policy groups favors fundamental changes in NC lobbying laws to require more disclosure, create "cooling off periods" before former officeholders can lobby, and restrict the value of personal gifts to public officials. Still, reformers are overlooking an important issue: the role that special-interest lobbying plays in distorting fiscal policy and stunting economic growth.

Senators deserve a great deal of credit for decisions in their proposed budget to limit dual eligibility for Medicaid and Medicare, reduce the number of teacher assistants in public schools, and remove General Fund support for some activities that should rely on receipts. These changes do not reflect an overall return to fiscal reationality, however. The Senate still increases spending by $1 billion, paid for with fund transfers and big tax hikes.

Freedom Budget 2005 continues the tradition of JLF alternative budgets that revise the governor’s Continuation and Expansion budgets. If an item is not included here, the authors accept the governor’s proposal. This includes all pay raises for state employees and some tax changes. The specific recommendations detailed in this report are made as additions or subtractions from Gov. Easley’s budget.

The NC General Assembly is considering creating a new commission to develop state policies to combat global warming. But the scientific issues involved are complex and unsettled. If North Carolina were to try to reduce greenhouse gas emissions it would have no meaningful impact on global climate or the health and well-being of North Carolinians. On the other hand it would destroy tens of thousands of jobs. In other words a greenhouse gas reuction policy would have only costs and no benefits.