Spending & Taxes

North Carolina lawmakers are once again coming to Raleigh to grapple with a projected deficit exceeding $1 billion. A close examination of fiscal trends demonstrates that excessive spending, not inadequate revenue, is the cause and that the state budget continues to be bloated with wasteful or low-priority expenditures. Policymakers must show courage, be willing to apply fundamental principles, and target major areas of state spending for savings and reform.

The National Board for Professional Teaching Standards (NBPTS) is a private organization formed in 1987 with the goal of establishing standards for teaching effectiveness and certifying those teachers it identified as especially capable. NBPTS has written standards that purport to show what accomplished teachers “should know and be able to do” and has established a certification procedure that relies on videotapes, portfolios and written essays. There are currently more than 16,000 National Board certified teachers in the United States, more than 20% of them in North Carolina.

By the Numbers 2003: What Government Costs in North Carolina Cities and Counties is the fourth in a series of studies that examine local taxes, fees, and charges in every North Carolina communities. Charlotte ranks first among major cities in combined local government costs per person, with Hickory, Durham, Wilmington, and Cary rounding up the top tier. Among large urban counties, Durham and Mecklenburg have relatively high costs as a percentage of personal income.

Former Indianapolis Mayor Stephen Goldsmith said that one of the greatest challenges facing local government is how to do more with less. This is certainly true for local governments in North Carolina. In the past two years, they have had to adjust to significantly more stringent budgetary constraints. This was brought on, in large part, by Governor Easley’s decision to withhold state reimbursements to counties and municipalities. Because of this localities are being forced to find innovative ways to balance their budgets.

After months of delay, the state legislature has enacted a revised FY 2002–03 budget that differs little from the plan originally proposed by Gov. Mike Easley in May. Lawmakers adopted nearly all the governor's $543 million raid on local government reimbursements and highway funds, changing only what percentage will be made up with a sales tax increase. Taxpayers are the big losers—entering the second of what promises to be three straight years of huge tax hikes.

As House and Senate leaders negotiate a final budget package for FY 2002-03, they should resist the usual temptation to "logroll" — to add in spending items favored by the other side — and instead accept the lower of the two chambers' previously approved figures for every department as well as the higher of the two chambers' previously approved fund transfers. With such "reverse logrolling," lawmakers could balance the state budget without a tax increase.

At this writing, the N.C. House is considering a revised General Fund budget of $14.3 billion, balanced largely by raising state taxes by $166 million, raiding $255 million from highway funds and $156 million from local governments, and achieving net budget savings of $478 million. Unfortunately, the news for taxpayers is likely to be worse next year, given the use of some $666 million in one-time money for expenses likely to recur — setting the stage for another tax increase.

Gov. Easley's new incentives proposal would put political appointees into the position of doling out special tax breaks that amount to grants of taxpayer money to private businesses. Because of the unpredictable nature of a free-market economy, such a policy cannot claim to boost overall economic growth. A better policy would be to reduce North Carolina sky-high marginal tax rates on personal income, investment, and capital gains - which are among the highest in the country.

The N.C. Senate is debating its proposed budget, which would reduce authorized FY 2002-03 spending by $585 million. Most of the $1.4 billion budget gap, however, would be closed with one-time revenues, including tax hikes and fund diversions, that will reportedly create a recurring deficit in FY 2003-04 approaching $800 million. Some leaders propose closing that gap with tax hikes, too, meaning that the total annual tax burden will have grown $1.4 billion from 2001 to 2003.

The state legislature is currently considering the idea of "decoupling" North Carolina's income tax code from the federal tax code in order to avoid implementation of several tax reductions associated with a federal economic-stimulus package. But North Carolina's weakened economy desperately needs the $258 million boost that adjusting state taxes on business and personal investment would provide. Policymakers could offset any revenue loss by reducing spending.