Archives: Don Carrington

North Carolina faces significant fiscal and economic challenges over the next two years. But it need not resort to higher taxes, a state-run lottery, higher debt, or gimmickry to balance its budget. Nor does North Carolina need to skimp on crucial needs such as education and highways. By setting firm priorities within state government, eliminating unnecessary or duplicative programs, and charging users of some services a reasonable price, state leaders can generate sufficient savings to invest in the future needs of the state.

North Carolina’s state budget reflects its governmental priorities. Unfortunately, over the past two decades governors and lawmakers have usually chosen to add new programs to the state budget without considering the merits of existing programs and finding ways to fund higher-priority items by eliminating lower priorities. As a result, the budget has grown by leaps and bounds, interrupted only briefly by retrenchment during recessionary periods, including the past three fiscal years. Until state leaders learn to exercise fiscal discipline or to write fiscal discipline into law via a strong expenditure limit the budget problem will worsen.

With news of a worsening state budget and a weakened state economy, Locke Foundation analysts have updated last year's alternative budget with new projected savings and tax changes for FY 2002-03. The resulting Changing Course V budget would eliminate the deficit, repeal last year's hikes in sales and income taxes, stimulate the economy through additional tax relief and highway investment, and protect highpriority items such as public safety and classroom teachers.

A 2002 survey of North Carolina’s most politically active business executives found that they did not necessarily agree with the current direction of public policy in the state. Business leaders from every region answered questions about fiscal policy, education, transportation, tax rates, regulation, and ways to improve economic competitiveness. They disagreed strongly with legislative decisions to raise taxes.

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.

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.

State employees can't be blamed for seeking better compensation. All workers do. But to fulfill their responsibility to taxpayers, lawmakers should rely on solid data when evaluating pay requests. The vacancy rate in state government is highly exaggerated, for example, while the number of vacant jobs actually being advertised is shrinking rather than growing. Furthermore, national data suggest that N.C. state workers are competitively paid on average and cannot demonstrate the higher productivity that might justify higher pay levels.

The FY 1999-2000 budget approved by the House Budget Committee would increase operating spending by 5.6 percent, despite talk earlier in the session of a state fiscal crisis. Although the budget does include some good ideas — such as raising tuitions and covering rising costs in the state employee health plan with existing retirement reserves rather than increased taxpayer support — it also brings back a number of old, bad ideas such as $12 million in discretionary slush funds in Human Resources and Cultural Resources eliminated just last year.

North Carolina's Unemployment Insurance trust funds continue to be bloated due to overcharging workers and employers. A series of tax cuts during the 1990s has failed to bring the system under control. A new bill would cut the UI tax by 20 percent but impose a new tax of the same amount to fund unneeded administrative costs and community college items that, in some cases, constitute corporate welfare. A better answer would be to cut UI taxes and draw down the state's separate $200 million reserve for any needed college improvements.