Research Reports: Spending & Taxes

A recent report showing that many state university buildings are in very poor repair and warning of explosive UNC enrollment growth has led to a proposal that would allow the state and the university system itself to sell bonds without voter approval. There are strong reasons to doubt that this is the best way to solve the problem of building maintenance, and to consider redirecting existing funds and allowing more students to choose private colleges to reduce the pressure.

Some state lawmakers are discussing a plan to give local governments the authority to raise their sales taxes by up to 1 penny while simultaneously eliminating state tax reimbursements. While it is true that many counties are raising property taxes this year, most have not been starved for revenue during the 1990s. More importantly, the state can give the same assistance to localities without raising taxes by increasing flexibility and assuming more responsibility for Medicaid.

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.

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.

The N.C. Senate is debating its budget proposal for FY 2001-03. For all the furor about "severe cuts" in the plan, it would increase total General Fund spending next year at nearly the same rate (4.7%) as Gov. Mike Easley's budget (5.2%), including a 15% increase in health and human services spending vs. Easley's 16.2% hike. Both offer a stark contrast to the Changing Course budget prepared by Locke analysts, which would essentially hold spending constant while cutting taxes.

For all the talk of a fiscal crisis this year and the need to tighten the belt of state government, Gov. Jim Hunt's proposed adjustments to the FY 2000-01 budget would hike General Fund operating spending by nearly 7 percent, vastly increase state debt, and deplete state savings accounts for many years to come. The budget also contains many new items of questionable merit. North Carolinians should not be surprised to see sizable tax increases in the future as a result.

As state lawmakers grapple with a projected budget gap of at least half a billion dollars, some observers have blamed recent tax cuts for the problem. But modest tax reductions in the mid-1990s followed big tax increases earlier in the decade. The net change in taxes in the 1990s was a tax increase of nearly half a billion dollars. Other proposed causes for the gap, including poor legal representation and excessive spending growth during the decade, are more persuasive.

Responding to calls for billions of dollars for capital needs in the UNC and community college systems, legislative leaders are considering asking voters to approve a $3.1 billion bond referendum this November. Because the bonds would more than double the state's debt burden and generate a debt service budget approaching $600 million in four years, taxpayers have little reason to believe that a bond issue of that size won't result in tax increases in the future.

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 has reached a crossroads in the delivery of mental health services. After decades of escalating budgets and haphazard growth, years of costly and controversial study, and promises to act that have yet failed to materialize, the state’s mental health system continues to suffer from a host of systemic problems. Only fundamental change in the structure and funding of the system will improve outcomes for patients and taxpayers.