budget

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.

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 state of North Carolina and our governor, Mike Easley, received mediocre grades on two recent report cards. Tax increases that were to be temporary when passed in 2001, but which continue in the governor's budget through at least 2006, contribute to the low grades. The additional tax bracket and half-cent sales tax will have added nearly $1.9 billion between their original sunset and July 2007, while Gov. Easley's additional taxes will bring almost as much in FY2006-07 alone.

Governor Mike Easley says his budget for the 2005-2007 biennium is the model of fiscal prudence, but the numbers belie this. Spending increases nearly $1 billion to $16.9 billion. The governor claims $200 million in spending cuts, but they are far outweighed by the $741 billion in higher taxes. Tobacco Trust Fund transfers and unreserved credit balance close the rest of the $1.1 billion structural deficit. The General Assembly will need to be more forthright if it is to put real restraints on government growth.

RALEIGH — North Carolina business executives see high taxes, burdensome regulations, and inadequate labor skills as the top factors hampering the state’s economic competitiveness, according to a new survey by…

RALEIGH — Local taxes and fees in Charlotte totaled more than $2,018 per resident in 2002, ranking North Carolina’s largest city No. 1 for local government costs among major cities…

A House-Senate compromise budget for the 2003-05 biennium will cost North Carolina taxpayers another half-billion dollars a year and do little to stem the government’s long-term growth. General Fund spending will actually rise 3 percent in FY 2003-04 and 5 percent in FY 2004-05, with most of the increase over the next two fiscal years concentrated in health and human services, debt service, the UNC system, and subsidies to nonprofits. North Carolina deserves better.

Defenders of North Carolina’s fiscal policies over the past two years argue that the state’s massive increases in sales, income, business, and other taxes were just part of a national trend. But the available data put North Carolina near the top in tax increases over the past two years, with more than $1 billion in annual fiscal impact. The state’s quick recourse to higher taxes may be one reason why its economy has been trailing the rest of the region and nation since mid-2001.