spending

Gov. Mike Easley’s proposed state budget takes advantage of a $2 billion surplus to increase spending by $1.6 billion, according to a preliminary analysis by the John Locke Foundation.

State tax revenues grow in strong economies. Politicians use the new revenue to create or expand government programs. In recessions, revenues fall and tax rates rise to pay for the higher level of spending. Spending and taxes in the last ten years illustrate this pattern. As North Carolina enters another period of expanding revenues, Gov. Mike Easley and the General Assembly must avoid the temptation to increase spending so they do not have to increase taxes in the next recession.

RALEIGH – North Carolina leaders should avoid turning a one-year state revenue surplus into a long-term budget nightmare. That’s the new warning from a John Locke Foundation fiscal policy analyst.

City and county government cost on average $3,804 per capita in Charlotte during fiscal year 2004, from July 2003 to July 2004. This was 28.1 percent higher than the $2,969 (constant 2004 dollars) per capita spent in fiscal year 1994. For comparison, real per capita personal income increased just 13 percent over the same period, from $24,926 to $28,235. Most of the increased expenditures were for operations, which climbed 23.2 percent to $2,766 in fiscal 2004. Char-Meck’s high capital spending climbed 43 percent over the decade, to $1,038 in fiscal 2004.

RALEIGH – Weeks before a school-bond vote in Mecklenburg County that could result in another local tax increase, the John Locke Foundation today released a Citizen’s Guide to Local Spending…

City and county government cost on average $2,863 per capita in Wilmington during fiscal year 2004. This cost was 42 percent higher than Wilmington's per-capita spending in 1994. As real per-capita personal income increased just 13 percent over the 10-year study period, operations costs climbed 35 percent and capital spending nearly doubled over the decade. No large city in North Carolina had faster spending growth than Wilmington did.

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.

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.

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.