Carolina Journal News Reports

Free-Market, Conservative Reforms Highlight ‘Historic’ N.C. Legislative Session

JLF experts tout gains in taxation, budgeting, education, regulation, transportation

Aug. 1st, 2013
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RALEIGH — From taxes and spending to regulation, education, and transportation, the 2013 session of the North Carolina General Assembly proved historic in producing positive reforms for state government. That's the assessment from top John Locke Foundation staffers reviewing this year's legislative scorecard.

"As far as I can tell, North Carolina adopted more free-market and conservative reforms in 2013 than any other state has ever adopted in a single year," said JLF President John Hood. "In the great debate about how best to promote economic growth, North Carolina has come down clearly on the side of fiscal conservatism, competition in public services, freedom of choice, and limited government."

Many ideas transformed into state laws this year mirror recommendations from two recent JLF books. Hood's 2012 book Our Best Foot Forward: An Investment Plan for North Carolina's Economic Recovery charted North Carolina's economic woes and spelled out a 10-point economic growth plan.

In this year's First In Freedom: Transforming Ideas Into Consequences for North Carolina, Hood and JLF research staffers offered more specific proposals for reforming the state's tax code, public education system, and regulations. First In Freedom also called for expanding school choice, setting new government spending limits, avoiding pitfalls linked to the federal health care reform law, and adopting a new operating system for North Carolina government.

Republicans in Gov. Pat McCrory's administration and in the leadership of the N.C. General Assembly took a number of steps to begin addressing those recommendations.

Tax reform. Lawmakers reduced or eliminated dozens of special tax breaks and exclusions while replacing North Carolina's multirate personal income tax, with a top rate of 7.75 percent, with a flat-rate tax of 5.75 percent. The corporate tax rate drops from 6.9 percent to as low as 3 percent, if the state meets revenue growth targets.

"With one stroke, North Carolina's business tax climate improved from No. 44 in the nation to No. 17, according to the Washington-based Tax Foundation," said Dr. Roy Cordato, John Locke Foundation Vice President for Research and Resident Scholar. "Beyond the improved ranking, the decision to lower and flatten rates unquestionably meets the goal of a pro-growth tax reform. In many respects, North Carolina's tax reform legislation resembles the 'Plan B' scenario spelled out in the First In Freedom book."

Budget reform. Legislators improved state government's balance sheet by boosting reserve funds, speeding up repayment of a $2.5 billion debt to the federal government for unemployment benefits, and imposing a debt limit that forces lawmakers to seek voter approval before they can assume new state debt, Hood said.

"The General Assembly also gave Gov. McCrory the go-ahead to pursue competitive contracting for Medicaid services, which will make it more likely that future legislatures can devote a higher percentage of state revenue to public investment, rather than consumption," Hood said.

Education reform. While increasing General Fund spending on public schools by 5 percent over last year's authorized budget, lawmakers also focused attention on important structural changes, said Dr. Terry Stoops, JLF Director of Research and Education Studies.

"Replacing teacher tenure with multiyear contracts, introducing merit pay, assigning schools performance-based letter grades, and strengthening charter schools all represent substantial reforms," Stoops said. "Legislators also agreed to offer private-school scholarships to as many as 13,000 students with below-average household incomes or special learning needs."

Regulatory reform. Following up regulatory reform measures in 2011 and 2012, legislators took another significant step this year toward reducing the state's regulatory burden, said Jon Sanders, JLF Director of Regulatory Studies.

"Among other things, the latest regulatory reform bill requires existing state rules to undergo regular reviews every 10 years," Sanders said. "Regulations that have become obsolete, along with those that generate more controversy and costs than benefits, will be more likely to go away. Research finds that 'sunset' provisions have a significant positive effect on culling unnecessary regulation, so with this reform state lawmakers are taking one of the best possible steps toward reducing regulatory overreach."

Transportation reform. Lawmakers rewrote the state's funding formula for highways and other transportation infrastructure. "This change redirects dollars from pork-barrel projects to high-priority investments that will alleviate traffic congestion and create jobs," Hood said.

Taken together, this government reform package represents a "bold" choice, Hood said. "North Carolina's continuing economic woes motivated Republican policymakers to pursue major changes," he said. "Most of the changes they adopted are based on the best-available research into what makes economies prosper. Politicians in Washington and in other states should follow North Carolina's lead."