The N.C. House is moving forward with its state budget proposals. Once a House budget is finalized, the Senate will have its turn. Both legislative chambers are responding to the plan Gov. Beverly Perdue proposed. Joseph Coletti, John Locke Foundation director of health and fiscal policy studies, discussed the governor’s budget, his own proposals, and some Republican priorities during an interview earlier this legislative session with Donna Martinez for Carolina Journal Radio. (Click here to find a station near you or to learn about the weekly CJ Radio podcast.)
Martinez: In the State of the State address, Gov. Perdue sounded at points in her remarks like a fiscal conservative. Did any of that translate into her budget proposal?
Coletti: Well, she cut the corporate income tax rate.
Martinez: And that is fiscally conservative.
Coletti: That’s about it, yes. That was a good start. She unfortunately didn’t follow up with much of anything else. So the budget is smaller in overall spending than last year, but [in] state spending, it’s about $900 million more. So when the governor talks about cutting things, she’s talking about cutting from what we had, using fiscal stimulus money from the feds last year, not cutting what the state is actually spending. And because we’re not cutting what the state is actually spending, that’s why she also needs to have a tax increase in the budget.
Martinez: OK, let’s talk about that then. A tax increase? You’re saying she wants to cut the corporate income tax rate, but what does she want to do with other taxes?
Coletti: If you remember, there was a temporary tax that was passed two years ago.
Martinez: Ah, the temporary tax — yes.
Coletti: Yes — that we were told we could trust would go away because, well, she’s the governor.
Martinez: She actually did say that.
Coletti: Those were her words. Well, she said, “I’m the governor.” And so this year, when it came time for the taxes to actually expire and for the governor to actually follow through on her promise, she decided to punt. So instead of getting rid of the entire 1-cent sales tax increase — $1 billion of taxes that we have to pay — she’s only getting rid of a quarter-cent of that. So there’s still over $800 million of taxes that North Carolina families will be paying that we wouldn’t have had to pay otherwise.
Martinez: How do state workers fare in the governor’s budget proposal?
Coletti: State workers have no pay increase for another year. She offers incentives for people to retire. One thing that they will find, and this is something that’s a bit more fiscally responsible, is that what they will be contributing to their insurance premiums — if they choose the higher-value insurance plan, [and] right now there are two plans that they can choose from — if they choose the one that has fewer co-pays and fewer deductibles, then they’ll have to pay some of the premium. It’s a really small amount — less than $20. So for the rest of us, that sounds like a great deal, but for most state employees, that’s something completely new, and that’s taking a big step.
Martinez: Who gets the budget ax in Gov. Perdue’s proposal?
Coletti: The governor is taking a look at — there are a lot of individuals who will be encouraged to retire. When it comes to actual spending, there are some reductions in education. There are more across-the-board cuts than really nailing any one division, which is one of the problems with it — that she’s not taking on as many of the specific programs … that don’t work. In her State of the State address, the governor said that we have teachers who aren’t meeting our standards. And yet, when it came budget time, the governor explicitly said that she is not getting rid of any state-funded teachers. That is not a good way to go about things. If you have people who aren’t doing their job, and you know that they’re not doing their job, as the governor said, then you should start taking a look at those people first instead of making across-the-board cuts.
Martinez: So this is the governor’s proposal, but that does not mean this is what the budget is going to be, because now the leaders in the General Assembly — the Republicans — are putting together their own version. And they’ve got to figure out how it goes together, in what way, with what the governor wants to do as well. What do we know about the Republicans’ version of the budget — because they’re still working on it — but do we have any hints?
Coletti: Yes, the Republicans have released their budget targets, so in the broad categories — there are about six broad categories of the budget — they’ve released those, and they have about $1.4 [billion], $1.5 billion less in spending than the governor does, so theirs is far more on the fiscally responsible side, just right from the outset. They’re looking to bring the spending down, and you can’t bring taxes down and you can’t be on a sound fiscal track without getting the spending down. So they’re in a much better position from the start.
Martinez: How do their targets compare to the governor in terms of the sales tax? Do we know?
Coletti: With that lower spending, they can actually get rid of the entire sales tax, which is something that they have been promising, they were promising on the campaign trail last year, and have been emphatically emphasizing in their time in office as well.
Martinez: … What happens next, Joe? Is it a free-for-all between the Republicans in the legislature and the governor’s office?
Coletti: That will be a fun one to watch. So the Republicans are working, House and Senate together. In the past, the House and Senate kind of went off in their own directions, but they’ve been having joint committee meetings the entire time. So this will be a much more unified response from the legislature, partly for efficiency’s sake, so that they can get out of here and have the budget ready by the end of the fiscal year — unlike in past years when budgets weren’t out until September, October — and partly, I think, so that they can have that “Here is our response to the governor” and not have as much infighting within the legislature.
Martinez: So there’s likely to be some sort of political fight over the budget. But in the meantime, as you have done for a number of years now, you have created your own alternative state budget. Tell us what you do in your budget.
Coletti: The first thing I do is take a look at the programs that don’t work, that shouldn’t exist, that either are duplicative or do things that, really, the private sector can handle better. A lot of what happens in the Commerce Department, where we try to bring businesses into the state, can be done better by outside organizations. The Chamber of Commerce exists for a reason, and who better to be able to recruit people, and who better to be able to decide what businesses should thrive than the investors in those businesses, instead of having the governor or a few people in some areas of state government make those decisions. So that’s one start. And take that same process throughout the entire budget and get rid of programs that don’t work and try to streamline and transform state government so that we have good results with less going into it.
Martinez: So you’re cutting spending. How much do you cut, and at what point, at what level of past spending would we get to under your version of the budget?
Coletti: We bring spending down from what the governor estimated is over $21 billion, down to about $18.4 billion. Adjusting for inflation and population growth, that’s right where we were back in the mid-’90s under Govs. Martin and Hunt — [a] great growth period for North Carolina. It’s what people think about when they call North Carolina a great place to do business.
Martinez: Joe, critics are going to say that your budget is draconian. How do you respond?
Coletti: It is not draconian to allow individuals to spend their own money and make their own decisions and decide that there are charities and other organizations that can do the same services that government has been doing.
Martinez: Joe’s budget is available at johnlocke.org.