News: CJ Exclusives

Perdue Budget Includes Tax Hike, Highlights Education Spending

Outgoing governor may have little leverage against GOP legislature

The three-quarter-cent sales tax centerpiece of Gov. Bev Perdue’s $20.9 billion budget proposal would be used to hire more teachers and launch jobs programs, but is a “non-starter” for Republican leaders.

Meanwhile, political observers say Perdue’s lame-duck status looms large against her spending wishes and could have implications for this year’s state elections.

Perdue held a news conference Thursday morning to unveil her “very ambitious” 2012-13 budget, which is 6.2 percent higher than the current General Fund budget. She said its three pillars — education, jobs and military programs — are essential to move North Carolina forward.

The sales tax, which would become effective July 1, would generate $760 million. It would be used, in part, to add or save 11,000 teacher, teacher assistant, and other education positions. It would lower class sizes in grades K-3, and, for the first time in four years, include a 1.8 percent salary increase for teachers, 1.5 percent for administrators.

The budget would restore more than $250 million in expiring federal stimulus spending that was used to compensate public school teachers.

The budget would allocate an additional $58 million to community colleges and $145 million to public universities. “That specifically includes $35 million to keep tuition affordable for North Carolina students,” Perdue said.

Perdue proposes a variety of small business tax credits, including $5,000 for each post-9/11 veteran and unemployed state resident hired. She wants to fund work force training initiatives for the film and television industry and increase support for “the clusters around biotech, energy and green jobs.”

“The budget that was passed by last year’s General Assembly was short-sighted,” Perdue said.

“If they, this year, don’t strengthen this state’s ability to educate and prepare North Carolina’s students for a globally competitive future, if they choose not to make concrete investments to promote hiring and to create jobs, if they don’t stand up for our military families, I believe it will truly be a failure of imagination and ambition. North Carolina deserves better,” she said.

In a statement released on the state Senate Republican caucus website, Senate President Pro Tem Phil Berger, R-Rockingham, noted that Perdue gave lawmakers less than a week to review the budget before the short session resumes. Historically, governors have submitted budgets several weeks in advance.

“Governor Perdue’s budget would force North Carolina families and businesses to pay nearly $1 billion in new job-killing taxes,” Berger’s statement said.

“This could shatter our fragile economic recovery. We must break state government’s habit of throwing money at problems and adopt innovative solutions and meaningful reforms,” Berger’s statement said. “The cycle of irresponsible taxing, borrowing and spending must stop.”

Berger Press Secretary Brandon Greife said Berger was “spending the day along with his policy staff just combing through” the budget.

He said Berger is not calling the governor’s budget dead on arrival. But the three-quarter-cent sales tax is a sticking point.

“I guess it would be right to characterize it as a non-starter,” Greife said. Berger’s position is that “raising taxes on the private sector, on businesses and struggling North Carolinians is not the way to go about our priorities.”

Attempts to get comment from House Speaker Thom Tillis, House Minority Leader Joe Hackney and Senate Democratic Leader Martin Nesbitt were not successful.

Fergus Hodgson, director of fiscal policy studies at the John Locke Foundation, said it is “particularly concerning because the governor is touting this as a jobs plan” when it’s really a wealth redistribution scheme to move money and jobs from the private to public sector.

“Creating a stable and secure environment for investment and a lower tax environment, that’s what really is going to create jobs,” Hodgson said. The nonprofit Tax Foundation now ranks North Carolina 44th worst in the nation for state tax burden, and Perdue’s tax hike proposals would only make that worse, he said.

“The key point is that it is adding to a tax burden that already places us in a less competitive position than other states, than other nations,” Hodgson said.

And, he noted, the $20.9 billion General Fund budget is only a portion of what the state actually spends.

“This year’s total state spending will be $51.5 billion, and that is a record,” Hodgson said. “The state’s budget this year is at a record high per-capita and any talk about it being underfunded relative to past years is misleading at best.”

Per capita spending has jumped from $1,701 to $5,247 per person from 1970 to 2012, he said. State spending was equivalent to 10.9 percent of personal income in 1970, compared to 14.4 percent this year.

Perdue’s budget plan will assume new dynamics this year due to the governor’s race and legislative elections.

“Obviously she’s not going to be on the ballot, and what that will mean is that Republicans will be very critical of the budget and attempt to tie it to the lieutenant governor,” said Andrew Taylor, political science professor at N.C. State.

Lt. Gov. Walter Dalton is the gubernatorial Democratic nominee facing Republican candidate Pat McCrory in the Nov. 6 General Election.

“The lieutenant governor will embrace the things he thinks are politically useful and distance himself from those he doesn’t,” Taylor said. Perdue is “a lame duck in every sense of the word. That’s not going to provide much leverage in a Republican legislature” opposed to tax hikes.

Taylor said he couldn’t determine whether Perdue’s budget plan is “a serious document, a political document, or a sort of valedictory document.”

But after a bruising budget battle that consumed most of 2011, Republicans “may not want to be quite so antagonistic going into an election year,” Taylor said. “It may be that there isn’t a protracted budget fight because there isn’t an appetite for it, but that doesn’t mean she gets all that she wants.”

“My sense is that something will get through that really won’t be a major change in policy, and people will prepare themselves for the election on both sides,” he said.

“It’s an election year, and they’re at loggerheads on their prescription for the way to go, so I do expect there to be fighting” among lawmakers as well as between the General Assembly’s Republican leaders and Perdue, said Earl Sheridan, chairman and professor of the Department of Public and International Affairs at UNC-Wilmington.

“The only good thing about it is it’s a short session, but I’ve known some short sessions to go a long time,” he said.

Sheridan said it remains to be seen whether Democrats may get greater voter support for pushing education and jobs themes or whether Republicans will benefit from a hold-the-line approach to any new taxes amid a sour economy and high state unemployment.

“I think a lot of it depends on who wins the public relations war and how people are able to spin it and push it,” he said.

But he doesn’t envision voter turnout being dampened even if North Carolina experiences another protracted, clenched-fist budget battle.

“A lot of voter turnout will be driven by the national election,” Sheridan said. “Obama will probably be here and Romney will probably be here and there will be a lot of attention given to North Carolina, and I think it will probably heighten voter turnout.”

Taylor agrees.

The budget process “is the tail,” Taylor said. “The dog is the presidential race, so that’s going to be driving turnout much moreso than the lame duck governor’s budget.”

Dan Way is a contributor to Carolina Journal.