RALEIGH – North Carolina has more government than North Carolina taxpayers can or wish to finance.
That’s the fundamental cause of the state’s continuing budget woes – not the mortgage crisis, or misbehavior on Wall Street, or the misdeeds of George W. Bush or Barack Obama. The economic downturn of 2008-09 may have triggered the state’s fiscal deficits. But the structural problem predated the recession.
State and local government in North Carolina has grown rapidly during boom times. During economic busts, spending growth has slackened or even ceased for a time, but has never been significantly rolled back. Instead, governors and legislators have raised taxes to finance their past spending increases.
Furthermore, contrary to the letter and intent of the state constitution, North Carolina policymakers have borrowed money without a public referendum to pay for budget items previously funded by current state revenue or general-obligation bonds. Their tactics have included certificates of participation (COPs), revenue bonds, tax-increment financing, and tapping the federal government’s borrowing capacity through various stimulus and bailout funds.
Both the Senate and House versions of the 2010-11 state budget would continue these practices. They would rely on some $3 billion in unwise and unsustainable fiscal policies, including federal bailouts and last year’s “temporary” tax increases. Legislative leaders may try to spin this budget as fiscally conservative, which does damage not just to North Carolina’s fiscal posture but also to the English language.
There is nothing fiscally conservative about shoving a ramshackle budget through the General Assembly that assumes $3 billion worth of new taxes or federal borrowing in 2011 to finance the level of spending set in 2010. There is nothing fiscally conservative about compounding such a mistake with $450 million in new COPs debt, as the Senate is in the process of approving. And there is nothing fiscally conservative about doing all this while ignoring North Carolina’s other fiscal time bombs, such as both short-term and long-term holes in the state’s health plan for current and retired teachers and state employees.
I know, I know – the official line is that 2010 isn’t the year to start addressing these problems. We’re in an election year and still slogging through the end of a deep recession. Wait until next year, we’re told.
Only, we’ve been told that before. Repeatedly. The fabled “next year” of forging a sensible long-term fiscal plan for the state inevitably turns into a “this year” of short-term thinking and political gamesmanship.
Rather than simply playing their roles in this drama, legislative leaders should have tried something new. Instead of passing a $20 billion+ budget with a guaranteed $3 billion hole in 2011, they should have pulled actual spending down below $19 billion, reducing next year’s deficit and giving themselves more room to maneuver. Then, during the 2011 session, they should have set a goal of reducing state spending further, if necessary, to a level equal to the revenues projected from the tax rates in place before the 2009 tax hikes.
Going into 2009, most North Carolinians thought their tax burden was high enough already. They were right. Instead, Raleigh raised sales and income taxes while Washington borrowed hundreds of millions of additional dollars to finance North Carolina’s budget – money that North Carolinians will have to pay back eventually with higher federal taxes.
Instead of pursuing true fiscal conservatism, the Democratic majority in the General Assembly has chosen to stick with their original fiscal policies. Rely on more taxes and more borrowing. Keep increasing total state spending. Ignore the state’s many unfunded liabilities.
And hope North Carolina taxpayers either don’t notice or don’t care.
Sounds like a risky gamble to me.
Hood is president of the John Locke Foundation.