As Gov. Pat McCrory takes office and the Republican-led General Assembly reconvenes for its 2013 session, they face significant fiscal and economic challenges. While there won’t be a big hole in the state’s operating budget, like the one that Bev Perdue inherited in 2009, state government has bonded debt and unfunded liabilities totaling tens of billions of dollars, and North Carolina’s economic recovery remains feeble.
McCrory and legislative leaders need to embrace bold, innovative ideas. Fortunately, they need not generate all the ideas themselves. Some are already on the shelf, ready to take down and implement. A good place to start would be the inventory of reports produced by the legislature’s Program Evaluation Division (PED).
Created by statute in 2007, PED has produced nearly four dozen reports on a wide range of state programs and operations. Its mission is “to evaluate whether public services are delivered in an effective and efficient manner and in accordance with the law.”
The division’s director, John Turcotte, reported to the legislature’s oversight committee last month on the division’s past and pending work. Since 2008, its auditors and analysts have recommended policy changes that offered nearly $80 million in one-time savings to taxpayers and about $60 million in annual operating savings. While not exactly earth-shattering in fiscal impact, these recommendations were nevertheless welcome ideas for improving the return on taxpayer spending.
Unfortunately, policymakers have yet to act on most of PED’s findings. Only $2.5 million in one-time savings and $16.6 million in annual savings have been implemented to date. In some cases, lawmakers, administration officials, or lobbyists for affected interest groups raised reasonable objections to the division’s analysis or recommendations. In most cases, however, policymakers simply failed to muster the political will to overcome inertia and get the job done.
Will the McCrory administration and Republican supermajorities in the General Assembly do better? An initial test case will be how they respond to the division’s recent report on the state-owned North Carolina Railroad Company (NCRR).
The history of NCRR is complicated. Originally constructed in the 1850s with mostly taxpayer funding, the line connected Charlotte, Greensboro, and the Carolina Piedmont with the Coastal Plain and the port at Morehead City. In 1998, the state bought out the shareholders and became the sole owner of what is nominally a private company.
NCRR doesn’t actually run trains. It leases its facilities to Norfolk Southern for freight service and to Amtrak for passenger service. By state law, its income – which also includes utility contracts and land licenses – must be spent on the company’s capital needs. So in 2006, NCRR stopped paying even a modest annual dividend into the state treasury.
In its report, the Program Evaluation Division observed that state taxpayers had plowed copious amount into NCRR but have received no financial return. After considering several options, PED recommended that state law be changed to direct some of NCRR’s income into the state budget – a $15.5 million dividend the first year and approximately $4 million a year after that. The report also recommended selling some 14 NCRR properties with a tax value of $6 million.
I actually think these recommendations were way too timid. The state should get NCRR appraised and then sell the whole thing, piecemeal or as a unit. A 1997 financial analysis put its value at just shy of $300 million. But taxpayers have funded $134 million of improvements since then, and land prices along much of the NCRR corridor have appreciated (even accounting for the Great Recession). Half a billion in one-time proceeds to the state treasury, plus millions in annual property tax revenue to localities, would not be a surprising outcome. Program evaluators concluded that selling NCRR would sacrifice future benefits from enhanced intercity passenger service. But to state taxpayers, there are no future benefits from such subsidized service, only future costs.
Still, one has to start somewhere. If the legislature reclaims an annual dividend from NCRR, that will be a promising sign of things to come.
Hood is president of the John Locke Foundation and author of Our Best Foot Forward: An Investment Plan for North Carolina’s Economic Recovery.