Don’t let complaints about phantom cuts menace the budget debate

Prepare yourself for the phantom cut.

No, that’s not a tagline for a summer sci-fi blockbuster. It’s a warning about an almost certain feature of North Carolina’s next state budget debate.

The phantom cut is likely to make its next appearance soon. It will resurface from time to time in Raleigh at least through June.

The phantom cut is a purported cut in the state budget that represents no cut at all. In fact, the phantom cut can make an appearance even when the targeted program or line item is guaranteed to see its budget increase.

To explain how the process works, it helps to remember how North Carolina’s state budget process works. Some have described it as a four-step dance. We’ve seen only the first step to date. The second should play out soon.

Gov. Roy Cooper took the dance’s first step March 1 when he unveiled his budget proposal. This is not unusual. In fact, it’s the governor’s constitutional duty under Article III, Section 5(3) to “prepare and recommend to the General Assembly a comprehensive budget of the anticipated revenue and proposed expenditures of the State for the ensuing fiscal period.” In this case, that period covers two years starting July 1.

While the state constitution calls for the governor to prepare a budget, it says nothing about the General Assembly accepting that budget’s proposals. Instead, the same section of Article III spells out that the governor “shall” administer the budget “as enacted by the General Assembly.”

Most observers expect the second step in the state budget dance soon. Every two years, the N.C. House and Senate take turns initiating a formal legislative budget document. For this year and next, it’s the Senate’s turn to lead. Senators should unveil their proposals soon.

That’s the second step. The third will arrive some weeks later with a House budget plan. The fourth and most complicated step will involve negotiations between Senate and House budget writers as they work to finalize a compromise plan.

The governor plays another role in the budget dance as well. He can choose to sign or veto that final legislative budget, or even to let it take effect without his signature. During the last two years in which a Democratic governor and Republican-led General Assembly danced the budget dance in North Carolina, Beverly Perdue vetoed budgets in 2011 and 2012. In both years, House Republicans were able to round up enough Democratic votes to join the Senate in overriding Perdue’s veto and enacting their budget plans into law.

Republicans held no supermajority in the N.C. House at that time. Now they do. Overriding a Roy Cooper veto would require only that House members — along with Senate GOP counterparts who have held a supermajority since 2011 — stick together on a veto vote. That’s a step they’ve taken already for all three nonbudget bills Cooper has vetoed during his first year in office.

What role does the phantom cut play in this dance? As lawmakers consider Cooper’s budget proposals, it’s likely that they will find areas in which they believe the governor calls for spending increases that are too large.

They signaled as much back in March, noting that Cooper’s 5.1 percent suggested total increase in General Fund spending exceeded the state’s 3.8 percent combined rate of inflation and population growth. Republican lawmakers have used that self-imposed spending limit to ensure that North Carolina government expenditures haven’t outpaced revenue in recent years.

“If the news reports are true, Gov. Cooper is clearly growing nostalgic for the Easley-Perdue days of runaway spending — and his reckless $1 billion spending spree would surely return us to the days of high taxes and multibillion-dollar deficits,” Senate leader Phil Berger, R-Rockingham, said in March, referencing the last two Democratic governors.

Let’s say that Cooper wants to boost a $500 million government program by 5.1 percent, the average increase for his entire General Fund budget. Lawmakers agree that the program needs more money, but they prefer to limit the increase to 3.8 percent. It’s a difference between increasing spending by $25.5 million or $19 million.

Spending would go up under both plans. But you can be almost certain that advocates for the particular program will decry the $6.5 million “cut” to the governor’s budget. That’s a phantom cut.

Repeat the process for all government programs that end up getting smaller spending increases from legislators than from the governor, and you’ll notice that there’s plenty of room for phantom cuts in a $23 billion annual General Fund budget.

That doesn’t mean that lawmakers will omit real cuts. Expect them to roll back funding for low-priority items and programs that have dubious track records.

But no one should confuse these cuts with the phantoms. Complaints about phantom cuts serve only to menace the state budget debate.

Mitch Kokai is senior political analyst for the John Locke Foundation.