RALEIGH – North Carolina is a growing state. If current trends continue, the U.S. Census Bureau estimates that there will be 4.2 million more North Carolinians in 2030 than in 2000, ranking our state 7th in population – higher than the likes of Ohio, Michigan, and New Jersey. Not all corners of the state are experiencing rapid growth, of course. But in the major metropolitan areas as well as more rural climes popular with retirees, such as coastal counties and the mountains, a growing North Carolina will mean new workers, new customers, new ideas, and new demands for government services.
You’ve heard all this by now, I’m sure, from the various spending lobbies who seek to turn these census data, depicted in colorful PowerPoint graphs at budget hearings, into new bonds or taxes to pay for schools, roads, and other infrastructure. What are less likely to show up in the slideshows are some other facts that North Carolina policymakers should consider before agreeing to expensive new tax or budget promises:
• Growth spurts mean revenue spurts. North Carolina state and local governments will take in tens of billions of dollars in additional tax and fee revenue as millions of new people move here. Does growth “pay for itself,” then, by generating the resources necessary to build infrastructure and deliver services to the newcomers without increasing the tax burden on everyone else? If the tax code is structured correctly – without targeted incentives and other holes in the base and with the understanding that rising property values should yield higher revenues at a given tax rate – then the answer can and should be yes.
• All taxes are income taxes. They are all paid from personal income. Coming up with new, targeted ways to confiscate people’s money may certainly be a productive way for politicians to hide costs and pit one group against another, but they do not reflect sound principles of public finance, which should be built on very broad, very visible taxes to fund entitlement programs and properly computed user fees to pay for government-related enterprises such as water and sewer service. Public safety and public schools are not fee-for-service functions. Don’t pretend they are and try to charge prices.
• When schools, roads, and other projects seem to cost more money than the revenue system is generating, don’t immediately assume that new forms of taxation are needed. Often, the real problems are that the projects are too expensive and they are not receiving the proper fiscal priority. On the latter point, many local governments complaining about inadequate capacity for core services are also the owners of millions of dollars in assets that either have no legitimate place in a government balance sheet or are clearly lower in priority than roads and schools. An excellent strategy for such localities to accommodate growth without taking in exorbitant debt is to “mine the balance sheet” – to identify low-performing assets in their portfolio, sell them to a private or nonprofit buyer more likely to make productive use of them, and then use the proceeds to build critical infrastructure.
Under Mayor Richard Daley, for example, Chicago has recently sold a toll bridge for $1.8 billion and four downtown parking garages for nearly $600 million. He is also accepting bids for Midway Airport and may sell city-owned marinas and recycling centers. By mining his city’s balance sheet, Daley has been able to direct significant dollars into education and public-safety improvements.
North Carolina governments have done little to tap underperforming capital assets. In 2004-05, the city of Raleigh estimated that just two of its asset categories, parking decks and real estate not used for core services, were worth a combined $100 million. Bids might well come in far higher. For a burgeoning city, $100 million would buy a lot of needed street improvements, while simultaneously reducing city government’s involvement in what should be private-sector functions.
Hood is president of the John Locke Foundation.