On Budget, Honesty or Pretense?

RALEIGH – With General Assembly elections just weeks away, I assume that you are hearing lots of good ideas from your hometown legislators about how they are going to close North Carolina’s state budget deficit if re-elected.

No? I can’t imagine why not. Budget analysts from the Left, Right, and center are all expecting there to be a significant gap between what the state’s current tax policy will generate in revenue next year and what lawmakers will likely want to spend (meaning maintenance of all existing state programs plus expansion money to cover increased enrollment in public schools, Medicaid, and other programs). The only real debate is about whether the hole will be over $1 billion or closer to half that amount.

Either way, and even given the escalating budget totals of a growing state, that’s a big hole.

Surely, if you are not hearing your incumbent state legislators explain why they voted for the 2006-07 budget this summer, knowing that it would knock next year’s budget out of whack, there is some good reason for their reticence. Perhaps, deeply concerned as they are for your well-being, they simply don’t want to alarm you with bad news. Perhaps they have a secret plan to win the budget war, and don’t want to let the enemy in on it. Or perhaps North Carolina’s coming budget deficit has just flat-out skipped their minds.

Unfortunately, the most likely explanation is that most of your state leaders, the officials that in virtually all cases will be re-elected in a few weeks, don’t want to level with you, the taxpayers. They don’t want to admit that the state budget they passed amidst so much boastful rhetoric during this election year was, well, an election-year budget that boosted spending 10 percent, made no difficult choices, and raised expectations for future spending that can only be satisfied by major budget savings elsewhere (advisable but unlikely) or major tax increases (inadvisable but likely).

If these incumbents wanted to level with you, they could say something like this.

We, the majority of the North Carolina General Assembly, failed you. We have failed you for years by not making good long-term decisions about how to spend your money. We promise to change. Starting in 2007, we are going to make some tough, sound decisions about what state government is going to do and what it is not going to do with your hard-earned tax dollars. We promise to:

• Get the state’s Medicaid program under control. Our goal will be to change eligibility, reimbursement, and benefits policies to put North Carolina closer to the middle of the pack among our peers. That will save hundreds of millions of dollars annually.

• Stop funding new education programs that may sound good but, research shows, will not bring substantial improvement in student achievement. We’ll phase out funding for existing programs of this kind, such as bonuses for national board certification and class-size reductions in grades above kindergarten and first. We’ll focus these and future tax dollars on keeping up with enrollment while alleviating the counties’ responsibility for Medicaid, which will plow a half-million dollars a year into critical infrastructure needs such as school buildings.

• Merge departments and eliminate redundant or outdated state agencies, aiming for a state government with a cleaner organizational chart and lower administrative expenses, as can be found in peer states such as Virginia and Florida.

• End state subsidies for corporations, which can be found throughout state government in areas such as training, loan programs, and incentives. We’ll use some of the savings to substantially reduce the tax burden for all businesses, large and small. We’ll stop trying to pick winners and losers in economic development, allowing producers and consumers to determine those outcomes through market transaction.

• Adopt and expand UNC President Erskine Bowles’ proposal for multi-year increases in tuition at University of North Carolina campuses, as long as some of the proceeds are devoted to financial aid for needy students and the remaining proceeds are strictly devoted to delivering undergraduate education. Taxpayers will still be paying the bulk of the cost, though it will be a lower share than the current proportion.

• Reshape the budget process to smooth out North Carolina’s boom-and-bust fiscal cycle, so as to produce more sensible decisions about budgetary priorities without waiting for emergencies and responding to them with stopgap measures. These budget changes will include a cap on annual spending growth and fundamental reform of the state tax code to eliminate complexities, biases, and multiple tax rates in favor of simple, flat-rate taxes on consumed income that will produce more steady annual revenue growth (as well as other benefits).

If your incumbent legislator said something like that, would you still re-elect them? Or would you rather just they keep pretending everything is okay?

Hood is president of the John Locke Foundation.