RALEIGH — By the middle of June, state Senate leaders have promised to pass a budget for the next two fiscal years, and they swear it will be a lot different from the one that got through the House just before Memorial Day — less spending, more saving, fewer deals for special interests, and (possibly) even more tax relief.
If so, good (except for the tax part, which I’ll discuss later). The House’s $22.2 billion General Fund plan for 2015-16 is a disappointment. Not a catastrophe, as some conservatives contend, but a disappointment. It’s not a harbinger of the apocalypse. Nor does it signal a return to state government’s high-taxing, free-spending ways prior to conservatives’ legislative takeover following the 2010 election.
But it fails to advance a fiscally conservative agenda in a number of ways. It’s been encouraging to see Senate leaders and Gov. Pat McCrory react to the House proposal with skepticism, to put it mildly. When Carolina Journal asked the governor’s office for a comment on the House plan, spokesman Rick Martinez said, simply, “The governor stands by his budget.”
The Senate and the governor haven’t been the best of buddies over the past two legislative sessions, but it appears that their interests will be more closely aligned, however briefly, during this budget battle.
The two-year House budget, totaling $44.6 billion, would increase spending by 6.2 percent over current levels. That’s $1.3 billion more than McCrory’s proposal, which expands spending by 2.1 percent the first year of the budget cycle and 3.2 percent the second year, less than the anticipated growth in inflation and population.
There are problems with some aspects of McCrory’s budget, but its overall focus on spending restraint is sound. So is its emphasis on raising salaries for starting K-12 teachers to $35,000 (a provision that’s also in the House budget) and targeting higher pay to teachers who take on tougher class assignments and show improved performance (one that, unfortunately, the House did not include).
Moreover, the governor’s plan would replenish state reserves to prepare for the next recession and increase spending for repairs and maintenance of state infrastructure, including highways and public buildings. The recent news that the nation’s economy shrank slightly in the first quarter of 2015 should remind us that it’s been nearly six years since the Great Recession officially ended. Now is not a wise time to shortchange savings accounts or promise tax cuts that may have to be reversed if we experience another economic slowdown.
In addition, the House would put $40 million toward film incentives for Hollywood moguls that expired last year. An extra $70 million is devoted to extended tax credits to real-estate developers, renewable energy companies, and other special interests — a deadweight loss to state taxpayers.
On the positive side, the plan would add $6.8 million to the Opportunity Scholarship Program, allowing more low-income children to attend private schools if traditional public schools aren’t meeting their needs. A $44 million extension of a tax credit for corporate research and development expenses — a misguided priority for the governor — was removed from the House plan.
But do not forget: North Carolina taxpayers, workers, and business owners have benefited from several years of conservative fiscal policy. An unexpected surge in state revenues will trigger new rate cuts in corporate taxes — from 5 percent to 4 percent in 2016 and 3 percent in 2017. The state’s aggressive repayment of a $2.5 billion federal unemployment insurance debt that began shortly after McCrory took office will return roughly $560 million from the government to North Carolinians’ pockets between now and the end of 2016.
There’s plenty of mistrust between the governor’s office, the House, and the Senate. Within days of making an impassioned plea for lawmakers to place $3 billion in bonds to finance infrastructure and repairs before voters, McCrory vetoed several bills that passed the General Assembly by large margins. Working out a compromise between House and Senate priorities — and then finding a deal that McCrory will agree to — could take weeks.
Even so, taxpayers should expect the plan that McCrory eventually signs — possibly in August, or later — will be more fiscally responsible than the one that came from the House.
Rick Henderson is managing editor of Carolina Journal.