As you may have heard, there is good news out of the state capital: General Fund revenue is now projected to grow significantly faster than budget officials and legislative staffers had once thought. The bad news, however, is that within minutes of this announcement, the spending lobbies and special-interest groups began jostling to get their “share” of the welcome April surprise.
I doubt House Speaker Tim Moore, Senate leader Phil Berger, and other leading lawmakers need to be reminded that it was their own fiscal discipline that helped bring them to this point. Maintaining it will keep North Carolina moving forward while building the foundations for long-term economic growth.
Let’s break down the numbers. Rather than falling some $271 million below the original projection, revenue will exceed it by $400 million for the current fiscal year ending in June. Factoring in unspent dollars reverting back to the General Fund, that will likely produce a budget surplus of about $850 million. By law, half this amount must go into state reserves — roughly $212.3 million into the rainy-day account and $212.3 million into the account for repairing and renovating state buildings.
I think prudence dictates higher amounts into both accounts. North Carolina’s current rainy-day reserve of $652 million would be woefully inadequate to the task if either a recession or a major hurricane hit the state within the next year or two. As for repairs and renovations, some of the $1.45 billion in non-highway bonds that the McCrory administration wants to put on the ballot this fall would fund major repairs and renovations at colleges, universities, office buildings, parks, and other state facilities. I suggest that we pay for some projects in cash rather than credit.
If lawmakers put, say, $400 million into savings and $300 million into repairs and renovations for the 2015-16 fiscal year, that would leave about $150 million for other one-time expenses or to add to the credit balance. If lawmakers put another $300 million in each in 2016-17, that would put North Carolina’s rainy-day reserve at $1.35 billion and potentially reduce the amount of the non-highway bond package by about a third.
As for the operating budget, officials now forecast $22 billion in General Fund revenue for FY 2015-16 and $22.6 billion for FY 2016-17 (these are available revenues after accounting for scheduled cuts in the corporate income tax of $109.1 million and $349.1 million, respectively). These are healthy numbers. But they do not eliminate the need to set firm priorities and stick to them.
For example, the General Assembly should follow through on its promise to raise the starting teacher pay to $35,000 (costing $42 million next year) and continue “front-loading” the salary schedule (costing $68 million) so that teachers reach $50,000 by their 15th year. They should also give a cost-of-living raise and begin offering veteran teachers significant pay bumps for taking on more responsibilities, filling hard-to-staff positions, and producing exemplary growth in student achievement. Lawmakers should absolutely not backtrack on their prior reforms of the salary schedule, as the North Carolina Association of Educators dearly hopes they will. The state is finally out of the business of withholding significant pay until late in a teacher’s career and paying bonuses for graduate degrees of little relevance to classroom instruction. Such archaic practices belong in the dustbin.
There are other spending priorities, as well. I have long argued that the court system — the first and foremost of state responsibilities — truly needs more funds. But I also think the General Assembly should consider some additional tax relief for families, in the form of larger per-child tax credits, to go along with the cuts in corporate and payroll taxes already scheduled for the next two years.
Conservatives should never fall into the trap of using tax dollars to try to buy off spending lobbies or placate liberal critics. No amount of money will ever be enough to accomplish those tasks. Rather, the state budget should be used to fund basic services and otherwise leave money in the hands of the North Carolinians who originally earned it, to spend as they wish.
John Hood is chairman of the John Locke Foundation. Follow him @JohnHoodNC.