RALEIGH — The 2004 session of the General Assembly began Monday with Gov. Mike Easley’s $16 billion proposal for a 2004-05 General Fund budget. It helped to bring North Carolina’s fiscal choice into stark relief.
The governor’s rhetoric was, frankly, welcome. The appearance of a small budget surplus for 2003-04 — made up of $146 million in unappropriated funds, $100 million in authorized funds reverted back to the treasury, and about $200 million in higher-than-projected revenues — should not lead to fiscal recklessness, he said. “Now is the time to reinforce our fiscal discipline,” Easley added, warning that the latest good news should not be “a license to return to the overspending days of the past. We must continue to provide government services in the most efficient manner possible.”
The governor restated his support of a statutory cap on annual growth in General Fund spending linked to a 10-year average change in the state’s personal income. His 2004-05 proposal comes to about $15.9 billion, just $14 million less than what he says the cap would allow. Easley also offers regulatory relief and $48 million in tax reductions, most coming from exempting the first $20,000 of a corporation’s income from taxation.
But after three years of signing dramatic tax increases — leaving North Carolina with one of the highest marginal income tax rates in the United States and a higher-than-average sales tax burden for our region — this election-year tax cut hardly balances the scale. The governor’s budget plan does, however, help to advance the case of fiscal reform and restraint in another sense: by clarifying the real fiscal choice that we face.
Based on my preliminary examination of the Easley budget — which is reported to increase General Fund spending by $876 million over the state-funded portion of the 2003-04 General Fund — there is at least $159 million worth of what might be called “purely discretionary” expansion items. That is, if you set aside enrollment increases, teacher bonuses, Medicaid, and even the $252 million in compensation increases for teachers and state employees, you are still left with a sizable chunk of new spending, much of it not just indefensible but risible. There’s $15 million to begin the now-infamous free test track for the motorsports industry near Charlotte. There’s new corporate subsidies, expansions of new public-assistance programs, and, gulp, continued funding for the Global TransPark aircraft graveyard in Kinston.
Going back to last year’s budget bill, I identified $54 million in similar kinds of “purely discretionary” expansions already legislated for 2004-05 — that is, not really expected or required to continue the current (already excessive) programs of state government. I then delved into the Locke Foundation’s alternative budget published last year and added up the reductions and eliminations we proposed that did not include changes in major spending areas such as Medicaid, non-teaching positions in public schools, Smart Start, and tuition increases at UNC. That total for the 2004-05 fiscal year came to approximately $339 million, and included the elimination of redundant programs and agencies, corporate subsidies throughout state government, and grants to unaccountable nonprofits.
The sum of these three numbers — obviously low-priority expansion items plus relatively easy-to-justify reductions in the base budget — comes to $552 million. The price tag for the income and sales tax increases previously imposed by Easley and the General Assembly will come to about $551 million during 2004-05.
In other words, it is false to suggest that this new budget plan doesn’t rely on tax increases. It does, but they’ve already been passed. And now you know what it would take to repeal them immediately. Not major changes in state government, although they would be wise. Not fundamental restructuring of big-ticket programs such as Medicaid and higher education, although that would also be wise.
What it would take is for our leaders to make a different choice, one that makes North Carolina’s economy more competitive and lets North Carolinians keep more of their own money to use as they wish rather than having politicians confiscate and “invest” it in bigger government and dubious economic-development schemes. Which choice will they make?
Hood is president of the John Locke Foundation and publisher of Carolina Journal.