Opinion: Carolina Beat

The Shipwreck of State

The 2010 legislative short session is turning out to be a shipwreck. The downturn in the economy has presented new challenges, challenges that could have been used to improve, streamline, limit, and prioritize every program in state government and redefine its role.

Instead, this General Assembly has continued the tradition of spend and tax and shirked fiscal responsibility. Bad decisions over many years have left the state precariously close to real disaster.

The budget relies on one-time revenue for long-term obligations. While the Democratic leadership claims the budget is balanced, it relies on $1.6 billion in federal stimulus money, $1.2 billion in “temporary” tax increases, and $500 million in federal Medicaid funds that Congress may or may not provide. Lawmakers are making promises they cannot keep — unless they impose huge tax increases.

While hard-working North Carolina families are cutting back, legislators are starting and expanding dozens of programs. Why not hold off until the economy is better?

In addition, the state’s savings and reserve accounts are grossly underfunded by $150 million. The state health plan’s long-term unfunded liability is $29 billion with a $400 million deficit this year. The budget leaves a $3 billion shortfall for next year. We easily could be facing a $5 billion shortage when the 2011 General Assembly convenes. That’s 25 percent of a $20.5 billion budget!

Businesses need room to grow and they can’t do it with an oppressive tax system and stifling regulations. Our tax rates are among the highest in the Southeast. We have one of the highest unemployment rates in the country. High tax rates discourage new companies from setting up shop here and prohibit existing companies from growing.

Instead of reducing the tax rates on all businesses, the General Assembly continues to pick winners and losers by offering targeted tax breaks — $50 million in the budget expands old credits while additional giveaways over the next five years would amount to $300 million more.

Polling of likely voters indicates that their No. 1 concern is jobs. It seems that every program proposed this session claims to create jobs — yet most are coming up empty. A claim that offering small businesses a $1,000 tax credit if they hire a new employee for three years would create jobs is just silly. Talk of setting up a venture capital fund to invest in start-up biotech companies with loans guaranteed with taxpayer money is crazy, not to mention unconstitutional.

In reality, most of the job growth has been in government. State government added 34,824 full-time equivalent jobs from 2001-09, a 12.3 percent increase. Government was the only employment sector that grew in 2009, by 1.8 percent, and it expects to grow again in 2010. Government creates only more government, more demand for tax dollars. The free market creates jobs that sustain and drive the economy.

Economic forecasts predict a very slow recovery. Revenue is $391 million less than expected for this year and $703 million less for 2010-11. Yet the General Assembly continues to spend. And as lawmakers run out of money, they borrow.

State Treasurer Janet Cowell has warned that the state’s debt load has been stretched to the limit. And contrary to the constitution, most of that debt has not been approved by the voters. Since Certificates of Participation were allowed in 2000, not a single statewide general obligation bond has been voted on. COPs now make up 24 percent of the state’s debt; by 2014 they will rise to 40 percent. Voter-approved debt in North Carolina will soon be a thing of the past.

North Carolina has been lucky. Our natural resources, ideologically conservative values, robust industries, entrepreneurial spirit, and intellectual moxie have kept us afloat and insulated us from problems other states have faced.

But we have ratcheted up tax rates, spent too much, ignored infrastructure, allowed government to become too much to too many, abdicated responsibility, and spent foolishly.

Becki Gray is vice president of outreach for the John Locke Foundation.