If we learned one thing during the devastation and recovery from Hurricanes Florence and Michael, it’s that setting aside more than $2 billion in savings for a rainy day was a very good idea. But that $2 billion didn’t just magically appear. It came from hard decisions, focused priorities, bold leadership, and fiscal discipline. Thank goodness we had it.
Beginning in 2011, the General Assembly recognized opportunity for real economic growth was possible if the right decisions were put into place as the state and nation began to recover from the Great Recession. It started with re-thinking our state budget and role of government and an understanding that lower taxes and fewer regulations would encourage business growth, lead to more jobs, and allow people to realize the fruits of their labor and, in turn, provide for themselves and their families. It worked.
State government spending per person, adjusted for inflation since 2011, has been flat, with no increase in the cost of government. Every budget since 2011 has been kept at or below he growth of inflation plus inflation. Medicaid spending — which was the fastest growing segment of state government and 16 percent of the total budget — has been brought under control and is now responsibly managed. A $2.75 billion debt to the federal government for unemployment insurance was paid off.
We’ve gone from a $600 million budget shortfall in 2011 to budget surpluses the past four years. What have we done with that extra money? We’ve built the state’s savings reserves to the highest level in state history — more than $2 billion. Beginning in 2015, public school teachers have gotten five consecutive pay increases. State employees have had four consecutive pay increases. Just this year, most state employees got a 2 percent pay raise, with a mandated $15 an hour minimum wage. The State Highway Patrol got an 8 percent pay raise, correctional officers received a 4 percent raise, and lawmakers dedicated $15 million for prison security.
There are two sides to the state’s finances — the spending and the revenue. Budget reforms controlled spending. Tax reforms allowed people to keep more of their money to spend how they chose. Since 2011, North Carolinians have gotten more than $15.8 billion in tax relief. The personal income tax has been reduced from a high of 7.75 percent to 5.25 percent, effective in 2019. Legislators allowed a one-cent temporary tax to expire in 2011, cutting the rate from 5.75 percent to 4.75 percent, a $1 billion annual tax break. The corporate tax has been slashed from 6.9 percent to 2.5 percent, the lowest rate of any state that charges a corporate tax. Many credits and carveouts have been eliminated, broadening the base and lowering the rate. The number of North Carolinians who pay no tax was increased when the standard deduction was increased. For a family of four filing jointly, the deduction went from $6,000 to $20,000.
Reining in the growth of government and reforming an oppressive tax system, along with regulatory reform to get government off residents’ backs, education investments focused on kids — not unions — and a strategic transportation investment program to get politics out of infrastructure has worked. It has created an economy with unemployment at a 17-year low, record personal income and GDP growth, and more than 600,000 net new jobs.
Economists agree. North Carolina’s economy is on track to continue strong growth through 2018 and into 2019. Job growth is expected to be the strongest since 2006. The latest revenue reports indicate yet another revenue surplus. A strong economy allows core functions of government to be funded, enables people to work and keep more of their money, and provides for extra revenue to be set aside in savings.
The General Assembly held two special sessions to appropriate money from the rainy-day fund to help hurricane victims. As recovery continues, more of that money will be needed and spent. All or most of it will be gone, and North Carolina will have another rainy day. Will we be ready? Imagine if, instead of a reserve account to count on, lawmakers increased taxes as folks struggle to recovery from the devasting storm damage. The time to plan for the next storm is now. What kind of leadership is in place? Will they replenish that savings reserve, as the General Assembly has done, or will they spend the surplus, as the governor advocated? That $2 billion did not magically appear, and magic won’t get us through the next storm. Or the next. Disciplined fiscal management and bold leadership will. It starts in January 2019.