RALEIGH – Alert the Irony Police!
The State of North Carolina is now scrutinizing the monthly financials for two western counties, Swain and Yancey. They’ve fallen under the fiscal thumb of state officials because a combination of slack revenues and excess expenses has pulled their general fund balances below the 8 percent minimum that North Carolina localities are expected to maintain.
The irony is, of course, that the State of North Carolina has itself never set aside as much as 8 percent of its General Fund budget as a rainy-day reserve. Its target has been 5 percent, and the balance has been below target a number of times over the years. There’s no external authority to slam the state for its lack of fiscal planning – I certainly don’t want the federal government to treat states the way the state treats localities, for a host of practical and constitutional reasons – but that doesn’t mean that the taxpayers of the state can’t jerk back some of the (big) heads in Raleigh.
Inattention to budgetary trends and reserves can’t entirely explain the recent state budget crisis. At the approach of the Great Recession last year, just about every state government in the United States experienced a drop-off in expected revenue and spending increases in public-assistance programs.
The gap between what North Carolina politicians wanted to spend and what taxpayers were forced to part with pretty quickly exceeded 5 percent of the previous budget. So even a full-funded savings reserve wouldn’t have eliminated the need for incoming Gov. Beverly Perdue to cut billions of dollars from the authorized budget to bring expenses and revenues in line. But a healthy reserve would have made her job easier, and spared affected employees and vendors a sudden, painful jolt. If the state had followed spending discipline over the years, there would have been fewer employees or vendors depending on tax funds to pay their mortgages and energy bills.
JLF’s Joe Coletti recently wrote about these issues in a policy paper. He argued that not only should North Carolina double the reserve requirement for state government to 10 percent of spending, but also that the state should adopt several other reforms to improve the budgeting process. For example:
• The state budget bill should be available at least 72 hours before state lawmakers take a vote on it.
• Fiscal policies should be evaluated and adopted on the basis of looking five fiscal years into the future, not just the two fiscal years in a budget biennium. A fiscal note would have helped expose some problems with the latest budget, Coletti said. “Budget writers found $3.7 billion of ‘savings’ through temporary cuts and new funds that will disappear by July 2011,” he said. “This year alone, another $456 million is moved off-budget and funded with federal tax dollars. A fiscal note would expose this budget trickery, which will leave state government with another multibillion-dollar budget hole in the future.”
• Speaking of the budget biennium, Coletti argues that the second year budget ought to be a realistic one, building in program growth rather than assuming flat budgets that rarely occur in reality.
• While budget analysts of all stripes might agree so far, Coletti also argues for a constitutional limitation on the annual rate of spending growth, a Taxpayer Protection Amendment similar to Colorado’s TABOR and spending caps on the ballot this fall in Maine and Washington. The Left dislikes spending caps, arguing that they constrain legislative discretion. Exactly – that’s the selling point.
Perhaps it’s far too late to accuse longtime incumbents of hypocrisy, but in the case of budgeting it’s worth emphasizing that the State of North Carolina is hardly in a position to be credible when enforcing fiscal requirements on cities and counties. Let he who is without deficits cast the first stone.
Hood is president of the John Locke Foundation