RALEIGH – The North Carolina General Assembly is about to fashion a budget compromise and give it final approval, most likely in just a couple of days. The result of this process deserves no praise. It is an incredibly shortsighted fiscal plan. Here are the letters on the fiscal chart that myopic lawmakers apparently cannot see:
D stands for deficits. Perhaps some just can’t hold this thought during a year of budget surplus, but budget deficits will become more likely in the future if the proposed 2006-07 budget passes with its 10 percent spending spike. North Carolina has a history of boom-and-bust cycles – of large, sometimes double-digit spending increases when times are good followed by precipitous cuts and costly tax increases when times turn bad. It truly is a cycle, the crest leading inevitably to the trough.
Part of the problem is structural. Our “progressive” income tax, with multiple rates, causes revenue to grow faster than income during economic expansions and slower than income in recessions. We should change that, adopting a flat-rate income tax with appropriate exemptions, but in the meantime state legislators should exercise foresight here and not commit the state to new spending obligations that will exacerbate the next fiscal crisis.
U is for unfunded – as in recurring spending items in the proposed budget that are funded with nonrecurring revenue sources such as one-time capital gains receipts or temporary taxes. Even if the 10 percent hike wasn’t inherently problematic, the budget still makes future deficits more likely by devoting hundreds of millions of these nonrecurring revenues to obligations that will persist in perpetuity.
M is for Medicaid. North Carolina has long needed to reshape the funding responsibility for this rapidly growing health program. Counties have to shoulder about 6 percent of the cost, though they have no meaningful control over expenditures. The House offers a pittance of relief to counties. The Senate offers nothing now, promising later to trade Medicaid relief for another round of forcing counties to raise sales taxes to pay what should be state bills. Neither is an appetizing prospect. The longer we delay fixing the Medicaid-funding problem, the more likely it becomes that counties will experience fiscal holes themselves, holes they will fill either by cutting back on legitimate county functions or raising property taxes.
B is for buildings. Both chambers are reverting to form by stuffing new construction projects in their budgets, placating lobbies such as the University of North Carolina. Instead of sprinkling projects of varying priority into the budget this year, simply because the getting is good, lawmakers should form a true multi-year capital plan, ranking projects according to demonstrable need and sticking to it. What’s worse is that lawmakers and lobbies will follow the budget’s passage with a serious push to issue billions of dollars in new state debt for even more capital programs. A similar pattern from the mid-1990s through 2000 jacked up the state’s debt service and helped pave the ways for the 2001-03 fiscal deficits.
Yes, it occurred to me that the speaker of the house, Jim Black, is an optometrist. Perhaps he should drop his efforts to force all kindergarteners to get eye exams and instead order them for his colleagues – and himself. We need leaders who can see pass the end of their noses, and their reelections.
Hood is president of the John Locke Foundation.