RALEIGH – As lawmakers, reporters, and political observers assess the winners and losers in the long-awaited 2009-11 state budget deal, I will advise my readers not to pay attention. At the moment, it is a waste of your time.
You see, the spending numbers bandied about during the House and Senate floor debates, and even the ones contained in the official budget documents, are incomplete and misleading. They don’t include a breakout of the $1.3 billion in new federal bailout funds that North Carolina will use to paper over its budget deficit. That’s money that will be spent, on programs ranging from Medicaid to the public schools, but is not reflected in the spending totals you’re reading about.
So, for example, several lawmakers and commentators have claimed that the new General Fund budget will spend $3.9 billion on health and human services in FY 2009-10, representing more than a 20 percent cut from the 2008-09 fiscal year.
This is doubly exaggerated. First, the 2008-09 authorization never happened. The Easley and Perdue administrations were compelled by shrinking revenues to trim state spending well in advance of legislative action. The true HHS spending total last year appears to have been about $200 million less than authorized.
Second, and far more significantly, a large component of that $1.3 billion in new federal funding was intended to cover Medicaid and other HHS expenses previously financed with state dollars. How much? I can’t get anyone to confirm a figure for me. But the true spending on General Fund programs within HHS in 2009-10 will be far, far above $3.9 billion.
There is probably going to be some real year-to-year cut in HHS spending. But in other cases, such as the University of North Carolina, it doesn’t seem likely that there will be any reduction at all once federal funds are properly accounted for.
Let me try to explain what happened as simply as I can.
In summer 2008, not foreseeing the coming economic recession, legislators and the Easley administration adopted a $21.4 billion spending plan. Shortly afterward, it became obvious that revenues weren’t going to meet projections, so the Easley administration began cutting back.
By the time Gov. Perdue took office, the fiscal situation had worsened considerably. If one simply took the now-outdated $21.4 billion spending plan and adjusted it for expanded growth in program caseloads, the resulting “continuation budget” for FY 2009-10 would have been $22.1 billion. That’s the figure some are citing as the baseline from which the new budget was written, which is how they come up with gargantuan estimates of fiscal deficits and budget cuts. It is, however, entirely fictional. The true spending total for FY 2008-09 was about $20.3 billion, a 5 percent cut from the authorized budget. Obviously, North Carolina survived it.
Now move ahead to the 2009-10 fiscal year. Budget officials projected that preexisting state taxes and fees would bring in approximately $17.6 billion. As I said, another $1.3 billion was available in new federal funds, yielding total revenue just shy of $19 billion.
Here’s how the legislature and governor responded in the new budget deal. They approved $1 billion in higher tax rates, raised $56 million in fees, swiped $83 million in local revenues, transferred $98 million from other state accounts, and assumed that increased tax-code enforcement would squeeze another $210 million from taxpayers. These actions added $1.4 billion in revenue, all immediately spent.
The net result? The true General Fund spending total this year will be just over $20.3 billion – slightly above the true spending total for 2008-09.
So when you see big headlines and hear scary news broadcasts about the General Assembly’s massive new round of budget cuts, just ignore them. They are meaningless.
As far as winners and losers are concerned, I can identify two groups right now: taxpayers, who’ll be at least $1.2 billion poorer because of the new budget; and state politicians, including Perdue and many legislative leaders, who had once promised to make state government more transparent.
The 2009 budget process was anything but transparent. As written, the 2009-10 budget is flat-out opaque. Its creators hope you won’t be able to see through it, or through them. Prove them wrong.
Hood is president of the John Locke Foundation