RALEIGH – Gov. Mike Easley delivered his third State of the State Address Monday evening, calling for the General Assembly to raise the state’s cigarette tax “significantly” while proposing new spending programs in education and other areas.
The governor also took credit for “restoring fiscal discipline” and “putting a cap on government growth.” But his proposed budget, due out later this week, will reportedly increase state spending by nearly 6 percent. Administration officials say that, given rapid growth in Medicaid and student enrollment, it would be impossible to deliver a smaller budget.
Impossible? Of course not. Challenging? Requiring tough decisions? Sure.
North Carolina’s chronic budget problems are really an interaction of two distinct phenomena. The first is a pattern of rising costs in service industries such as health care and education, where productivity gains have been relatively scant – despite the revolutionary potential of new technologies and organizational forms – and which make up the vast majority of the expenditures of state government.
In other fields of endeavor, the story of the past couple of decades has been level or declining real costs per unit of output. But in medicine, a combination of promising new treatments and a funding system that shields patients from the real costs of care has resulted in escalating costs, increasingly borne in the public sector via Medicaid and other programs. Meanwhile, in education, a key cost-driver is that policymakers receive public commendation when they worsen productivity, by reducing the numbers of students taught per teacher or by raising average pay for teachers rather than differentiating compensation based on different needs (in certain subject areas or schools) and different levels of performance (measured either statistically or informally by supervisors).
These tendencies for state health care and education expenditures to grow faster than the rest of government, and often faster than personal income, aren’t the only source of fiscal pressure. There are constant demands for government subsidies for corporations, research, and dubious economic-development schemes. There are too many agencies, too many layers of management, and too many positions in state government. There have been major screw-ups in information technology, contract management, and systems of accountability for money flowing to nonprofits and vendors. But health care and education constitute the biggest chunk of spending growth.
The second problem is a failure of leadership. North Carolina has endured a series of public officials in Raleigh who like to make big promises while avoiding big, tough decisions. Want to raise teacher pay by billions of dollars, borrow billions more for university buildings, cut class size, expand Medicaid, start new social programs, bail out hurricane-ravaged regions, and lavish incentive grants on big out-of-state corporations? Well, you can’t. Not without raising the tax burden significantly and/or creating a structural budget deficit.
As fiscal policy analyst Joe Coletti recently observed, it’s false to suggest that North Carolina’s can’t achieve significant savings in major state services. Our Medicaid costs are way out-of-line. Our university subsidies are among the most generous in the nation. The problem is not that our state leaders can’t align budget priorities with our current (and preferably lower) tax burden. The problem is that they won’t.
Hood is president of the John Locke Foundation and publisher of Carolina Journal.