RALEIGH – Watching the process of enacting a state budget plan for FY 2006-07, it isn’t hard to see the good, the bad, and the ugly. Indeed, one can even see a bit of The Good, The Bad, and The Ugly.
Fans of that classic Sergio Leone western know that the plot is in part based on play-acting by the Good one (“Blondie,” played by Clint Eastwood) and the Ugly one (“Tuco,” played by Eli Wallach). Tuco has a price on his head. Blondie turns him in to the authorities, collects the bounty, then positions himself to help Tuco escape the noose. They ride off together to the next town to pull the same trick.
There has always been something similarly contrived about the state budget process in North Carolina. Leaders of the House and Senate make a big show about disagreeing on certain points of fiscal policy – a tax change is bigger in one version, smaller in another, or a specific program expansion or capital project gets inserted in one and not the other – even though their fiscal approach as a whole is essentially the same each year. After each chamber passes “its” budget, the conference negotiations begin. These can appear to be contentious, sometimes even are. But the stakes are relatively minute. Most of the important decisions, about how much of North Carolinians’ income to confiscate and how much of that to spend, have already been made. At the end, each chamber typically accepts much of what was in the other chamber’s original proposal, as if this is some kind of concession (what is conceded is what lawmakers do not in fact own: a little more of the taxpayers’ earnings).
As the NC House finalizes its version of the budget adjustment this week, it’s worth considering some of the good, the bad, and the ugly elements that seem destined to become law:
The Good
• North Carolinians will receive some temporary tax relief. Under current law, a half-cent sales tax originally enacted in 2001 will expire on July 1, 2007. An 8.25 percent income-tax rate falls to 8 percent in 2007 and disappears in January 2008. The final budget bill this year will speed up this scheduled phase out, generating a one-time savings for taxpayers in the hundreds of millions of dollars (the exact amount to be determined by negotiation). North Carolina needs sizable, permanent tax relief, but you take what you can get.
• The House budget contains a significant reduction in the transfer of dollars from the Highway Trust Fund to the General Fund. The Senate budget contains a smaller reduction. The transfer ought to be abolished, thus putting some $250 million a year into highway construction and maintenance, but any progress here will be welcome.
The Bad
• The House offers counties $53 million to offset their expected fiscal responsibility for Medicaid growth this year. The Senate does nothing to alleviate the Medicaid burden on localities. Neither is an acceptable response to the current problem of forcing counties to use $459 million in annual property and sales taxes to finance a program over which they have little control. These local dollars would be better spent on truly local projects such as school construction. The alternative will be continued property-tax increases and legislative initiatives to authorize school impact fees, new real estate taxes, and higher sales taxes.
• Public schoolteachers are going to receive much larger annual raises (8 percent) than other state employees (starting at 5 percent). There is no public policy justification for this approach. Both groups should receive much smaller cost-of-living adjustments, plus larger amounts to be awarded on the basis of individual merit and longtime vacancies.
The Ugly
• Overall, state spending is going to grow by about 10 percent in FY 2006-07 – most of that financed with one-time revenue sources. The 2006 budget debate demonstrates why North Carolina continues to experience and boom-and-bust fiscal cycle: in years of strong revenue growth, lawmakers cannot control the urge to placate spending lobbies and buy a good headline or two as elections approach.
There is one big, obvious difference between the movie and the reality: the former had that really cool Ennio Morricone score. On Jones Street, the whistling sounds tend to be of the graveyard variety.
Hood is president of the John Locke Foundation.