RALEIGH – Defending last year’s fiscal monstrosity and the emerging outlines of this year’s state budget plan, Gov. Beverly Perdue and legislative leaders say that without billions of dollars in tax increases and federal bailout funds, balancing North Carolina’s books would have been impossible.
Republicans opposed tax hikes during the 2009 session, and most expressed concern about the use of short-term federal borrowing to finance long-term state responsibilities (and to evade the state constitution’s requirement that the operating budget be financed by current revenues, not by debt).
GOP members must believe, therefore, that North Carolina could have coped with recessionary budget deficits without recourse to either taxes or federal bailouts. It’s a fair question to ask precisely how such a state budget could have been crafted. At the John Locke Foundation, at least, we had no misgivings about spelling out what we think should have been done in great detail.
The broader issue, though, is also worth exploring: was true fiscal conservatism really feasible here?
Rather than offer idle speculation, I’ll point out that we don’t have to wonder how state governments could manage to deliver basic services at spending levels significantly lower than North Carolina’s. Such states already exist.
Consider the most-recent estimates of the cost of government across the various states. According to the Tax Foundation’s compilation of U.S. Census fiscal and income data, state and local revenues in North Carolina accounted for about 9.8 percent of personal income in the 2008 fiscal year. (When making state-by-state comparisons, you have to combine the state and local categories together because of differences in fiscal responsibility and classification.)
That put North Carolina slightly above the national average of 9.7 percent. But the latter is pulled up by reckless-spending states such as New Jersey, New York, Connecticut, and California. More to the point, North Carolina’s cost of government was substantially above the Southern regional average of 9 percent. Finally, I think the comparison to the country’s second-most-populous state is instructive. In Texas, the state legislature meets every other year, the governing philosophy is conservative, and government costs 8.4 percent of personal income.
If North Carolina had limited its spending to the regional average that year, that would have constituted an 8 percent reduction from what we actually spent. If North Carolina had matched Texas in government costs, that would have represented a 14 percent savings.
During the past year, virtually every state has had to cut back to help balance the books. Although comparable data are not yet available for the 2009-10 fiscal year, it is likely that the proportions haven’t changed radically. North Carolina still has costlier government than that of most of our neighbors and economic competitors. Somehow, those states seem to muddle through okay. Many have stronger economies than we do.
Rather than continuing to raise taxes (that’s the Democratic plan for 2011 if they maintain control of the General Assembly, make no mistake) or subsist on borrowed dollars from an overstretched federal government, North Carolina ought to make larger, permanent cuts in the size and scope of its government. That means cutting non-classroom expenses in the public schools, reducing the state’s excessive and ineffectual subsidy of higher education, reforming our bloated Medicaid program, reserving our correctional facilities for truly dangerous criminals, cleaning up the state’s organizational chart, and stopping the flow of state revenues to private firms, private nonprofits, and “private” foundations.
Are these steps impossible to take? Hardly. They’re just hard. There’s a difference – the difference between political gamesmanship and political leadership.
Hood is president of the John Locke Foundation.