RALEIGH – Somewhere, Joe McCarthy is smirking.
How many names were on the Wisconsin senator’s famously pocketed list of known Communists in the State Department? It seemed to depend on when and where he was speaking at the time.
Similarly, how many of North Carolina’s public employees will be laid off if the Republican state budget is enacted? Depends on whom you ask, and when.
When the outlines of the GOP budget plan first emerged, critics warned that more than 10,000 state and local employees would lose their jobs as a result. By last week, House Democratic leader Joe Hackney put the job losses at 18,000 in education alone and more than 20,000 overall.
That wasn’t high enough for Gov. Beverly Perdue. At a state Democratic Party fundraiser over the weekend, she claimed the Republican budget would lay off 30,000 public employees. “We are about to see the largest public layoff in North Carolina and maybe in American history,” the governor said.
Sound ridiculous? Good. That shows you’ve been paying attention.
In the real world, there is no conceivable way that the Republicans’ $19.1 billion General Fund budget would result in 30,000 state and local employees losing their jobs. None. Nor would Perdue’s $19.9 billion budget save 30,000 government jobs. Not even close.
How did the governor concoct such a ludicrous claim? As far as I can tell, she and her staff began with some questionable assumptions, then mixed up the terms “positions lost” and “layoffs,” then forgot to subtract the positions eliminated in her own budget plan, and then forgot to subtract an estimate of private jobs created by the Republican plan, which includes lower income and sales tax rates.
That’s how Perdue turned what is likely a modest positive number – the net short-term effect of the GOP budget on North Carolina employment – into a massive negative number. It was a prodigious feat of political calculation, though a colossal failure of economic miscalculation.
Let’s examine these steps one at a time.
No one claims that the GOP budget specifically eliminates tens of thousands of positions. Rather, Perdue is assuming that hundreds of millions of proposed budget savings in the form of “managerial flexibility” for schools, colleges, universities, and state agencies would lead inevitably to that result. She assumes that they would adjust their budgets overwhelmingly by eliminating positions. This is highly unlikely. In both the public and private sectors, managers tend to respond to cuts first by reducing non-personnel expenses such as supplies, travel, maintenance, and facility costs. North Carolina public managers will certainly eliminate many positions, but it won’t be their first resort and will initially involve contractors and part-timers, not full-time positions.
Next, Perdue conflated the concepts of lost positions and layoffs. They are not the same thing. As House Majority Leader Skip Stam pointed out, annual attrition will supply many of the positions to be lost. In the public schools alone, between 10,000 and 11,000 teachers leave their jobs in a given year. Some retire. Some move. Some leave the profession entirely, while others leave temporarily (to have children, for example, or go back to school). Thousands more choose to leave other jobs in public schools, colleges, universities, and other state agencies.
Deciding not to fill a government job that becomes vacant in the coming year is not the same thing as laying off a government employee. It’s not even the same thing as increasing state unemployment. Some who would have filled those positions in the coming year will take other jobs instead. Others aren’t in North Carolina yet, or will move elsewhere.
The true number of layoffs implicit in the GOP budget plan is probably a few thousand, not 20,000 or 30,000. Oh, and because the estimate is for the budget plan as a whole, it counts some of the jobs that Perdue had already proposed eliminating in her own budget, which shares many features with the Republican one.
Finally, what about the other side of the ledger? Democratic and liberal critics seem to think government spending is all gain and no pain. But money taken in taxes cannot be spent on other things. Taxes have costs that must be weighed against any benefits from the government services they fund.
The Republican plan assumes an end to sales and income taxes first imposed in 2009. It also contains a $230 million reserve for tax cuts, likely some combination of corporate and personal income tax relief. In April, three researchers at UNC-Chapel Hill’s Center for Competitive Economies released an analysis of an earlier version of the GOP tax plan, including the full elimination of the one-cent sales tax, expiration of personal and corporate surtaxes, and other business-tax reductions.
The UNC team estimated that in FY 2011-12, these tax provisions would generate about $1.9 billion in higher industry output and boost job creation by about 16,000. When fully implemented, in FY 2012-13, the jobs total would exceed 19,000.
I’m not going to make the same mistake that Perdue did and compare apples to oranges. Because the governor’s budget would let a quarter of the sales-tax hike sunset and cut the state’s corporate tax rate, I can’t say that the GOP budget would create 19,000 more private-sector jobs than Perdue’s budget. It’s probably more like 13,000. Furthermore, some of those jobs may be filled by newcomers or job changers, so we can’t say for sure that 13,000 currently unemployed North Carolinians would obtain jobs because of the Republican tax package.
Still, it is highly likely that the number of jobs the GOP plan creates in the short run is greater than the number of public employees who will actually be laid off. In the long run, the economic benefits of shrinking North Carolina’s government to a manageable size will be significant.
As for the “largest public layoff in American history,” North Carolina isn’t in the running, governor. But if you keep telling whoppers like that one, you’ll make it more likely that the history-making layoff will be your own, in 2012.
Hood is president of the John Locke Foundation.