Dear North Carolina Candidate for Public Office:
I’d like to humbly offer you some advice about a sensible public agenda for North Carolina. My recommended agenda is comprehensive, yet reasonable, and it addresses five key areas: education, roads, state spending, state taxes, and government efficiency. Even if you don’t agree with all components of my agenda, hopefully it will stimulate your thinking about public policy.
1. Education: More money is being spent in North Carolina on K-12 education, but one problem is that much of it doesn’t reach the classroom. Fully 36 percent of North Carolina’s K-12 public education budget is spent in noninstructional areas, excluding food service.
If half of this noninstructional spending could be re-directed to the classroom, instructional spending statewide would increase by more than $1 billion annually. I recommend following the lead of the private sector and using modern technology to cut layers of middle management in the public schools as a way to reach this goal.
2. Roads: Along with education, the most important economic development tool is roads. But after years of being ranked at the top of states, North Carolina’s road conditions are now calculated to be the fifth-worse among the states.
The reason is simple—road use in our state is increasing at double the rate of road spending. We’re simply not putting enough resources into roads.
Three changes could fix this. First, end any transfers of monies from the Highway Trust Fund to the General Fund. Drivers are paying a user fee through their state gas tax, and these funds should be spent on roads. Second, make sure North Carolina gets back all the money it sends to Washington via the federal gas tax. Right now we’re short by more than $150 million annually.
Third, if the above two measures aren’t sufficient, consider an increase in the state gas tax. I know this would be a hard sell, but adjusted for inflation, the state gas tax today is lower than it was a decade ago. And studies show that higher gas taxes, if they are spent on roads, actually contribute to faster economic growth.
3. State Spending: The biggest budget-buster in state spending is Medicaid. Medicaid spending in North Carolina jumped 168 percent in the past decade, twice as fast as other state spending. Medicaid spending now exceeds state spending for K-12 education.
A way to control the growth of Medicaid is to “voucherize” the program—that is, convert Medicaid funds into health-insurance vouchers for low-income recipients.
This would help in three ways. First, it would greatly reduce the open-endedness of the current Medicaid program and provide more cost predictability. Second, it would allow the state to directly adjust the quality of assistance by changing the size of the voucher. Third, by working through private policies, health-care vouchers force Medicaid users and providers to confront choices and recognize that funds for health care are not unlimited.
4. State Taxes: Our state tax system is in desperate need of reform. It’s complicated, unresponsive to structural economic changes, and unfair in the eyes of many.
I recognize that a massive overhaul of state taxes is “political heavy lifting” at the extreme, because many toes would be stepped on in making any major changes. Yet it’s still worthwhile to have a goal of what the best system would be.
My best state tax system would be a flat income tax. I would eliminate all state taxes except the gas tax and replace them with one simple flat-income tax system. In a nutshell, households would get one large deduction based on household size and then pay a single rate on the rest of their income. Businesses would pay the tax on their income after expenses, where capital costs are fully “expensed” in the year they occur. With an $8,000 per-person deduction, the flat rate would need to be about 9.5 percent to produce today’s state revenues.
5. Government Efficiency: Everyone has heard stories of government agencies wasting money, perhaps by hurriedly spending their unused budget at the end of the fiscal year so they can ensure a bigger budget next year.
A quick way to reduce government waste is to give government workers an incentive to do so. The popular term for this is “gain-sharing.” Gain-sharing means workers in government agencies that meet or exceed agency objectives, without spending the entire budget, receive part of the savings as salary bonuses. Thus, gain-sharing gives government workers a financial stake in improving government efficiency.
Thank you for considering these ideas.
Respectively yours,
Michael L. Walden