RALEIGH — I’m quite certain that there are many North Carolina state senators who know perfectly well that the state budget they are debating this week for the 2003-05 biennium won’t do the job.
Two weeks ago, the NC House took up and quickly passed a $15 billion General Fund budget for next year. Patting themselves on the back for their speed and decisiveness, House leaders basked in the glowing editorials and not-so-secretly expressed their relief at having done their part before the fiscal roof caves in.
You see, it is all around the state capital that state tax collections remain weak. Revenues were about $120 million below forecast in March, largely due to poor performance in the corporate sector, and many expect the shortfalls to continue into April and beyond. This is unlikely to be a big deal in the short-term. There remain enough pennies under the cushions to get North Carolina’s state government through until June 30. But continued sluggish growth in revenue could open up an additional hole in the FY 2003-04 state budget — into the hundreds of millions of dollars — that the House’s package of sales and income tax increases won’t cover.
Enter the Senate plan. It adds in a number of spending items — from clean water funds and vocational education positions to excessive Medicaid spending — that the House had trimmed. It covers the difference with a combination of new sales and business tax increases and some old, familiar smoke and mirrors (including some $51 million in FY 2003-04 and $87 million the following year from “increased compliance” with the tax code). If this jury-rigged contraption becomes law, taxpayers will part with about half a billion dollars that they would otherwise have kept of their own money to spend as they wished. Oddly, supporters are calling the package a “win” for families with children — who apparently don’t buy meals, clothing, furniture, books, toys, candy, or soft drinks in North Carolina (all of which would be taxed more by the Senate).
Don’t get too wedded to this latest budget “solution,” however. The House has passed the hot potato to the Senate, who is now in the process of passing a somewhat bigger and hotter potato back to the House. But the April revenue figures will come in sometime soon, probably during the coming House-Senate conference. The relevation of a potentially wider deficit projection for FY 2003-04 will, I suspect, lead the conferees to throw up their hands, point to the “draconian cuts” already enacted (state spending will actually grow by as much as $750 million in FY 2003-04), and propose yet more tax increases.
Some are saying that North Carolina’s supercharged budget process this year reflects efficiency. No, it reflects deficiency — in leadership.
Hood is president of the John Locke Foundation and publisher of Carolina Journal.