RALEIGH – All public officials are for “fiscal responsibility.” Its virtue is one of those things that ought to go without saying – but doesn’t, particularly during election time.
The problem is that public officials don’t agree about the definition of the term. Some cloak themselves in “fiscal responsibility” regalia as they vote to raise taxes, arguing that without more revenue they will either have to cut critical public services or run deficits, both irresponsible acts of fiscal policy. But other politicians argue that the responsible fiscal policy is to vote against tax hikes, particularly in a weak economy, and to set better priorities among the government’s many spending programs.
Despite persistent disagreements, perhaps I can get virtually unanimous agreement on two pressing matters of fiscal responsibility in North Carolina.
Beginning in the 1930s, leaders of our state government embraced the then-fashionable principle of eugenics and identified thousands of young North Carolinians who were deemed to be unworthy of reproduction. Some suffered from mental illnesses. Others were wrongly believed to be mentally ill. They were forcibly sterilized by the state, some as recently as the early 1970s.
Not all past wrongs can be righted today. But North Carolina’s eugenics program didn’t happen centuries ago. Its perpetrators aren’t lost in the mists of history. Many of its victims are still alive. Unquestionably, they are owed compensation. And because they were sterilized by state action, some of this compensation should come by state action.
Gov. Beverly Perdue’s proposed budget appropriates just $250,000 to set up a foundation for sterilization victims. But at least she’s doing something, unlike the previous administration.
Less gruesome, but no less compelling, is the case of pension benefits owed to North Carolina teachers and state workers. For decades, state government has hired employees with the promise of a defined pension benefit upon retirement. To make this promise meaningful, state legislatures appropriated regular contributions into the state pension fund, whose managers in turn invested these taxpayer dollars to generate the returns needed to pay future benefits.
Note that teachers and state employees were not entitled to a particular annual employer contribution towards their retirement, much as private-sector workers receive under various defined-contribution plans. Instead, they were promised benefits. It was the legislature’s responsibility to ensure that sufficient funds were being accumulated to meet the obligation.
During recent bull markets, legislators have found it expedient to reduce the employer contribution to the pension fund, figuring that asset appreciation was doing the job for them. This wasn’t necessarily the wrong choice, given alternative uses of tax dollars at the time. But it did risk the health of the pension fund if a big bear market were to show its angry head.
Roar! It’s here. And North Carolina’s pension fund is now flirting with the 100 percent mark – that is, it is likely that without significant new investment, assets will soon fall below the level necessary to pay promised benefits in the long run, based on prudent assumptions about future returns.
State Treasurer Janet Cowell says the state needs to add $358 million over the next two years to keep the pension fund above the 100 percent line. Gov. Perdue offered only $42 million. The governor did make sure her budget paid North Carolina’s debt service, however, and the concept isn’t much different. The state is legally obligated to pay principle and interest to its bondholders. And it is legally obligated to pay pension benefits to its retirees.
State taxpayers are not similarly obligated to subsidize private businesses, provide higher-than-average Medicaid benefits, give teachers a pay raise, fund nonprofits and arts organizations catering to the well-to-do, or subsidize the child-care arrangements of middle-income families. Yet the state budget devotes hundreds of millions of tax dollars to such expenditures.
Among other things, fiscal responsibility requires that the state fully fund its core functions and obligations with available revenues before making any other fiscal-policy decisions. If that’s what public officials meant when their campaign ads tout their “fiscal responsibility,” they’d truly deserve the public’s commendation rather than the public’s condemnation.
Hood is president of the John Locke Foundation