RALEIGH – The fiscal challenge facing the North Carolina General Assembly just got a lot more daunting.
On Wednesday, legislative staffers briefed state lawmakers on the April revenue numbers. It’s a familiar experience for longtime incumbents, a time when they’re using to getting an “April surprise” from their tax collectors. During economic booms, the surprise is typically on the plus side, and lawmakers typically respond by upping spending levels, pay raises, and the creation of new programs.
But the news this year was entirely different – the April figures on tax collections showed a surprisingly steep revenue decline. For the current fiscal year ending in June, revenues are now projected at $17.7 billion. That’s about a billion lower than what the governor and Senate had previously assumed when working out their budget proposals. It represents roughly an 11 percent drop from last year’s revenue total. And it’s about $3 billion lower than what lawmakers had originally authorized the state to spend in FY 2008-09.
Teachers and state employees should count themselves extremely lucky if health-plan changes and brief furloughs are all that comes of this immediate crisis.
As for the next two fiscal years, 2009-10 and 2010-11, the N.C. House must now cope with much bigger deficit projections than Gov. Perdue and the Senate worked from. The latest revisions lowered revenue projections by another $1.3 billion in 2009-10 and $1.8 billion the following year.
So here’s where that leaves things: baseline spending for 2009-10 is $4.6 billion higher than projected revenue. The projection shows extreme fiscal pressure for several years after that. If you compare the original budget problem, projected right after the November elections, to a stack of dynamite, the problem now looks thermonuclear.
Should past governors and legislators have resisted the urge to jack up spending by 8 to 10 percent a year during the boom years of the 1990s and 2000s? Absolutely. Do their flimsy excuses and budgetary gimmicks (such as funding recurring expenditures with nonrecurring revenues) now seem grossly irresponsible? Of course. Is it long past time for state lawmakers to stop equating government expenditure with solving social problems? You bet.
But in the meantime, adjusting North Carolina’s state (and local) budgets to economic reality means wrenching, disorienting change. It means redrawing the organizational chart of government. It means eliminating whole programs and divisions, including the public- and private-sector jobs attached to them. It means setting firm priorities and sticking to them regardless of how loud the special interests squawk and squirm.
It means focusing public-safety dollars on protecting North Carolinians from violent crime, not on policing personal immorality. It means focusing K-12 education dollars on paying our best classroom teachers more, not on funding administrators, support personnel, fads, social engineering, across-the-board raises, or ineffectual class-size reductions. It means focusing higher-education dollars on slots and programs benefiting lower-income North Carolinians, not on subsidizing wealthy students, professors, or researchers at the expense of average taxpayers. It means focusing health care dollars on a basic safety net of medical assistance and mental-health services similar to those of other states, rather than on one of the most expensive Medicaid programs in the South.
The Left thinks the latest downward revisions in state revenue, reflecting the latest downward revisions in North Carolina’s economic performance, are a justification for even more punitive tax increases than Perdue and the Senate proposed. The Left also wants to regulate carbon dioxide as a pollutant, force utilities to buy “alternative energy,” and make it easier for labor unions to organize North Carolina workplaces. Basically, the Left thinks that North Carolina’s problems can be addressed by making it more expensive to live, shop, consume energy, and create jobs in North Carolina.
In other words, the Left is flirting with lunacy.
In response to this week’s dramatic revenue revisions, all state lawmakers need to accept this basic reality: government has grown far too large for North Carolinians to afford. Cutting it down to a more reasonable size will be painful. The process has been painful for many private companies, nonprofits, and households, too. There is, however, no alternative at this point.
Hood is president of the John Locke Foundation