RALEIGH – If it was easy to manage government budgets conservatively, state and local government would look very different.

If fiscal conservatism was easy, there would be fewer and smaller budget deficits during economic downturns, and more tax money placed in reserve during economic upturns. The trend in spending growth over time would be smoother and lower. Taxes would be lower.

Obviously, it isn’t at all easy to maintain fiscal discipline, which is why North Carolina and many other state governments have had such a rough time of it lately. The dynamics of the political system tend to work against the interests of taxpayers, regardless of how conservative the politicians’ rhetoric may sound in front of each legislative session.

The public choice school of economics describes the problem as one of incentives. The interest groups seeking new spending programs perceive the prospect of large, concentrated benefits if they succeed. Taxpayers, if they are paying attention to legislative politics at all, perceive the prospect of relatively small, distributed costs if the spending lobbies succeed. Sure, taxpayers have an interest in keeping state spending as a whole from growing rapidly. But they often don’t see a clear reason to oppose any particular spending proposal – while potential beneficiaries have strong incentives to invest time and money getting that proposal through the legislature. So, more often than not, the proposal passes.

Recognizing this inherent bias in favor of spending growth, fiscal reformers have sought for decades to create formal political institutions that reduce or eliminate that bias. One popular idea is to give chief executives – be they presidents, governors, or mayors – a line-item veto. The argument is that executives are more likely to advance the cause of taxpayers as a whole than are the representatives of particular House or Senate constituencies.

I don’t think a line-item veto is a bad thing. But I doubt that if North Carolina’s governor acquired it, the level of spending in state government would be significantly curtailed. Instead, the distribution of the spending among the various state departments and programs might be different, because the governor would have another tool to use in shaping the budget to his or her liking.

This isn’t just a guess. It’s a fair reading of the available evidence. In the Spring 2009 edition of Region Focus, the magazine of the Federal Reserve Bank of Richmond, David Van Den Berg points out that 44 of the nation’s governors already have some form of line-item veto, including all of the states in the Fed’s Fifth District except North Carolina.

Van Den Berg reports that the most comprehensive study of the effect of line-item vetoes on state spending was done two decades ago by Douglas Holtz-Eakin, who later became director of the Congressional Budget Office:

In his paper, Holtz-Eakin concludes that the line-item veto may influence the spending level only over the short run – particularly in regard to reducing a current budget deficit – in cases where a governor’s political party does not hold a majority in the legislature. Over time, however, there is no statistically significant effect on the size of the budget in the long run. Instead, it seems that the line-item veto simply alters the composition of spending.

Does that mean that fiscal conservatives should give up trying to reform the process so that fiscal discipline has a better chance to prevail? Not at all. JLF’s fiscal analyst, Joe Coletti, published a new research paper last week that runs the final numbers on the 2009 budget debate and offers seven specific recommendations for reform. They include publishing the budget bill at least 72 hours before state legislators vote on it, requiring a five-year projection of fiscal impact for the budget bill, increasing the minimum amount of the state’s Rainy Day Fund, and placing a constitutional limit on annual spending growth.

We need fiscal-policy reform in North Carolina. But it must be comprehensive and carefully designed. There is no single, easy fix.

Hood is president of the John Locke Foundation