At different points in the state budget process, the political class will overstate and understate the size of any projected gap between expected revenues and desired spending. Right now, we are likely in the overstating phase.
Incentives to exaggerate pervade the process. Lawmakers like to tout scary numbers about the budget at the beginning of the session to make taxpayers more willing to contemplate higher taxes to cover the deficit. The news media like to create drama. And governors sometimes inflate the likely deficit so that when they ultimately propose a budget, they can bring the numbers in somewhat lower than expected and thus look comparatively good.
Certainly there are other times when these same groups feel the need to understate budget problems. At the end of the session, having just passed a budget, lawmakers hope for the best – or manipulate the numbers – so as to downplay the mess they have created. Similarly, governors further into their terms sometimes seek to quash wild speculation about budget crises that make them look incompetent, or otherwise try to deny big deficits that make it too politically difficult for them to propose balanced budgets without hiking taxes or slashing spending.
For the coming 2003-05 budget biennium, it looks like Gov. Mike Easley is in denial mode. While legislative analysts are projecting budget gaps approaching $2 billion for the 2003-04 fiscal year, the governor made a statement last week to the effect that the projected deficit will likely come in at just under $1 billion. This is more than a rounding error. Is Easley trying to cover something up?
I don’t think so. I think that the governor’s number is closer to the truth than the legislature’s. I base this on the fact that in each of the past two years, grandiose predictions of multi-billion-dollar deficits have proven incorrect. For example, last year the real gap between revenues (before legislative tax hikes) and spending (before legislative budget savings) ended up being around $1.3 billion, hundreds of millions lower than media reports had earlier suggested. I see no reason for excessive pessimism this year; for one thing, revenue projections for FY 2002-03 have turned out to be pretty much on the money.
That’s not to say North Carolina isn’t facing another big hole. We are. That’s not to say that Easley and the legislature didn’t shirk their responsibility to pass a sound budget last year. They did. But no one should seek to panic the public into accepting another round of tax hikes (believe me, that’s the goal here) by adding in a lot of “mandatory” spending increases that are anything but and then spewing a lot of fiscal smoke.
North Carolina’s budget can be balanced without tax increases, without stealing from Highway Funds or localities again, and without gutting core programs. This is the truth, but don’t expect to hear it from the political establishment.