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The John Locke Foundation
is a501(c)(3) nonprot, nonpartisan researchinstitute dedicated to improving public policy debate in North Carolina. Viewpoints expressed by authors do not necessarilyrefect those o the sta or board o the Locke Foundation.
200 W. Morgan, #200Raleigh, NC 27601
phone:
919-828-3876
ax:
919-821-5117www.johnlocke.org
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orth Carolina’s budget exploded between scal year 2004 and scalyear 2008, rom a low o $2,037 per person adjusted or infation toa high o $2,336 per person, or 15 percent. That translated into $5.8billion o new General Fund appropriations.Even beore the General Assembly passed the scal year (FY) 2009 budget,tax revenues had started to slow, but instead o setting money rom the previ-ous year’s surplus into the rainy day und as required by law, legislators spentit. This continued the long pattern o expanding budgetary commitments ingood times and helped set up the scal crisis conronting Gov. Bev Perdue andthe legislature this term.This
Spotlight
and the accompanying budget proposal
1
lay out ways to meetthe immediate scal challenge, reorm government, and set the state on a moreresponsible path or uture budgets. The proposal would spend $18.8 billion in
No. 370 – March 16, 2009
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Responsible savings and reorms
key acts:• th budg propol oulind hr rdu ppro-priion in l r (y) 2009-10 o $18.8 billion, $2.6 billion l hn hnl budg or y 2008-09, nd imilr o h budg or y 2006-07.• In hi propol, pr-pi pnding djud or infion o $1,969 r-min highr hn in y 1997-98 or n r bor.• thi propol brodn h x b, limin pil rdi nd bui-n ubidi, rdu h orpor x r o 6 prn, nd providnrl $400 million in x rli or houhold invmn in duion,hlh r, nd hild-rring.• thi propol inj $200 million h r ino h s Hlh Pln,wih h rmindr riing rom djumn o h pln nd mplo on-ribuion. I lo pu $300 million h r ino h mplo pn-ion und. Moving boh o dir onribuion modl will limi h nd oruur injion o xpr und.•trnprn nd ounbili r imporn lmn o hi budg, i n opion or xpr o onribu mor hn lgll rquird hroughxion.
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$2,124$2,151$1,953$1,969$2,336$2,255$2,037$2,139$1,949$1,822$2,037$2,311$2,089$2,135$2,248$1,8531996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
FY 2010, $2.6 billion less than the FY 2009 budget, and slightly less than the $18.9 billion in FY 2007. It would reduceinfation-adjusted spending to an estimated $1,969 per person, still higher than any budget prior to FY 1999.
Bi Prinipl
This proposal is based on the recurring spending rom FY 2009 as passed in July 2008. It has no infationary in-crease in appropriations and no salary increase or state employees or teachers. Revenue is expected to remain fat inFY 2010 and to expand 4.0% in FY 2011. Given the uncertainty o Medicaid projections, this budget has no increase inappropriations. All other changes are based on the ollowing our principles:
sing Priorii.
Every budget is an exercise in setting priorities because there is never enough money to payor every program. When revenues all, as they inevitably do every business cycle, the need to prioritize spending iseven more acute. This includes paying or teachers instead o administrators, raising tuition at community collegesand universities, and using ederal stimulus money that Gov. Perdue will take anyway so it does not simply delay a s-cal reckoning. Included in this are two availability changes — redirecting all tobacco settlement unds to the GeneralFund and withdrawing $309 million rom the Saving Reserve Account. Savings in FY 2010 rom these actions total$2.0 billion and availability increases $449 million.
trnprn nd aounbili.
State government must accept its responsibilities, use taxpayers’ money inull sunlight, and hold programs accountable or results. This budget proposal directs unds to make the workings o government transparent to the public, legislators, and managers in executive agencies. Despite ending a number o programs that have not proven their worth, spending in this area increases overall because o three actors.First, the budget continues the transer o the non-ederal share o Medicaid rom a burden split between the stateand counties (who have no ability to set policy) to the state alone, a $336 million expense in FY 2010.Second, the budget sets aside $200 million in FY 2010 to cover one-third o the projected shortall in the State
s appropriion Pr Pron, adjud or Infion, y1996-2011
Projections
Health Plan. The rest would come rom state employee contributions in the orm o higher premiums, deductibles, orco-payments. To mitigate uture increases and limit the uture obligations or retiree health costs, now estimated at$30 billion, the state should transition to a dened-contribution health benet with health savings accounts (HSAs).Third, the budget sets aside $300 million each year to cover the projected shortall in the state pension plan. Again,there is potential to migrate to a dened contribution plan or these benets. Such a plan could still be managed in thesame way as the current plan, but would limit the need to make similar large injections o taxpayer money to osetpoor investment returns.Recurring spending increases $31 million, and nonrecurring spending increases $550 million. The savings reserveaccount withdrawal is to oset this nonrecurring spending.
Budg nd tx irn.
Government expenditures are to improve the public welare, not the welare o spe-cic groups. When community colleges oer subsidized training to selected companies, certain groups get scholarshipsto universities, agricultural and urniture companies get help marketing, companies get special tax breaks and grants,or the state tries to pick economic winners and losers, every other taxpayer bears the burden. Ending governmentexpenditures on behal o avored groups saves $621 million in FY 2010. Repealing targeted tax breaks in order tobroaden the tax base and lower rates and providing tax credits to oset penalties in the ederal tax code have the neteect o reducing availability $131 million but making the system more coherent.
L In, ir Ou.
Finally, the state survived or more than two hundred years without a number o programsor with programs at smaller sizes than the last biennium approved. Repealing those expansions or new programs willsave $160 million in FY 2010.
Poli Diriv
Slowing government growth in uture to the rate o population growth and infation, so as to keep per-capita costconstant over time, will require policy changes beyond those that have an immediate scal impact at the state level.Some o these changes include:
Implement a Taxpayer Protection Amendment.
From this new budget baseline, limiting state government spend-ing growth to the level o population growth and infation can keep government at a reasonable size or the nexteconomic downturn. It can also create an appropriate level o saving to oset uture revenue declines.
Create a Tax-Me-More Fund.
Taxpayers can give more money to the ederal government and to local governments.Other states allow donations rom taxpayers. I North Carolina taxpayers think the state’s problem is a lack o revenue, they would then be able voluntarily to contribute more.
Make government transparent.
State government activities should be in the open, as should spending and rev-enue. This inormation should be available online in structured ormats that can be used by third-party organiza-tions.
Make government accountable.
A budget reorm and accountability commission that makes recommendations ona number o programs that are inecient, ineective, or inappropriate uses o taxpayer dollars should start. Thegovernor also needs more eective measures o what constitutes success or state agencies, with a ocus on whatthey actually accomplish.
Remove the cap on charter schools.
Existing charter schools have long waiting lists, many counties remain with-out a charter school, and there is little government money available to und needed vocational education options.Even President Barack Obama has spoken avorably about charter schools. Charter schools also provide an op-•••••
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