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Spending reform

The top priority for policymakers throughout the state must be to stop spend-and-tax budgeting. They create new programs when the economy is flush, then raise taxes to pay for those programs when the economy dries up.

North Carolina's constitutional balanced-budget requirement forces choices when tax collections fall, but spending also grows as quickly as tax revenues in good years. Spending has not been based on priorities and program effectiveness, which has left taxpayers with a poor return on their investment in government as measured by the status of health, roads, crime, and education in the state compared with the tax burden. Few programs within government have developed meaningful outcomes against which their work can be measured.

Key Points

• General Fund appropriations per person, adjusted for inflation, increased 79 percent from 1980 to 2010.
• Federal dollars per person in the North Carolina budget, adjusted for inflation, increased 185% from 1980 to 2010.
• State government now spends $3 of federal money for every $4 it appropriates through the General Fund. Budgeted state government appropriations from all sources in fiscal year 2010 totaled $49.3 billion.
• The loss of temporary federal funds and temporary taxes by June 30, 2011, will leave desired expenditures $2.8 billion higher than expected revenues.
• In previous downturns, spending cuts and tax increases totaling 33 percent of pre-recession appropriations were used to keep the budget balanced until growth resumed.
• Few agencies have meaningful outcome-based measures on which to evaluate their progress.
• The John Locke Foundation used state-level data on uniform measures to determine the value of services received in each state for the tax burden imposed on citizens. Graded on a curve, North Carolina tied for 33rd among all states.

Recommendations

1. Define government's role in each policy area. Some policy goals are better achieved by families, charities, or free enterprise.
2. Post budget bills online 72 hours before the first vote. Legislators, journalists, analysts, and citizens should have time to read and understand bills.
3. Provide a five-year fiscal note with each budget. In reviewing spending and taxes, legislators and citizens should see more than a single year's impact of the most important piece of fiscal legislation passed each year.
4. Expand the rainy day fund to 10 percent of General Fund appropriations in the most recent fiscal year. Setting aside money for the future limits the growth of government and means less money will be needed to offset revenue dips. Based on past experience, at least 10 percent is needed to avoid further tax increases. Current law limits the savings reserve account to five percent of General Fund appropriations, but even that modest level has never been reached.
5. Pass a constitutional amendment to limit spending growth. Laws passed by the current legislature are not binding on future legislatures, and other attempts to instill discipline without the force of a constitutional amendment have been brushed aside.