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No-tax-hike House budget keeps more money in taxpayers' hands

JLF experts note room for improvement in spending plan that will head to the Senate

Contact: Fergus Hodgson
919-828-3876
fhodgson@johnlocke.org

May 29, 2012

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RALEIGH -- North Carolina taxpayers struggling with a sluggish economy would not have to worry about new taxes or fees under the 2012-13 state budget plan moving through the N.C. House. That's good news for John Locke Foundation budget analysts, who say the plan also has room for improvement.

"Most politicians, pundits, and media outlets have been focusing on the number of dollars heading to particular government programs, setting aside the more important question of how the House budget would affect the people paying the bills -- the taxpayers," said Fergus Hodgson, JLF Director of Fiscal Policy Studies. "The focus on dollars also downplays the important discussion of how the House budget prioritizes toward state government services."

The House's Appropriations Committee is considering today a General Fund budget that would spend more than $20.2 billion in 2012-13. That is almost $800 million or 4 percent more than the plan that came out of the 2011 legislative session. But it is less than the $20.9 billion plan Gov. Beverly Perdue put forward days before lawmakers returned to Raleigh for this year's legislative session.

Much of the difference can be traced to Perdue's proposal for a 0.75-cent sales-tax hike. Republican legislative leaders have said they are not interested in that idea.

It's important to put budget differences in context, Hodgson said. "When we're talking about the state budget, it's critical to distinguish between the General Fund and total state spending," he explained. "Media reports and committee debates focus almost exclusively on the General Fund, even though that fund represented just 38 percent of total state spending in 2011-12. Under the House plan, the General Fund still would represent 39 percent of an estimated $52.2 billion in total state spending in 2012-13."

Once all state spending is calculated, it's clear North Carolina's $51.5 billion in total state spending this budget year represents a record high, both in inflation-adjusted dollars per person and as a percentage of North Carolinians' income, Hodgson said.

"In other words, no one should buy into the argument that recent cuts in the General Fund mean that total state government spending has withered down to the bone in recent years," he said. "On the contrary, spending increases from other pools of money have overwhelmed decreases in the General Fund."

"Any overall savings going into the House's 2012-13 plan would represent only a slight decline from record-high per capita spending levels, regardless of the rhetoric," Hodgson added.

In addition to an analysis of total spending, Hodgson and Dr. Terry Stoops, JLF Director of Education Studies, scoured budget documents to review specific ideas.

In the education budget, Stoops questioned the use of $226 million in one-time money, also called "nonrecurring funds," to boost 2012-13 spending. "The nonrecurring funds represent an elephant in the room," he said. "House budget writers wanted to help local school systems avoid some tough choices in trimming their budgets at the local level. But lawmakers would depend on a robust economic recovery to fill a budget hole next year. Without a strong recovery, lawmakers will face the need again next year to make permanent cuts."

Stoops praised House budget writers for continuing to invest in the state's value-added teacher assessment system, known as EVAAS. "School districts will need EVAAS if the General Assembly moves forward with a merit pay system."

The House budget also eliminates funding for five extra days of public school instruction, an idea first adopted in last year's budget plan. "Given the available research and the additional cost associated with the extra school days, this idea makes sense," Stoops said.

With final votes on the House budget expected this week, the budget process will move to the Senate. "Senators can find good ideas in the House budget plan, starting with the promise to avoid new taxes and fees," Hodgson said. "They also can adopt other proposals that would make the final budget product even better."

For more information, please contact Fergus Hodgson at (919) 828-3876 or fhodgson@johnlocke.org. To arrange an interview, contact Mitch Kokai at (919) 306-8736 or mkokai@johnlocke.org.

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