JLF Research Archive
Showing items 176 to 200 of 218
After months of delay, the state legislature has enacted a revised FY 2002–03 budget that differs little from the plan originally proposed by Gov. Mike Easley in May. Lawmakers adopted nearly all the governor's $543 million raid on local government reimbursements and highway funds, changing only what percentage will be made up with a sales tax increase. Taxpayers are the big losers—entering the second of what promises to be three straight years of huge tax hikes.
As House and Senate leaders negotiate a final budget package for FY 2002-03, they should resist the usual temptation to "logroll" — to add in spending items favored by the other side — and instead accept the lower of the two chambers' previously approved figures for every department as well as the higher of the two chambers' previously approved fund transfers. With such "reverse logrolling," lawmakers could balance the state budget without a tax increase.
At this writing, the N.C. House is considering a revised General Fund budget of $14.3 billion, balanced largely by raising state taxes by $166 million, raiding $255 million from highway funds and $156 million from local governments, and achieving net budget savings of $478 million. Unfortunately, the news for taxpayers is likely to be worse next year, given the use of some $666 million in one-time money for expenses likely to recur — setting the stage for another tax increase.
Gov. Easley's new incentives proposal would put political appointees into the position of doling out special tax breaks that amount to grants of taxpayer money to private businesses. Because of the unpredictable nature of a free-market economy, such a policy cannot claim to boost overall economic growth. A better policy would be to reduce North Carolina sky-high marginal tax rates on personal income, investment, and capital gains - which are among the highest in the country.
The N.C. Senate is debating its proposed budget, which would reduce authorized FY 2002-03 spending by $585 million. Most of the $1.4 billion budget gap, however, would be closed with one-time revenues, including tax hikes and fund diversions, that will reportedly create a recurring deficit in FY 2003-04 approaching $800 million. Some leaders propose closing that gap with tax hikes, too, meaning that the total annual tax burden will have grown $1.4 billion from 2001 to 2003.
The state legislature is currently considering the idea of "decoupling" North Carolina's income tax code from the federal tax code in order to avoid implementation of several tax reductions associated with a federal economic-stimulus package. But North Carolina's weakened economy desperately needs the $258 million boost that adjusting state taxes on business and personal investment would provide. Policymakers could offset any revenue loss by reducing spending.
Gov. Mike Easley's proposed budget for FY 2002-03 includes $250 million in revenue from a state-run lottery that has yet to be enacted. Among many legitimate objections to the administration's idea are that expected net revenue is inflated by between 37 percent and 62 percent - creating a hole in the budget of as much as $96 million — and that the administrative costs of the lottery tax exceed both the cost of alternative taxes and any revenue "loss" to out-of-state lotteries.
Gov. Mike Easley's proposed budget adjustments for FY 2002-03 help to frame the coming fiscal debate in North Carolina. The plan relies primarily on increasing revenues — including more than $400 million in tax hikes, $250 million from a theoretical state lottery, and $210 million from raiding the state‘s Highway Trust Fund — rather than on budget savings. And contrary to the governor's assertion, his plan would increase state spending in the midst of a fiscal emergency.
With news of a worsening state budget and a weakened state economy, Locke Foundation analysts have updated last year's alternative budget with new projected savings and tax changes for FY 2002-03. The resulting Changing Course V budget would eliminate the deficit, repeal last year's hikes in sales and income taxes, stimulate the economy through additional tax relief and highway investment, and protect highpriority items such as public safety and classroom teachers.
In recent months, public officials have made a range of statements in an attempt to explain persistent state and local budget woes. Many of these assertions do not square with the facts. A collection of graphs and tables shows clearly that North Carolina government is out of line with neighboring states in spending, employment, and taxes. Moreover, revenue growth outpaced personal income growth during the 1990s, while debt service costs are projected to triple over 10 years.
According to state economists, North Carolina will face another budget deficit in FY 2001-02 of between $450 million and $900 million. The state's economy, weighted down by high taxes and poor public services, continues to lag behind the rest of the country. Unlike last year, policymakers cannot exempt such big-ticket items as Floyd relief, tobacco-settlement funds, universities, Medicaid, and bonds from scrutiny - and they should consider repealing last year's tax hikes.
Responding to Gov. Jim Hunt's call for $830 million in emergency hurricane relief, state lawmakers have nearly drained the state's rainy day fund. Calls for state tax hikes or a new borrowing binge have only been put off until the 2000 legislative session. But state leaders have no one to blame for the coming budget crisis but themselves. As national data reveal, North Carolina has hiked spending far more rapidly than the average state with little regard for the long-term impact.
A report released last week by the North Carolina Progress Board contained hundreds of long-term goals for the state. But the text was overshadowed by the comments of board member and UNC-W Chancellor James Leutze, who said the report showed North Carolina would never make it to the top tier of states without tax increases. Leutze's remarks were ill-timed and ill-informed but reflect the conventional wisdom about taxes and social progress. It’s wrong.
North Carolina's 1998-99 state budget grew by between 10 percent and 11 percent (depending on the measurement used) compared with the national average for state budget growth of only 5.4 percent. This follows a similar pattern last year. Growth in spending on Medicaid and education fueled North Carolina's exceptional budget increase. Overall, North Carolina spends more of its budget on education and correction, and less on Medicaid, than the average state. This mostly reflects differences in responsibilities given to local government.
Three new studies should give North Carolina policymakers pause about the state's current economic development policy. A Kenan Institute survey of international firms throws cold water on the notion that selective tax breaks for big business are an effective means of creating jobs. Along with two other reports, it suggests a different growth agenda: improve core public services such as roads and schools, tackle electricity restructuring, and reduce and reform taxes for everyone.
The lengthy budget negotiations between House and Senate this year resulted in a compromise that gave the Senate its spending priorities this year and the House its tax cuts in future years. Overall, when accounted for correctly, the state General Fund budget will top $13.1 billion in FY 1998-99, representing an 11 percent increase from last year. Spending growth outweighs tax cuts in FY 1998-99 by a ratio of 25 to 1 — but the picture improves somewhat in the out years, when House-sought cuts in sales and inheritance taxes are phased in.
Summary: The University of North Carolina Board of Governors has proposed a capital spending plan calling for nearly $5 billion over the next decade to modernize and expand the system. To pay for it, UNC wants the authority to raise funds by the issuance of two kinds of bonds that would not be subject to voter approval. While there is undeniable need to renovate academic buildings, taking care of the worst needs over the next four years would cost about $1.1 billion and could be handled through the existing budget process if repair and renovation were made the top university priority. The need for a large-scale construction program is dubious and does not require the use of non-voter-approved bonds.
State lawmakers will consider today a revised tax and spending plan for the 2001-03 biennium that promises to shove an already teetering economy, buffeted by layoffs and the prospect of war, into a full-blown and painful recession. Its massive tax hike will fuel a healthy increase in wasteful state spending and help to push the state’s tax burden well above that of Massachusetts, California, and all the Southeastern states — and higher than the national average for the first time.
Gov. Mike Easley and other proponents are reportedly preparing to resurrect the idea of a state lottery for North Carolina. The case for this regressive and unpredictable source of revenue has, if anything, weakened in recent months, as other states with lotteries have experienced significant revenue shortfalls. The fact remains that Easley is overestimating the lottery’s potential revenue, thus creating the risk of additional tax increases in the future to make up the difference.
A new plan from N.C. House Democrats to increase state and local taxes by another $633 million in FY 01-02 would further damage North Carolina's already weakening economy. If passed, the tax hikes would push North Carolina's tax burden higher than the national average for the first time in history, and 12 percent higher than the regional average. Our tax burden would far exceed those of such states as California, Illinois, Maryland, Massachusetts, and Pennsylvania.
A plan to increase North Carolina's sales tax by up to one penny, with a corresponding reduction in tax reimbursements to local governments, could endanger the state's economic recovery and threaten tens of thousands of jobs. No change in expected revenue growth or threat to the state's bond rating would have consequences severe enough to justify a $400 to $800 million tax hike on families and businesses whose tax burden is already the highest in the Southeast.
Budget negotiations between the House and Senate typically lead to higher spending, as each side accepts all or part of an item the other wants. Another approach would be to accept only spending common to both budgets, a "reverse logrolling" that lets government expand only when a consensus exists to do so. For FY 2000-01, this approach would save nearly $200 million for future state employee benefit reforms and raise operating spending by only 3.8 percent.
The North Carolina House is debating its version of a 2001-03 state budget this week. Although imposing only a $6 million tax hike in contrast to the $233 million tax increase included in the Senate budget House leaders still managed to increase General Fund spending by 4.4 percent in the coming fiscal year, relying on increased collections of delinquent taxes, interagency transfers, and debt-service savings to balance the books. Now the budget battle really begins.
State employees can't be blamed for seeking better compensation. All workers do. But to fulfill their responsibility to taxpayers, lawmakers should rely on solid data when evaluating pay requests. The vacancy rate in state government is highly exaggerated, for example, while the number of vacant jobs actually being advertised is shrinking rather than growing. Furthermore, national data suggest that N.C. state workers are competitively paid on average and cannot demonstrate the higher productivity that might justify higher pay levels.
Putting the House's FY 2000-01 budget into proper perspective requires careful consideration of how spending should be measured and how it has changed over time. Furthermore, proposed changes in how the payroll and teacher bonuses are budgeted are more than just accounting gimmicks. They represent a net reduction in state savings. The bottom line for taxpayers: if current trends continue, state leaders will be setting the stage for tax increases in the near future.