General Assembly leaders agreed to a bottom-line budget number last week, kicking off the biennium budget season. Senate Leader Phil Berger (R-Rockingham) and House Speaker Tim Moore (R-Cleveland) announced that General Fund spending would increase by 6.5% in the first year, bringing the bottom line number for FY2023-24 to $29.7 billion. This lies between two popular expenditure limit calculations.
The John Locke Foundation has long advocated for enshrining expenditure limits in the state constitution, often called a Taxpayer Bill of Rights (TABOR). A TABOR is important to prevent a tax-and-spend rollercoaster. Without a TABOR, budget volatility encourages irresponsible budget growth during economic growth periods that prove unsustainable when a recession hits.
The consensus budget number reached by NCGA leaders this week falls between two popular TABOR calculations. The first version – similar to that used in HB 709 from the FY2021-22 session and HB 146 from the current session – uses population and inflation growth from the calendar year prior to calculate a spending limit.
The second, and more conservative version, calculates the spending increase using the average of three trailing years of population and inflation growth. SB 717 from the FY2021-22 session provides a good example of this calculation method. The bills also use different economic indicators to calculate inflation. The first uses the Consumer Price Index, while the second uses the less volatile GDP deflator.
Current fiscal year spending clocks in at $27.9 billion (a whopping 7.6% increase from the year prior). According to Locke’s calculations, the first, less conservative one-year lookback version would allow for an approximately 7.9% increase in spending. The second, more smooth, three-year lookback version would allow for a 4.9% increase. The notable difference can be attributed to the recent spike in inflation. The three-year lookback average for inflation is significantly lower because it incorporates the low inflation from 2020 as part of its average, whereas the one-year lookback does not.
Government spending levels are crucial to a state’s fiscal health. Fiscal restraint from the conservative-led General Assembly allowed North Carolina to lead on tax reform over the last decade. With continued restraint, North Carolina can keep the cost of government to taxpayers low. Without it, North Carolina would regress.