by Sarah Curry
Director of Fiscal Policy Studies
Each year the North Carolina General Assembly discusses how much is spent on state government. Many, including the John Locke Foundation, argue that a spending limit or cap should be in place. The call for such a cap has not been impromptu, but rather a reaction to inflation-adjusted state spending per person that has increased 308 percent over the last forty years. The growth of state government is continuing at alarming rates, and something must be done to stop this unrestrained growth. Incorporating a spending limit or cap into the budgeting process would ensure a more practical and mature approach to the state budget that would limit the growth of spending and taxation each year, and conjointly limit the expansion of state government in the future.
Such a mechanism to limit spending is known as a Taxpayer Bill of Rights, shorthanded as TABOR. A TABOR is based upon a formula that only allows the state budget to grow at the same rate as population plus inflation with the ability for voter-approved changes. This is not a new idea. California suggested the idea in the early 1970s, and Colorado implemented a TABOR in the early 1990s.
The idea of a TABOR has not been taken seriously in North Carolina as a tool to rein in spending until recently. In March 2013, a bill passed the House Committee on Government that would have enacted a TABOR, and in the same year a November poll found that fifty-two percent of voters were supportive of legislation to create a TABOR that would limit the growth rate of the state budget. Earlier this year, a bill was filed in the House to create a TABOR, yet did not receive a lot of attention or traction in the session.
While receiving support from some, the discussion of a TABOR did not seem to be a high priority for the 2015 legislative session until early August. The NC Senate held a press conference where they discussed budget compromises and made it very clear they were committed to passing a budget that kept spending in line with population growth and inflation.
According to the Office of State Budget and Management, the anticipated population and inflation combined growth for the 2015-16 fiscal year is 2.7 percent. The Governor‘s budget is close to that amount at 2.1 percent, the Senate is well below at 1.8 percent, and the House’s proposed budget is almost double the rate at 5.1 percent. While a final spending plan has not been approved by the state, if both chambers agree to a final budget figure using this constraint, the total General Fund amount spent this fiscal year will not exceed $21.65 billion.
In addition to the NC Senate’s public commitment to budgeting under the 2.7 percent growth rate, a bill advanced in the Senate Finance Committee last week would give North Carolina voters the opportunity to add a TABOR provision to the state constitution. If passed, this bill would (1) reduce the maximum income tax rate from ten to five percent, (2) limit state government spending to a combined rate of population and inflation, which could only be exceeded with a two-thirds vote of the General Assembly, and (3) establish a constitutionally-protected "Rainy Day" fund that would be used for emergency needs only.
While in this case having a spending cap of 2.7 percent is higher than either the Senate or the Governor’s budget proposals, the fact that policy rationale is being used instead of arbitrary year-to-year budget amounts is a huge step in the right direction. Growth in state government needs to be controlled, and the best way to achieve this is to limit government spending. The Senate leadership has taken a bold move to pledge their commitment not to support a budget over a TABOR limit. Hopefully, this move will increase the attention to and support for a responsible budget this autumn and lead to a TABOR amendment on the ballot next spring.
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