Rep. Dennis Riddell (R-Alamance) filed a bill yesterday to limit the state’s spending. Specifically, H.B. 146 would amend the North Carolina Constitution by adding a new article to limit the state’s annual budget growth to the sum of annual inflation plus the state’s population growth.
This is good news.
Since 2013, conservative budget writers have restrained the growth rate of the state budget. This was not the case during the thirty years before 2013, when General Fund spending more than tripled, even after adjusting for inflation. Out-of-control spending growth resulted in tax hikes during the 2007 – 2009 Great Recession.
Today, revenues are flowing in at a good clip, thanks in part to low tax rates stimulating more economic activity. But responsible spending discipline has enabled the state to build up substantial amounts of reserves to enable the state to weather the coming economic downturn. This underlines the need for a constitutional spending limit to guard against a spending bonanza in future years by less responsible legislatures that may lead to a nosedive in state expenditures when recession hits because there’s been no build up in the Savings Reserve fund. Fiscal sanity should not depend upon who is in charge in Raleigh.
The John Locke Foundation has advocated making fiscal restraint permanent for many years. We refer to this as a Taxpayer Bill of Rights (TABOR).
There are some improvements that could bolster H.B. 146 to better protect taxpayers. S.B. 717, filed in April 2021, calculates the growth formula using an average of three trailing years of inflation and population growth changes, instead of one. This provides a smoother number that is less subject to stints of high inflation, or rapid population changes. Moreover, S.B. 717 uses the GDP deflator to calculate inflation, a less volatile indicator than the Consumer Price Index. The bill could also anticipate excess revenues, sending them to the Savings Reserve or back to taxpayers.
Restrained government spending allowed the bold tax cuts which benefit North Carolina families today. Adding an expenditure limit to the state constitution is common sense to protect taxpayers.
Milton Friedman said it best: “Keep your eye on one thing and one thing only: how much government is spending, because that’s the true tax.”