North Carolina has a balanced budget amendment, but
it was not intended to create a tax-and-spend state. Rather,
it requires lawmakers to craft budgets that use tax dollars
wisely. For several decades, North Carolina moved away
from fiscal responsibility and created a political culture in
which increasing taxes, with the intention to spend more,
was an acceptable policy.
Polls reveal that a majority of North Carolinians support
a cap on state spending. To date, however, lawmakers have
been unwilling to ask North Carolinians to approve an
amendment to the North Carolina Constitution that would
limit the growth of state government indefinitely.
The Republican leadership in the N.C. General Assembly
have imposed spending caps voluntarily, but without a
constitutional amendment, that restraint is not guaranteed.
A variety of pressures could lead future legislatures to return
to the tax-and-spend patterns of the past. A constitutional
amendment would help to protect North Carolina taxpayers.
- Had state spending tracked inflation and population
growth since 1997, as denoted in the figure on the opposite
page, per capita expenditure would be $2,071
in 2016. That is 6 percent less than the current level of
- Over the last 20 years, inflation and population growth
have been much more steady than General Fund spending.
The figure opposite shows the consistent, smooth
growth of the General Fund had spending restrictions
been in effect. That’s in contrast to the large increases in
spending during the early 2000s followed by a dramatic
correction in 2009 that occurred without spending prohibitions
- Budgetary oversight should extend to spending shifted
outside the General Fund. While the state has limited
control over federal funds and federally mandated programs,
the state has total control of the many trust funds
that are not included in the General Fund. Total state
spending is approximately $52 billion, while General
Fund spending is around $22 billion.
- Over the last four years, spending growth has been close
to the level of inflation and population growth, but
through much of the 2000s, spending growth far outpaced
inflation and population growth.
- Add an amendment to the state constitution, limiting
annual state spending growth to no more
than the projected rates of inflation and population
growth. The amendment should allow spending
growth to exceed the cap only if approved by public
referendum. Such a spending cap would better align
the long-term interests of taxpayers to the short-term
interests of politicians.
- The TABOR amendment should mandate that any revenues collected above the annual spending cap be deposited into a rainy day fund or returned to taxpayers.
- The amendment should be written to avoid the ratchet down effect. When there is a revenue shortfall, the TABOR should not set a lower limit for spending. In periods of revenue shortfall, the TABOR limit should be held constant until revenues recover and again exceed that limit. The rainy day fund or budget stabilization fund would be used to offset at least part of the revenue shortfall.
- The amendment should establish other constitutional constraints on fiscal policy, such as a requirement that any state tax hikes receive supermajority approval from the state legislature.