RALEIGH — Gov. Mike Easley’s just-announced state budget plan for the 2003-05 biennium includes an immediate $461 million tax increase and allows spending to grow by nearly 5 percent next year, according to a preliminary analysis by the John Locke Foundation.
The Raleigh-based think tank also identified at least 60 proposals for budget savings in the Easley plan that are identical or similar to recommendations made in past alternative budgets from the Locke Foundation. The governor’s budget includes savings of $624 million in FY 2003-04 and $722 million in FY 2004-05 in these areas of agreement.
“The Easley administration has shown an increasing willingness to entertain good ideas for streamlining government and reducing wasteful spending in many areas,” said Locke Foundation President John Hood, who praised the governor’s proposals on Medicaid reform, tapping UNC receipts from research overhead payments, and phasing out funding for the Global TransPark. “Unfortunately, it didn’t make enough progress on this to avoid half a billion dollars in higher taxes.”
The governor’s tax increases reflect a decision to rescind promises made two years ago to impose only “temporary” tax increases on personal income and retail sales to help cover previous budget gaps. Now, these tax increases will be extended at least two more fiscal years, boosting the sales tax burden by $346.5 million next year, the income tax burden by $91.2 million, and the fiscal hit to local governments — likely to be made up by local tax hikes — by $23 million.
Hood pointed out that by fully implementing the Locke Foundation’s recommended savings in areas of agreement and holding off on major program expansions such as More at Four and N.C. Health Choice, the Easley administration could have proposed a state budget for 2003-05 that funded needed growth and at least held taxes steady.
“There still remain hundreds of millions of dollars in non-teaching education expenses, corporate subsidies, administrative bloat, and opportunities for privatization that the governor could have tapped to reduce our taxes,” Hood said. “North Carolina’s tax burden has doubled in real terms in the past two decades, remains the highest in the region, and discourages economic growth in the state by punishing entrepreneurs and investors from putting their money to work here.”
Hood also identified a troubling indication that, despite promises to the contrary, the governor’s budget might assume the passage of a state-run lottery within the next two years. One Easley recommendation is to help fund $59 million of public school operations in FY 2003-04 and $64 million in FY 2004-05 by transferring corporate-tax revenues from two state funds that currently aid local systems with school construction. Simultaneously, Hood observed, the governor has adjusted his lottery proposal to include funding for school construction in many of the same low-wealth districts served by the two state accounts.
“Is this a backdoor way of using a hypothetical state lottery to fund current state expenditures?” Hood asked. “This would seem inappropriate at best, and misleading at worst.”
Now it is the General Assembly’s turn to fashion a state budget consistent with North Carolina’s constitutional responsibilities and economic needs, Hood said.
“Lawmakers should offer support for the governor’s tough budget recommendations in Medicaid, the university system, and other areas while adding in the additional savings needed to avoid another round of costly tax increases,” he concluded.
For more information on North Carolina fiscal policy and the John Locke Foundation’s alternative state budgets, call JLF at 919-828-3876.