Governor’s gimmick-based budget represents a missed opportunity

April 29, 2010

RALEIGH — Budget gimmicks help Gov. Bev Perdue avoid the tough decisions that would improve North Carolina state government’s finances and operations. That’s the assessment the John Locke Foundation’s top budget expert offers in a new Spotlight report.

Click here to view and here to listen to Joseph Coletti discussing this Spotlight report.

“Gimmicks are at the core of the governor’s budget proposal for the new fiscal year that starts in July,” said Joseph Coletti, JLF Director of Health and Fiscal Policy Studies. “These gimmicks leave the state fundamentally unprepared for recovery. The governor’s budget proposal represents a missed opportunity.”

The primary gimmick is Perdue’s claim that her budget cuts $1 billion in state spending, Coletti said. “The press release tied to this budget plan crowed about $1 billion in cuts, but it ignored a key point,” he said. “More than half of the so-called cut — $578 million — is new federal stimulus money that replaces state dollars.”

“Once you add that money back into the mix, there’s no reduction in actual spending on those items,” Coletti added. “That’s in addition to more than $1 billion in federal stimulus money already budgeted for the new fiscal year. Lawmakers approved that $1 billion during last year’s state budget debate.”

Taking account of the gimmicks, Perdue’s budget plan would spend $400 million more than the proposal for the current budget year, which ends in June, Coletti said. “The governor’s plan would spend $1 billion more than actual state government spending for 2008-09.”

There’s another wrinkle involved with a reliance on federal stimulus dollars, Coletti said. “Federal money is temporary — legislators cannot rely on it for future years,” he explained. “Nonetheless, the Perdue administration has encouraged local school districts to use that money for ongoing costs instead of one-time expenses. This is the equivalent of using lottery winnings to make one month’s mortgage payment. The mortgage payment will still be there when the money is not.”

Federal stimulus dollars hide the true growth in state government spending, Coletti said. “If one counts short-term federal cash consistently from the 2009 to 2011 budget years, the amount has increased from $680 million to $1.6 billion,” he said. “This helps push the state’s General Fund from an actual expenditure of $19.7 billion in 2008-09 to budgeted appropriations of $20.8 billion for the budget year that starts in July. Regardless of how you want to count these federal funds, total state spending from all sources will approach $50 billion.”

Reliance on gimmicks allows Perdue to ignore some critical issues for the future of state government, Coletti said. “For example, state government has exhausted its ability to borrow money, but it already has borrowed $2 billion from the federal government to pay unemployment benefits,” he said. “If that weren’t scary enough, state and local governments also have unfunded liabilities for pensions and retiree health benefits totaling at least $29 billion and as much as $80 billion or more.”

One part of the governor’s budget announcement offers a glimmer of hope, Coletti said. “Gov. Perdue will have another chance to correct state government’s past mistakes when she offers her reorganization plans,” he said. “In May, she’s expected to offer a list of 100 state boards and commissions to cut.”

Meanwhile, there’s little in her budget document that addresses North Carolina’s long-term budget challenges, Coletti said. “The governor’s spending plan pushes off the day of reckoning for past profligacy another year, when the federal money is expected to run out,” he said. “Once elected leaders figure out how to cover the lost federal revenues, they’ll still have to face today’s primary challenge. They’ll have to decide how to control state spending growth and steer the budget toward a more responsible course.”

Joseph Coletti’s Spotlight report, “Budgets Are Not Unicorns: Gov. Perdue uses gimmicks instead of making choices,” is available at the JLF Web site. For more information, please contact Coletti at (919) 828-3876 or [email protected]. To arrange an interview, contact Mitch Kokai at (919) 306-8736 or [email protected].