Press Release

Legislature to Face Budget Challenge

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RALEIGH — Even after much-publicized budget “cuts” in each of the past three fiscal years, North Carolina state spending this year is up 80 percent from what it was 10 years ago and continues to challenge state politicians to show leadership, according to research published today by the John Locke Foundation.

Dr. Roy Cordato, vice president for research and resident scholar at the Raleigh-based think tank, said that as the North Carolina General Assembly prepares to come to Raleigh to grapple with a fourth-straight year of projected deficits, it need look no further than its own short-sighted decisions in such areas as Medicaid, corporate subsidies, and public debt to find the cause.

“In neither of the previous two years have lawmakers or Gov. Mike Easley chosen to address budget deficits primarily by making significant, permanent reductions in the size and scope of state government,” Cordato wrote in a new Spotlight briefing paper on the state budget. “Instead, they have relied on one-time revenue boosts, on tax hikes, and on nips and tucks around some state programs that really deserved dramatic downsizing or elimination.”

The paper noted that authorized General Fund spending grew to $14.3 billion in the 2002-03 fiscal year, up $6.4 billion since 1992-93. If the state budget had expanded just enough to keep up with rising prices and population during those 10 years, its growth rate would have been 46 percent rather than 80 percent. And even if key programs such as education and Medicaid had been allowed to keep step with enrollment when it was growing faster than the overall population, the 2002-03 budget would still have been $2.2 billion smaller than it is — eliminating the need for tax increases or sudden budget cuts to erase deficits.

By far the fastest and most costly budget growth, Cordato found, was in the state’s Medicaid program, which grew by a staggering $1.5 billion, or 224 percent, in the past 10 years. “North Carolina spends far more than comparable states on this program, offering a basic benefits package that has greater coverage than the typical private plan,” he observed. “In spite of this there is no evidence that lower-income North Carolinians are significantly healthier or receive better care than their counterparts in other states do.”

Cordato also pointed out a tripling of the state’s debt-service costs since 1992-93, reflecting the fiscal impact of billions of dollars in bond issuances. “Clearly, political promises made in 1998 and 2000 to fund new debt for water projects and college construction without tax hikes cannot be kept,” he said.

While some blame “excessive” tax cuts of the mid-1990s for the state’s budget problems, Cordato presented data to show that North Carolina’s tax burden went up, not down, during the 1990s due to major increases in personal income, corporate income, sales, excise, and business taxes in the early 1990s and again in 2001-02. “The General Assembly has left North Carolina with a tax burden that as a share of personal income is among the highest in the region, and with marginal tax rates on individual and corporate income that are among the highest in the United States,” he wrote. “This is not a recipe for dynamic economic growth or prudent spending restraint.”

Cordato proposed a number of ways that lawmakers could save taxpayer money in the coming budget year, including the reduction or elimination of corporate-subsidy programs, Medicaid reform, requiring users to pay more for non-entitlement state services, redirecting education dollars to classroom instruction, reorganizing government agencies, eliminating low-priority programs, and postponing issuance of new debt.

“The ongoing state budget crisis in North Carolina presents an opportunity for lawmakers to rethink fundamentals and return to the vision of limited government that is clearly expressed in North Carolina’s constitution,” he concluded. “If this is done, lawmakers will have no problem avoiding tax increases or local-revenue grabs — and indeed will find that substantial tax cuts are possible to rejuvenate the state’s weak economy.”

For more information on the new Spotlight briefing paper the full report is available online at

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About John Locke Foundation

We are North Carolina’s Most Trusted and Influential Source of Common Sense. The John Locke Foundation was created in 1990 as an independent, nonprofit think tank that would work “for truth, for freedom, and for the future of North Carolina.” The Foundation is named for John Locke (1632-1704), an English philosopher whose writings inspired Thomas Jefferson and the other Founders.

The John Locke Foundation is a 501(c)(3) research institute and is funded solely from voluntary contributions from individuals, corporations, and charitable foundations.