August 5, 2002

RALEIGH — A proposed $14.3 billion budget revision now being debated in the North Carolina House relies primarily on tax increases, revenue enhancements and one-time savings to eliminate the state budget deficit, and would set the stage for more costly tax hikes during the 2003 legislative session, according to a preliminary analysis published today by the John Locke Foundation.

John Hood, chairman and president of the Raleigh-based think tank, wrote in a Spotlight briefing paper released this morning that the House plan includes $166 million in net state tax increases and, by withholding local tax reimbursements, would be responsible for at least $60 million in local property tax hikes. This would come “in the midst of a painful economic recession in North Carolina,” Hood wrote, and would “weaken the state’s already shaky recovery, reducing job creation and income growth.”

More ominously, the House relies on approximately $666 million in one-time savings and fund transfers to fund expenditures likely to recur in FY 2003-04. “All indications are that another massive tax increase (perhaps in the guise of a ‘tax-reform’ bill) would be contemplated to cover all or most of this budget gap,” Hood said. The House plan “includes the equivalent of a promissory note for a costly tax increase in 2003.”

Hood pointed out that the House plan also relies on raiding $255 million in highway funds and boosting estimated tax-revenue collections by $50 million. “It would seem to be unwise to make optimistic forecasts about tax revenues in the current economic climate,” he said.

Overall, the House plan would eliminate a projected $1.4 billion budget deficit for FY 2002-03 largely by finding additional revenue ($911 million) rather than achieving net budget savings ($478 million), Hood reported. The Senate’s FY 2002-03 budget plan, approved by that chamber in June, included a substantially larger amount of budget savings ($585 million) but also imposed a larger state and local tax increase ($338 million) when compared to the House’s combined tax hike of $226 ($166 million at the state level and a minimum of $60 million in local property tax increases).

“There is much to like about the House plan’s identification of real savings in the state budget,” Hood concluded. “But appropriations leaders failed to go far enough in reducing the size and scope of state government. . . The taxpayers of the state deserve to have their interests considered carefully in the budget deliberations and negotiations to come.”

The John Locke Foundation, founded in 1990, is a nonprofit, nonpartisan research institute devoted to state and local public policy issues in North Carolina. The organization is named after the distinguished 17th century educator, statesman, and philosopher of liberty John Locke, who also wrote the first constitution for the colony of Carolina. For more information about the Foundation’s recent research on state spending and tax policy, call President John Hood or Vice President Roy Cordato at 919-828-3876 or visit