March 15, 2009

RALEIGH — The John Locke Foundation’s “Back to Basics” state budget proposal would shave 10 percent of total spending from North Carolina’s budget plan. It also would set state government on a better course for future budget decisions, according to a top JLF budget analyst.

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

The Locke Foundation is unveiling its ideas as Gov. Beverly Perdue prepares to submit her first budget to the General Assembly. “This alternative proposal lays out ways to meet North Carolina’s immediate fiscal challenge, reform state government, and set the state on a more responsible path,” said Joseph Coletti, JLF Fiscal and Health Care Policy Analyst. “The governor and state lawmakers can turn a major budget problem into an opportunity to rethink the way they conduct the state’s business.”

In the most detailed state budget proposal the John Locke Foundation has unveiled in its history, Coletti recommends a total General Fund appropriation of $18.8 billion for the budget year that starts July 1. It would save $2.2 billion (10 percent) from the continuation budget of $21 billion.

“North Carolina’s budget exploded between the 2004 and 2008 budget years,” Coletti said. “Adjusting for inflation, spending climbed from $2,037 per person to $2,336. That’s growth of 15 percent.”

The 2008 budget was $5.8 billion higher than the budget for 2004, Coletti said.

Spending growth continued in the current state budget, even as tax revenues started to slow, Coletti said. “Instead of setting money from the previous year’s surplus into the rainy day reserve fund as required by law, legislators spent it,” he said. “This action continued a long pattern of expanding budgetary commitments in good times and helped set up the fiscal crisis confronting Gov. Perdue and the General Assembly now.”

Coletti’s plan includes no inflationary increase, no salary increase for state workers or teachers, and no increase in appropriations. It would cut inflation-adjusted spending to $1,969 per person, he said. “That level is still higher than any budget North Carolina approved before the 1999 fiscal year.”

All other changes in Coletti’s proposal are based on four key principles, Coletti said. “First, state leaders must set priorities,” he said. “Every budget is an exercise in setting priorities because there is never enough money to pay for every program. Setting priorities includes paying for teachers instead of school administrators and raising tuition at universities and community colleges. Setting priorities also means redirecting all tobacco settlement money to the General Fund and withdrawing $300 million from the Saving Reserve Account.”

The second key principle involves transparency and accountability, Coletti said. “State government must accept its responsibilities, use taxpayers’ money in full sunlight, and hold programs accountable for results.”

Accountability means that state government will face some additional expenses, he said. “This budget plan sets aside $336 million for the state to continue taking over counties’ share of the non-federal cost of Medicaid,” Coletti added. “It also includes $200 million to cover half of the projected shortfall in the State Health Plan and another $300 million to shore up the state pension plan.”

Third, budget and tax decisions should be fair, Coletti said. “Government expenditures are to improve the public welfare, not the welfare of specific groups,” he said. “This budget plan saves $621 million by ending government expenditures on behalf of favored groups, such as subsidized training and special tax breaks for selected companies, and university scholarships for certain groups.”

The fourth principle could be described as “last in, first out,” Coletti said. “The state survived for more than 200 years without a number of current programs, or at least with programs at smaller sizes than the ones included in the last two-year budget,” he said. “Repealing new programs and recent expansions would save $160 million in the next budget year.”

In the future, budget growth should be tied to inflation and population growth, Coletti. “Slowing government growth to that rate — to keep per capita costs constant over time — will require policy changes beyond those that have an immediate fiscal impact at the state level.”

Coletti lists 15 proposed policy changes, including a Taxpayer Protection Amendment, an end to the state’s artificial charter school cap, and reform of the state’s mental health management scheme. “This list also includes creation of a state ‘Tax-Me-More Fund,'” he said. “Taxpayers can give more money to the federal government and to local governments. Other states also allow donations from taxpayers. If North Carolina taxpayers think the state’s problem is a lack of revenue, they would then be able to contribute more voluntarily.”

The governor and legislature could help North Carolina’s taxpayers by adopting the ideas in the “Back to Basics” budget, Coletti said. “This budget lays out a realistic and responsible way to align spending and revenue,” he said. “It also provides ways to reduce the rate of growth of state government. Transparency should be an important part of the budget process — from drafting through implementation — that can help to direct tax resources with accountability.”

Joseph Coletti’s Spotlight report, “Back to Basics Budget: Responsible savings and reforms,” 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].