May 11, 2008
RALEIGH – Gov. Mike Easley’s last budget plan would increase state spending by another $1 billion a year, calling on smokers and drinkers to foot part of the bill. That’s according to an analysis from the John Locke Foundation.
“The governor believes government programs are designed to care for the people least able to care for themselves — unless those people happen to smoke or drink,” said Joseph Coletti, JLF Fiscal Policy Analyst. “Tax hikes on cigarettes, beer, fortified wine, and spirits would ensure that people who engage in legal activities the governor doesn’t like would end up paying a disproportionate amount for government programs he does like.”
The new budget would spend $21.4 billion in the 2008-2009 budget year, which starts July 1. The governor says $66 million in new alcohol taxes would pay most of the bill for $76 million in improvements to the state mental health system. He also contends the $99 million expected from a 20-cent-per-pack increase in the state cigarette tax would fund education improvements.
“While the governor implies that these tax increases are targeted toward specific goals, the new money would head to the state’s General Fund,” Coletti said. “The governor could have re-prioritized the state’s existing spending to meet these new goals. Instead he wants to take more money away from taxpayers. That additional money will pay for the low-priority programs that could have been cut to make way for higher-priority items.”
The tax increases would also highlight North Carolina’s willingness to target more of its budget burden on people who engage in activities the government dislikes, Coletti said.
“The governor points out in a news release that his proposed cigarette tax hike would leave North Carolina with the 40th-highest tax rate on that product,” he said. “He ignores the fact that his proposed 80-percent increase in the beer tax would raise North Carolina’s rate from the fourth-highest to the second-highest in the nation. The wine tax rate would climb from No. 18 in the country to No. 12.”
Easley could have proposed an alternative to tax increases, Coletti said. “Why not establish a ‘tax me more’ fund?” he asked. “The governor could propose a program that would allow North Carolina taxpayers to volunteer more of their resources to help support people who have a hard time helping themselves. That would be better than the proposed tax increases in this budget.”
“There’s no moral advantage in forcing people who do things we don’t like to pay more taxes to fund programs we do like,” Coletti added. “It might be popular, as the governor contends, but there’s no virtue involved in government coercion.”
Before dipping into the taxpayers’ well, the governor could have found more ways to cut state spending. “The governor found $396 million in General Fund budget cuts this year,” Coletti said. “It’s too bad those cuts are offset in part by a $38 million increase in targeted tax incentives, and $45 million in proposed new spending on his unproven pet project, the More At Four academic pre-kindergarten program. That $45 million, along with $55 million in new spending already included in the existing state budget plan, would mean an extra $100 million for the governor’s legacy program.”
Despite the cuts, the governor would add more than 800 state government jobs, including more than 430 new mental-health positions and 83 new jobs in the Department of Correction.
Easley wants a 7 percent pay increase for teachers, while calling for a 1.5 percent cost-of-living raise and a one-time $1,000 bonus for most state workers. State employees would also get an extra five days of paid bonus leave. State retirees would see 1.2 percent cost-of-living increases.
“The governor contends teachers need the larger pay increase to reach the national average,” Coletti said. “This is a true case of using ‘smoke and mirrors’ to justify your numbers. North Carolina taxpayers already support some of the nation’s highest-compensated teachers, when you factor in cost of living, teacher experience, and pension contributions.”
After eight years of preparing budgets, Easley still fails to provide full transparency for his ideas, Coletti said. “One of the more disturbing pieces of this budget is the proposal to include $553 million in capital projects funded by certificates of participation, or COPs,” he said. “COPs allow the government to assume new debt without seeking voter approval. Projects funded by COPs also allow the governor to understate the real size of his proposed state budget increase.”
Easley deserves some credit for proposing his smallest budget increase in five years, Coletti said. “This is the smallest increase proposed for the state budget since the budget year that started in July 2003,” he said. “After consistently proposing budgets that would spend far more than the combined rates of population growth and inflation would justify, a smaller increase is welcome.”
The governor would also add $61 million to the state’s operating reserve, called the Rainy Day Fund. That would boost the fund to $848 million. “Placing money in the Rainy Day Fund is usually a good idea,” Coletti said. “It would be nice if the governor had recommended even more money for that fund, while cutting back on proposals for new spending.”
State lawmakers will review Easley’s proposals once they return to Raleigh Tuesday for the 2008 legislative session. “Let’s hope legislators will identify the state’s true needs and ignore ideas that seem plucked from the governor’s final wish list.”
Joseph Coletti’s Spotlight report,”Saving, Spending and Taxing: Governor proposes $1 billion in new operating appropriations,” 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].