Runaway N.C. budget process needs major changes

September 30, 2009

RALEIGH — Legislators need to overhaul North Carolina’s budget process before they force taxpayers to cough up billions of additional dollars in new taxes. That’s the assessment of the John Locke Foundation’s chief budget analyst, who outlines seven potential reforms in a new Spotlight report.

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

“While families across North Carolina were tightening their budgets and adjusting their priorities, the General Assembly missed a rare opportunity this year to put government spending on a more sustainable path,” said Joseph Coletti, JLF Fiscal Policy Analyst. “Instead, lawmakers chose to add $5.9 billion from new taxes, fees, and one-time revenue sources to pay for $41 billion in programs over two years. That’s more than $4,200 per North Carolina resident.”

Coletti’s proposed reforms involve simple changes, he said. “Topping the list is a proposal to make a budget bill publicly available online 72 hours before lawmakers take their first vote,” Coletti said. “The extended time would allow legislators, staff, and outside observers to study the bill and make informed decisions. Contrast the 72-hour proposal to this year’s budget process, when discussion and votes on the final bill started 4 ½ hours after legislators first saw it.”

Budget bills also need a five-year “fiscal note,” Coletti said. “This is a tool legislators use for other bills and sometimes for parts of a budget to gauge their long-term spending and tax implications,” he said. “There are no similar estimates now for the full budget bill, even though that bill has more spending and tax implications than any other measure the General Assembly approves.”

A fiscal note would have helped expose some problems with the latest budget, Coletti said. “Budget writers found $3.7 billion of ‘savings’ through temporary cuts and new funds that will disappear by July 2011,” he said. “This year alone, another $456 million is moved off-budget and funded with federal tax dollars. A fiscal note would expose this budget trickery, which will leave state government with another multibillion-dollar budget hole in the future.”

A third reform focuses on the second year of the two-year budget cycle, Coletti said. “Legislators need to establish a realistic second-year spending plan,” he said. “Too often, the legislature significantly understates spending in the second year of its plans. When legislators return to make adjustments, they then greatly increase spending again if revenue is available.”

Fourth, North Carolina should create a “tax-me-more fund” for voluntary contributions to state government, Coletti said. “This reform would target those who want to expand government services,” he said. “Those who call for shared sacrifice would have a chance to lead by example. Federal, county, and municipal government already accept this type of voluntary payment.”

Fifth, legislators should pass a Taxpayer Protection Amendment, Coletti said. “This amendment would link taxes and spending to population growth and inflation,” he said. “It’s a proven way to restrain government growth. The only way such a policy can limit future legislatures is to enshrine it in the state constitution.”

That amendment also could cover Coletti’s sixth recommendation, an expanded “rainy day” reserve fund. “Current state law caps money set aside for budget reserves at 5 percent of appropriations, and lawmakers often fail to meet even that threshold,” he said. “Any taxpayer protection amendment should set aside excess revenues in a rainy day fund until it covers at least 10 percent of the previous year’s appropriations.”

Coletti’s seventh recommendation would force lawmakers to spell out state government’s basic purposes. “Legislators ought to be able to explain state government’s goals, then seek the best ways to achieve those goals, even if that means getting government out of the way,” he said. “Rather than helping, government spending often hampers efforts to meet basic goals. Taxpayers in North Carolina have had a poor return on government spending of tax dollars for health, education, transportation, and public safety.”

Now is the time for reform, Coletti said. “Gov. Beverly Perdue was able to cut $1.7 billion in state spending during the last budget year without devastating the state,” he said. “In fact, per-person spending for the budget year that ended in June was only slightly less than spending during the 2006 budget year, when the economy was much stronger.”

Instead of taking the opportunity to follow Perdue’s lead, lawmakers followed a well-worn path, Coletti said. “Whatever flaws there are in the final budget are due in large part to a process that keeps the budget plan hidden from public view for too long, includes unrealistic expectations, has no contingencies for future years, and systematically disregards the effectiveness of programs in reaching their objectives,” he said. “Taxpayers deserve a better process that creates a more stable fiscal future for North Carolina.”

Joseph Coletti’s Spotlight report, “Start Building a Better Budget: Seven steps to saner state spending,” 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].