April 7, 2009

RALEIGH — North Carolina lawmakers should reject many ideas now included in the state Senate’s budget plan, if they want a responsible blueprint for state government spending. That’s the assessment of the John Locke Foundation’s top budget expert.

Click here to view and here to listen to Joseph Coletti discussing the N.C. Senate budget plan.

The Senate voted 32-16 today to approve its budget plan, Senate Bill 202. A second vote is scheduled Thursday before the budget debate shifts to the N.C. House. The Democrats who run the Senate voted for the bill. Most Republicans voted against it.

“The Senate leadership has taken a new lead in irresponsible budgeting by proposing nearly $1.2 billion in mystery tax hikes over the next two years,” said Joseph Coletti, JLF Fiscal and Health Care Policy Analyst. “While Senate leaders remain mum on the tax issue, that dollar figure represents the same amount of revenue raised by Gov. Beverly Perdue’s proposed regressive taxes on cigarettes and alcohol.”

“Senators might recommend an increase in the regressive sales tax or in the corporate income tax that hurts labor,” Coletti added. “They might also endorse Gov. Perdue’s tax plan or offer some combination of all three potential tax increases.”

The Senate budget plan uses as much federal bailout money as the governor’s budget, Coletti said. “There is a difference — senators consider the Medicaid bailout as savings instead of new money and spending,” he said. “That means the Senate did not find $1 billion in new saving, despite advertisements to the contrary. In contrast, the John Locke Foundation’s Back to Basics budget uses one year of Medicaid money to give the state time to apply for federal waivers and convert the program to premium assistance.”

While the Senate’s overall spending total is similar to the governor’s proposal, there are notable differences in the specifics, Coletti said. “Some of the differences are good,” he said. “One of the most promising differences is a small increase in student-teacher ratios in every grade. Research indicates almost no change in student achievement in class sizes between roughly 11 students per teacher and 25 students per teacher. There is no reason to spend millions of dollars chasing non-existent gains in student performance.”

Coletti points to two other promising items in the Senate plan. “First, the Senate calls for a study of the impact of combining the Office of the State Controller, the Office of State Budget and Management, and some functions of the state treasurer’s office,” he said. “If these functions can be combined in a way that saves money, North Carolina taxpayers would benefit.”

The second promising item relates to truth in advertising, Coletti said. “In proposing to scale back funding in one area, the Senate budget includes a recognition that the Center for Prevention of School Violence performs functions that ‘are not part of the core mission of the Department’ of Juvenile Justice and Delinquency Prevention,” he said. “We would all benefit if budget writers applied that same principle to other areas of the annual spending plan.”

Despite some positive signs, the Senate budget proposal includes plenty of bad ideas, Coletti said. “For example, the Senate would do no more than the governor to put more money into the underfunded pension system,” he said. “The Senate plan, again like the governor’s, relies on more than $1.7 billion in federal borrowing to balance the budget. The Senate plan also takes out the equivalent of a home-equity loan, using a complicated scheme called two-thirds bonds to fund the Repairs and Renovation Reserve.”

The Senate continues funding questionable programs, particularly in the University of North Carolina system, Coletti said. “Examples include the filmmaking school at the UNC School of the Arts, and the Kannapolis research center — state funding of which would climb to $23.5 million per year through UNC, plus another $1.1 million through the community college system.”

Proposed reductions in public education spending have attracted plenty of publicity, but senators make up for those reductions with questionable spending elsewhere, Coletti said. “Offsetting the reduction in K-12 spending are higher pay for state employees and funding for the Biomedical Research Imaging Center in Chapel Hill, which uses high-tech equipment to peer inside mice and rats and do some human tests.”

The best part of the Senate budget is the fact that it’s bound to change in the months ahead, Coletti said.

“After senators take their final vote on this plan, the House will have a chance to fix some of these problems,” he said. “When the state get a better sense of its revenue picture after the April 15 tax filing deadline, it’s likely that the House, Senate, and governor will all need to head back to the drawing board. Let’s hope they take advantage of the state’s budget woes to make responsible changes to their spending plan.”

Joseph Coletti’s Spotlight report assessing the N.C. Senate’s budget proposal will be available soon 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].