Spotlight Report

Final Budget Grows 11%: 1998 Is A Year Of Spending Growth, Not Tax Cuts

posted on in Law & Regulation, Spending & Taxes

A close look at the final spending and tax cut totals for FY 1998-99 reveals that the N.C. Senate largely prevailed in its budget priorities. The Senate budget passed back in the summer included a 10.7 percent increase in state spending (nearly $1.27 billion) and $55 million in tax relief. The final budget actually went further in the direction of government growth than the Senate had originally requested — increasing total state spending by a whopping $1.29 billion, or 10.9 percent, and cutting taxes only $53 million in FY 1998-99. The House had wanted a smaller spending hike ($1.11 billion) and $220 million in immediate tax relief.

Of course, the House can claim victory if one considers the longer run. Most of the tax relief it championed — including a repeal of the state inheritance tax and the state sales tax on food — will kick in during the next budget biennium. Overall, the tax cuts agreed to in the final budget will save taxpayers $318 million in FY 1999-2000 and $380 million by FY 2000-01. Coupled with the more than $750 million in tax relief already passed since 1995, these tax changes represent a significant improvement in the state’s treatment of taxpayers. Of course, this assumes that the scheduled tax cuts for the next two fiscal years don’t become the casualties of a state budget crisis.

Signs of trouble in the years ahead aren’t hard to find. The FY 1998-99 budget follows two years of rapid spending growth (7.7 percent in 1996-97 and 9.7 percent in 1997-98). The state’s debt is growing rapidly, too. Indeed, lawmakers placed another $1 billion in bonds on the November ballot (for water, sewer, and natural gas projects) while simultaneously spending more than $500 million in one-time revenues on new buildings, technology improvements, and other items. The single most outrageous waste in the new budget? Dedicating some $30 million of expected reversions (a bad practice in and of itself)for the construction and renovation of two state aquariums. Such fishy budget practices don’t bode well for the future.

John Hood, President

John Hood is president of the John William Pope Foundation, a Raleigh-based grantmaker that supports public policy organizations, educational institutions, arts and cultural programs, and humanitarian relief in North Carolina and beyond. Hood is also chairman of the board at… ...

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