Spotlight Report

N.C. Budget Behemoth: General Fund Grows At Nearly Twice The U.S. Rate

posted on in Spending & Taxes

Preliminary estimates from the National Conference of State Legislatures sug gest that North Carolina increased state spending more than did the vast ma jority of states, while offering smaller tax relief than did most states, in 1998. Overall, state General Fund authorizations in the U.S. grew by an average of 5.4 percent in FY 1998-99, while North Carolina’s grew by 9.9 percent in official General Fund spending and 10.9 percent in adjusted General Fund spending (including off-budget items and other corrections to the official data).

On the tax side, the average state tax cut package amounted to 1.5 percent of 1997 revenue collections. Eight states — Colorado, Connecticut, Massachusetts, Kansas, Maine, Minnesota, Nebraska, and Ohio — were particularly notable for tax cuts that amounted to at least 4 percent of revenue collections. Among Southeastern states, the largest tax cutter was Georgia, with $275 million in tax relief, a 2.5 percent reduction. Virginia (1.5 percent) also surpassed North Carolina (0.8 percent) in tax relief.

One of the most surprising developments in North Carolina’s budget this year was a whopping 15 percent increase in General Fund authorizations in the Medicaid program. This follows virtually no increase in 1997-98 (a result generated, in part, by budget manipulations that artificially held the 1997-98 number low and thus made the 1998-99 increase appear large). Still, North Carolina’s Medicaid program consumes somewhat less of the state General Fund (11 percent) than Medicaid consumes in the average state (13 percent). The share of state spending devoted to public schools is higher in North Carolina (41 percent) than the average state (33 percent), representing the extent to which our schools rely less on local property taxes than do those of most states. More significant is that fully 17 percent of North Carolina spending — compared with only 12 percent in the average state — goes to higher education.

John Hood, President

Chart of Fiscal Year 1998-99 General Fund Changes, NC Chart of Spending Share for Fiscal Year 1998-99, NC

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