Spotlight Report

State Made Its Fiscal Bed: Escalating Budgets Imperiled Finances Before Floyd

posted on in Spending & Taxes

Every politician and interest group in Raleigh has its own take on recent developments in state finances. Many observers and editorialists blame North Carolina’s increasing tight finances on the tax cuts passed from 1995 to 1998, the value of which now exceeds $1 billion. Others blame lawsuits by government retirees and owners of intangible assets, which ultimately forced the state to own up to past unconstitutional decisions and refund more than $1 billion in illegal taxes. Still others maintain that this fall’s hurricanes, unforeseen and devastating, have created a need for new revenues either taxes or bonds to meet state obligations.

But the biggest single cause of North Carolina’s current dilemma has been its unprecedented spending growth throughout much of the 1990s. Since the recession-era budget of FY 1992-93, total General Fund spending has grown by an average of nearly 8.4 percent, with only one year of real spending restraint (FY 1995-96, when spending grew by 1.2 percent) and several years of double-digit increases, including last year.

Just since 1996-97, North Carolina’s General Fund has grown far more rapidly than that of the average state, as one of the graphs on the next page demonstrates. Only in 1999 did our state growth rate fall slightly below the national average and that may well be a statistical quirk due to different classifications of “off-budget” expenditures. As the other graph reveals, growth in state education spending has been particularly large by national standards. Perhaps the increased resources were justified, but few attempts were made to achieve slower growth elsewhere to compensate.

Whatever the resolution of the state’s fiscal problem next year, no one should forget the role that profligate spending played in causing the problem in the first place.

John Hood, President

Graph of FY 1999-2000 General Fund Changes, NC and National Average Graph of Genera; Fund Spending Growth, 1996-1997 to 1999-2000

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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We are North Carolina’s Most Trusted and Influential Source of Common Sense. The John Locke Foundation was created in 1990 as an independent, nonprofit think tank that would work “for truth, for freedom, and for the future of North Carolina.” The Foundation is named for John Locke (1632-1704), an English philosopher whose writings inspired Thomas Jefferson and the other Founders.

The John Locke Foundation is a 501(c)(3) research institute and is funded solely from voluntary contributions from individuals, corporations, and charitable foundations.