John Locke Update / Research Brief

Better Budget Institutions, Lower Taxes

posted on in Fiscal Insight, Spending & Taxes
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How many times in life have you known the right thing to do and ended up doing the wrong thing? You ate the chocolate cake—the whole thing—instead of going to the gym. You bought the shoes you shouldn’t have. We won’t mention the other times, but you know them.

Psychologist Jonathan Haidt described this as a problem of riding an elephant. The rational planning rider knows what the right thing is, but has a hard time steering the emotional and appetite-driven elephant. Brothers Dan and Chip Heath took that idea in their book, Switch: How to Change Things When Change is Hard, and developed a three-part path to change: direct the rider, motivate the elephant, and shape the path.  One reason, for example, why the practice of giving something up for Lent expanded beyond Catholics to other branches of Christianity is that it shapes the path for people with a simple rule change.

Since 2011, state legislators have been shaping North Carolina’s path for budgets with small institutional changes that can have significant effects. Additional changes this session have received solid bipartisan support.

Rainy Day Fund: A good rainy day fund can reduce spending volatility and help weather fiscal storms. North Carolina established its Savings Reserve Account in 1991, but legislators ignored rules on how much to set aside in 2006. A bill to enhance deposits and limit withdrawals from this account passed the Senate unanimously and had only three votes in opposition in the House.

Session Limits: North Carolina has a citizen legislature. Higher pay for legislators would make the legislature more professional according to academic measures, and legislative professionalism is associated with higher spending. Shorter legislative sessions are a sign of citizen legislatures, and North Carolina is one of only 11 states without formal limits on the amount of time the legislature can be in session. Senators Jay Chaudhuri (D) and Jerry Tillman (R) have sponsored a bill that would limit the length of legislative sessions to 135 calendar days in odd-numbered years and 60 calendar days in even-numbered years, which takes either session into late July or early August.

Five-year Forecasts: Sen. Chaudhuri teamed up with another Republican, Rick Horner, to seek five-year forecasts of spending and revenues based on the budget. The governor’s budget already provides a five-year projection of total General Fund spending and revenue as well as specific forecasts of “new or significantly expanded programs.”

These changes could improve the state’s already strong budget institutions and practices.

Other changes that generally result in lower spending are smaller senates, line-item or item-reduction vetoes, and supermajority requirements for tax increases. Automatic-shutdown provisions are generally associated with higher spending at the state level, though this has not been an issue in North Carolina because all sides have accepted continuing resolutions during the budget negotiation process and the current majority exercises spending restraint.

Strong institutional checks have kept per-capita spending hundreds of dollars lower than it otherwise might be, making possible the dramatic tax reforms of recent years. The current legislature has also reversed government growth through regulations that limit job opportunities.

More can still be done, but it is worth acknowledging that legislators are using a budget process that makes good decisions easier to make.

Joe Coletti is a senior fellow at the John Locke Foundation focused on fiscal policy issues. He previously headed the North Carolina Government Efficiency and Reform initiative within the Office of State Budget and Management, which led to… ...

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