North Carolina’s state budgetary woes took center stage once again this past summer as lawmakers grappled with a multi-billion dollar budget deficit. Filling most of that deficit was $1.1 billion in unpopular new taxes and billions more in bailout funds from the federal government.
Furthermore, a Joint House and Senate Finance Committee was recently formed to examine North Carolina’s tax structure in order to “modernize” the state’s mix of taxes. Such modernization is desired by lawmakers, in part, to develop a tax structure capable of better weathering economic recessions and supplying the General Assembly with sufficient revenue even during downturns.
In both of these cases the focus has been centered on generating sufficient revenue to finance North Carolina’s state government spending.
Little attention has been paid, however, to the state’s unsustainable long-term spending trends. The chart below compares the growth over time of North Carolina’s population versus the state budget – adjusted for inflation.
Some notable observations from the data include:
- North Carolina’s state budget – even after adjusting for inflation – more than tripled in the last 30 years.
- By comparison, the state population grew by 61 percent.
- In other words, real expenditures in North Carolina’s state budget grew at more than three times the pace as population.
- If real (inflation-adjusted) General Fund appropriations had merely increased by 61 percent over that 30-year time span, the fiscal year 2008-09 budget would have been only $11.1 billion.
- Last year’s actual budget was $21.4 billion, $10.3 billion more – or 93 percent greater – than if inflation-adjusted, per person state spending had been limited to 1979 levels.
- Even if the inflation-adjusted state budget grew by 122 percent – or twice the rate of population growth – during that time, appropriations would have amounted to only $15.3 billion in 2008-09, $6.1 billion less that the actual approved budget.
Digging yet another massive state budget hole requires a lot of work. North Carolina lawmakers have been up to the task, however, having embarked on a long-term spending binge and greatly expanding the size and scope of state government.
Such an alarming growth of state spending is unsustainable, no matter how state legislators may or may not revise the state’s tax code. What is truly needed is spending reform if North Carolina wants to avoid a future filled with massive budget deficits and the inevitable tax increases that follow.