This article orginally appeared in the News & Observer on Sat., Mar. 14, 2009.
North Carolina’s second "budget crisis" in eight years should serve as a very expensive lesson to our elected officials. When state government ratchets up spending obligations during flush economic times, the spending commitments become unsustainable when the next economic downturn arrives.
Some lawmakers, fortunately, are acting on this lesson and have introduced legislation this session that warrants serious consideration, now more than ever.
Bills in the House (HB 159 and HB 183) and Senate (SB 87) would give North Carolinians the opportunity to vote on a constitutional amendment limiting the growth in state spending.
Each of these bills is inspired by what is commonly referred to either as a Taxpayer Bill of Rights (TABOR), or a Taxpayer Protection Act (TPA). The basic tenet of a TABOR or TPA is to slow the annual growth of state spending to equal the rate of inflation plus population growth. Each year a spending cap would be calculated, and any excess state revenue would first be directed to maintaining a "rainy day fund" at a sufficient level to serve as a backstop during budgetary shortfalls. Once the rainy day fund is sufficiently financed, any extra revenue would be returned to taxpayers.
What would this mean for North Carolina?
Such a spending restraint applied in North Carolina over the past five years, for instance, would have returned $5 billion in excess revenue to taxpayers, and have North Carolina budget makers breathing easy even as other states are hitting the panic button.
If North Carolina had implemented a TABOR or TPA spending restraint beginning with the 2004-05 budget (using 2003-04 as the baseline), state spending for the current year would be $18.7 billion – compared to our actual $21.35 billion budget that has proved too large to be supported by current revenue streams. In other words, there wouldn’t be a budget hole at all.
Calculations show, in fact, that state spending has outpaced inflation plus population growth by $9 billion over just the past five years.
This excess revenue would have been set aside in reserve funds each year to prepare for a rainy day. Had a TABOR or TPA plan been in effect, the state would now be sitting on reserves totaling $3.9 billion, more than four times the $787 million actually in the rainy day fund.
Even after funding such a generous reserve fund, there would also have been an additional $5 billion available to return to taxpayers over the last five years. That amounts to roughly $2,200 for every family of four. How’s that for economic stimulus?
Also important is that a TABOR or TPA amendment would effectively smooth out state government spending patterns over inevitable business cycles, ending the up-and-down roller coaster state budgeting trends experienced over the past 30-plus years.
More predictable budgets will enable state agencies to better plan long-term spending strategies; and avoid sudden, panic-induced cuts made necessary by the repeated budget shortfalls created by the state’s current short-sighted spending patterns.
All of the three bills’ 44 sponsors are Republicans, which doesn’t bode well for the measures, considering the Democratic majorities in both the House and Senate. Partisan bickering should be set aside, however, especially in light of the lessons learned from the current budget crisis.
Meanwhile, another bill in the state House would implement a similarly overdue measure of fiscal restraint: zero-based budgeting. HB 45 would subject the entire budget – rather than just some changes in it – to scrutiny by budget makers. As one of the bill’s primary sponsors, Rep. John Blust, R – Guilford, remarked, "We only look at our proposed changes to the governor’s proposed changes in the budget." The rest of the budget, according to Blust, goes on auto pilot each year, receiving little if any scrutiny. This needs to change.
The zero-based budgeting bill would require all state agencies to produce a thorough description and justification of their expenditures, along with a ranking of each activity as it relates to the overall goals and purposes of the agency. Because of the massive size of state government, the bill would require only a third of the budget to be subject to review every two years, so that every program would receive a zero-based budget review every six years.
Such as process will go a long way to enable lawmakers to identify unnecessary spending and better inform the difficult budgetary decisions they face every year.
There is a silver lining to be found in the current budget deficit cloud looming over Raleigh. The historic budget hole presents a unique opportunity for lawmakers to implement sound, responsible measures that will help prevent deficits in the future and rein in the out-of-control growth of government that causes such deficits in the first place.