A constitutional amendment to restrain spending would smooth out state spending over business cycles, and help avoid painful, unpredictable budget crises.
- Leading up to the current recession, state budget increases outpaced the expenditure limit in HB 188 by more than $10 billion in just five years
- If North Carolina had passed HB 188 and used 2003-4 as the baseline, the state would have easily absorbed the current recession’s dip in revenue
- The 2008-09 budget would have been $18.4 billion, well under actual revenue for that year. Instead, the state struggled to fill a $2 billion shortfall that year
- Roughly $9 billion in excess revenue would have been returned to taxpayers during that time, in addition to a healthy rainy day fund
SUMMARY: North Carolina’s ongoing “budget crisis” is the state’s second in eight years, and should serve as a very expensive lesson to our elected officials. When state government ratchets up spending obligations during flush economic times, such spending levels become unsustainable when the next economic downturn arrives. HB 188 would allow North Carolinians the opportunity to vote on a constitutional amendment limiting the annual growth in state spending to the average sum of the rate of inflation plus population growth for the preceding years. Such a measure deserves serious consideration now more than ever.
What Could Have Been
- Had constitutional spending restraints like the one proposed in HB 188 been in effect in North Carolina during the lead up to the current recession, the provisions would have reaped a windfall for taxpayers, and had North Carolina budget makers breathing easy even as other states were hitting the panic button
- Had North Carolina implemented this spending restraint beginning with the 2004-05 budget (using 2003-04 as the baseline), state spending in 2008-09 would have been $18.4 billion – compared to the actual $21.4 billion budget that proved too large to be supported by actual revenue availability of $19.65 billion.[i]
- Moreover, each year excess revenue would have been set aside in reserve funds to prepare for a rainy day under HB 188.
- Even after fully funding the reserve fund, roughly $9 billion would still have been available to return to taxpayers over the five year span. That amounts to roughly $3,700 for every family of four.
A Smooth Spending Pattern Avoids Budget Crises, Makes Agency Budgeting More Predictable
- A TABOR amendment will smooth out state government spending patterns over inevitable business cycles, ending the up-and-down roller coaster state budgeting trends dominating 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
Public Support is Strong
- A whopping 66% of North Carolina voters said they support an act to tie state spending growth to inflation and population growth – compared to just 14% who replied they oppose it.[ii]
[i] General Fund spending taken from annual budget bills. Annual inflation numbers from Bureau of Labor Statistics, available at: ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt NC population numbers from Office of State Budget and Management. Available at: http://www.osbm.state.nc.us/ncosbm/facts_and_figures/socioeconomic_data/population_estimates/demog/ncpopgr9.html
[ii] April 2010 Civitas Institute poll: http://www.nccivitas.org/2010/april-2010-poll-results/