The 2010 elections marked an historic transfer of power in North Carolina’s General Assembly. The new Republican majority was swept in largely based on their promises of fiscal responsibility.
But if North Carolinians are to take the promises of fiscal restraint seriously, the new leadership in Raleigh should pass two pieces of legislation that are long overdue. Doing so would mark the first meaningful spending reform in generations.
If the new majority is serious about controlling spending they will first adopt what is commonly known as a Taxpayer Bill of Rights, or TABOR. The basic premise of a TABOR is to tie the annual growth of state spending to equal the rate of inflation plus population growth. Each year, the spending cap would be calculated and any excess revenue collected would be directed to a “rainy day fund” to serve as a backstop for future budget deficits. Once the rainy day fund at sufficient levels, any further extra revenue can be returned to taxpayers.
The benefits of a TABOR would be many. By restraining the annual growth rate of state spending, the state’s year-to-year budgetary fluctuations would be smoothed out and more predictable. A review of North Carolina’s state budget history makes a compelling argument for TABOR.
Over the past several decades, a discernable budget pattern emerges: During times of healthy economic growth, state spending is dramatically ratcheted up, and when recession hits the spending dips sharply. This decades-long roller coaster ride has resulted in countless “budget crises” and sends budget writers in Raleigh into a panic. Times of panic rarely produce sound public policy.
A TABOR would help avoid the severe ups and downs. During flush economic times, the spending restraint will temper the rate of spending growth and see to it that excess revenues are aggressively set aside in a rainy day fund. When the economic cycle inevitably turns down, TABOR’s restraints will make the state’s spending commitments much more manageable than otherwise. Moreover, lawmakers will be sitting on sufficient reserves to avoid sudden cuts to spending that so many are howling about today.
Where would North Carolina be now if it had implemented a TABOR prior to the current recession? Had North Carolina implemented a spending restraint beginning with the 2004-05 budget (using fiscal year 2003-04 as the baseline), the 2008-09 budget would have been limited to $18.7 billion, compared to the $21.35 billion lawmakers actually approved for that year. Recall that, due to the onset of the recession, actual available revenue was limited to $19.65 billion for the year. In other words, with a TABOR in place for just the previous five years, rather than a budget “shortfall” of nearly $2 billion in fiscal year 2008-09, the state would have had nearly a billion in revenue to spare.
Furthermore, during each of those five years under TABOR the excess revenue collected would have been set aside. In this example, that means North Carolina would have been sitting on a rainy day fund of just under $9 billion.
If such a built-in spending restraint had been in place during the past few years — instead of desperately grasping at billion-dollar tax hikes and billions more in federal stimulus funds — North Carolina budget writers would have been asking “what budget gap?”
The second piece of legislation desperately needed to get North Carolina’s fiscal house in order is a legal requirement to ensure that all new state debt receives voter approval. Thanks to a funding mechanism known as Certificates of Participation (COPs), the state has been able to circumvent voter approval for new state debt since 2000.
Unsurprisingly, without this accountability measure North Carolina’s state debt has exploded. Per-capita state debt has more than doubled in less than a decade, annual payments to pay down the debt have more than tripled, and the State Treasurer’s Office has warned that the state’s bond rating is in jeopardy if it continues to skirt voter approval for new debt.
Since 2000, annual payments on the state debt have swelled by more than $450 million. In light of the current budget crunch, that $450 million could finance more than 8,000 public school teachers.
And what makes more sense than first getting permission from citizens before running up more debt that the citizens will be forced to pay back? Anything less is tantamount to a thief stealing your credit card and maxing it out.
The new majority in North Carolina’s General Assembly rode a wave of public sentiment demanding fiscal restraint and accountability into office. Nothing would live up to the citizens demands better than a Taxpayer Bill of Rights and requirement of voter approval for all new state debt.
This article originally appeared in the Durham Herald-Sun on February 2, 2011.