Should North Carolina be more reliant on the federal government, or work to be more independent from D.C.?
To answer that question, we need to understand how much the state already depends on Washington – and that dependency might be shocking to many NC taxpayers.
Illuminating the problem is a little-discussed provision included in last year’s state budget requiring a handful of state agencies to disclose the number and dollar amount of active federal grants for which they are still receiving funds. The Departments of Labor, Commerce, Environment and Natural Resources, Agriculture and Consumer Services, along with the Wildlife Resources Commission, were instructed to report on the amount and source of each grant, along with any required state match and maintenance of effort to receive the grant.
Although somewhat light on details, the reports still shed light on some worrisome trends in North Carolina government.
It is important to momentarily backtrack and explain that what is commonly referred to as the “state budget” is really the state’s General Fund. The General Fund is financed through state taxes and fees, and it pays for the state government’s share of services and activities such as public education, Medicaid, commerce and many others. The current General Fund is roughly $21 billion.
The total state budget, however, is much larger. It includes federal funds sent to the state to help finance public education, Medicaid, social services as well as grants for countless activities ranging from cultural programs to transportation to environmental regulations. The total state budget amounts to about $51 billion, and also includes “other” revenue such as lottery receipts and college tuition.
Over the last few decades, North Carolina – like most states – has seen its reliance on federal funds increase. For instance, the Governor’s proposed FY 2015-16 budget anticipates $16.2 billion in federal funds, which is nearly three and a half times the $4.7 billion in federal dollars the state received 20 years ago.
As a result, this coming year federal funds will account for 32 percent of the total state budget, up from 26 percent in 1995-96. Indeed, the state is quickly becoming nearly as reliant on federal funds as it is state General Fund tax revenue. For every dollar in state taxes collected next year, North Carolina will receive about 80 cents from the feds. Twenty years ago, federal funds amounted to less than half state tax revenues.
Returning to the agency reports, the four agencies totaled 263 active federal grants worth a combined $622 million. (Many of these grants are multi-year agreements and the grant total represents the total amount over the life of the grant.)
In the Wildlife Resources Commission (WRC), for example, federal grants accounted for 32 percent of total agency receipts, up from 21 percent in 2008. Meanwhile, WRC’s reliance on state appropriations from the General Fund declined from 32 percent to 17 percent.
And of course, federal funds aren’t free. Accompanying the $622 million in federal grants to these reporting agencies were state matching requirements totaling $172 million, roughly 28 percent of the federal grant totals.
Financial matches are not the only strings attached to federal grants, either. As the WRC report states, “Strict restrictions and controls associated with each grant” are imposed on the recipient in order to “accomplish the intent of the federal legislation.”
Such “strict restrictions and controls” represent an erosion of North Carolina’s independence, giving way to more obedience to the commands coming from D.C. After all, he who pays the piper calls the tune.
Recall it was the NC General Assembly – so desperate to snatch $400 million of “Race to the Top” federal grant funding – that hastily adopted Common Core standards in 2010.
Moreover, is it wise to rely so heavily on revenue from an entity that is completely broke? Uncle Sam is on pace for a $700 billion budget deficit this year, and another $2.5 trillion over the next four years. The national debt has ballooned to exceed $18 trillion, with unfunded liabilities for Social Security and Medicare estimated by some to be another $95 trillion.
How would North Carolina respond if its federal funding dried up, or was reduced by 10, 20 or 30 percent? How would state legislators finance all of the state’s operations and services? Is North Carolina truly financially ready to absorb cutbacks to federal funding?
In 2011, Utah passed a bill requiring all state agencies to disclose total federal receipts, the strings attached, and a contingency plan if those federal dollars are reduced. Similar bills in Idaho, Montana and South Carolina have been introduced already this year.
North Carolina would be wise to follow suit.
This article originally appeared in the Fayetteville Observer.