Thanks to a decade of wise, conservative fiscal policy, North Carolina state government is better positioned financially to weather the economic fallout from the coronavirus shutdown.
The Office of State Controller’s most recent General Fund Monthly Financial Report shows the state’s rainy day fund balance still has nearly $1.2 billion, with another $1.6 billion in “non-reverting Department Funds.” The state’s unemployment insurance fund was well stocked with roughly $3.9 billion in surplus funds to provide targeted relief for those laid off during this crisis.
This situation underscores the stark contrast between the state’s fiscal condition now compared to the situation 10 years ago under Democratic control.
The chart below summarizes some of the key differences, with the left column describing 2010 conditions and the right column summarizing conditions today.
*Note: The FY 2019-20 budget was on pace for a significant surplus prior to Gov. Cooper’s shutdown order
The 2010 state budget marked a whopping 40 percent increase in state spending over eight years. Only the massive revenue drop caused by the onset of the 2009 financial crisis stemmed the tide of unsustainable spending growth.
Conversely, the eight years leading up to and including 2020 experienced a more responsible and sustainable 16 percent growth in state spending.
Moreover, budget surpluses – not budget deficits – have become the norm. Budget writers in 2010 were confronted with a massive $3 billion budget deficit. In 2020, the state was on pace for its sixth consecutive budget surplus prior to Gov. Cooper’s shutdown order. Each of the previous surpluses totaled hundreds of millions of dollars, most exceeding $400 million.
State Debt and Savings
The legislature built up the state’s rainy day fund to a record $1.9 billion prior to Hurricane Florence in 2018 through prudent spending restraint. Today the fund balance is $1.2 billion. Back in 2010, the rainy day fund stood at a paltry $150 million.
Also in 2010, the massive 40 percent increase in state budget spending over eight years wasn’t enough to satisfy the spending appetites for the liberals controlling the General Assembly. They were in the process of racking up an alarming $6.5 billion in state debt from 2001 to 2013 – an increase of 230 percent.
Since then, conservative leaders have reduced the state debt from $6.5 billion to $4.2 billion, a reduction of 35 percent.
Unemployment Insurance Reserves
In 2010, the North Carolina unemployment insurance fund was depleted. The great recession quickly exhausted what little funds had been set aside in short order. The state had to borrow more than $2.5 billion from the federal government to cover claims.
Thanks to reforms enacted by conservative leaders in 2013, however, the state’s unemployment insurance fund steadily built up $3.9 billion in reserves. Those funds will help us meet the challenges spawned by the sharp economic downturn we are experiencing today.
North Carolina is better positioned than most states to accommodate the historic rush of unemployment claims precipitated by Gov. Roy Cooper’s lockdown orders. Such preparedness should enable North Carolina to avoid once again borrowing money from the federal government and the tax hikes on job creators required to repay it.
Comparing North Carolina’s current state budget and fiscal situation with that of a decade ago offers a contrast as stark as night and day.
In 2010, under the leadership of Joe Hackney, Marc Basnight and Gov. Bev Perdue, state spending was unsustainable, debt soared and savings were almost nonexistent.
By 2020, thanks to a decade of conservative leadership, state spending proceeds at a reasonable and sustainable pace, debt is falling, and savings have been built up to help weather the fiscal challenges generated by coronavirus and mandated government shutdowns.
The contrast is crystal clear, and the stakes are high. North Carolinians simply cannot afford to return to the reckless spend and tax policies of the past.