When lawmakers return to Raleigh on May 18 for the biennial “short session,” they will be greeted by good news.
The General Assembly’s fiscal research division projects that by June 30, the end of the fiscal year, the state will collect some $4.2 billion more than was forecast in this year’s budget.
When Democrats ran the assembly, this news would signal they had money to spend, and they would predictably set about figuring out where to appropriate more money.
Republicans now in charge, just as predictably, will pontificate this is prima facie evidence that taxes are too high and go about cutting more of them. Besides, they will reason, with inflation soaring to 8%, they can help more people by easing their tax burdens. North Carolina lawmakers wouldn’t be alone in contracting tax-cut fever. Other states are considering similar actions.
Both the Democrats’ and Republicans’ responses are wrong. Spending just because you have money is bad policy, often resulting in frequent boom-and-bust budget years. Cutting taxes, however would be the worst move lawmakers could make.
Let’s examine four reasons we have this surplus.
First, the coronavirus created a pent-up demand. Consumers found shortages in many items and often bought more than needed to ensure they wouldn’t go without. The government artificially stimulated the economy to ameliorate anxiety, reduce the loss of income and hopefully prevent a major recession. The bottom line is that even with manufacturers running at full production, buying has outpaced production.
We’ve seen a stronger than anticipated economic rebound. Those factors, coupled with worker shortages, have resulted in inflation at 40-year highs. Cutting taxes will only stimulate more spending and exacerbate inflation and a potential recession.
What would be a wise course of action? Agree with her politics or don’t, but Sen. Elizabeth Warren reveals wisdom in her book “All Your Worth.” She calls it the 50-30-20 plan and, while it is primarily aimed at individuals, it also makes sense for government.
Warren suggests dividing up your income and allocating 50% on needs, 30% on wants and 20% in savings.
Let’s begin with the savings. Using Warren’s model, 20% of our budget should be in reserves. Last November’s budget law pegged state government spending for the fiscal year beginning in July at $27 billion. Applying the 20%, we should maintain $5.4 billion in savings.
The best information I’ve obtained indicates our current “rainy day” fund and other savings are $4.25 billion. Therefore, $1.15 billion of this year’s anticipated surplus should be added to our reserves.
This leaves a $3.05 billion balance. This is “one-time money,” meaning it occurs this year but can’t be counted on in future years. Budget prudence dictates not to appropriate one-time money on continuing budget items. However, our state has pent-up demands, and I would advocate some wise investments even if they are recurring.
For starters, let’s bite the bullet and fund Medicaid expansion, adding some 100,000 qualified recipients to the plan. Thirtty-eight other states have done so, and there’s little chance either the expansion will be defunded or the state’s 10% cost match will be increased.
Senate President Pro Tem Phil Berger might be willing to go along with this expansion if coupled with the elimination of certificate of need laws — which needs doing — and expanding the scope of authority for nurse practitioners, physician assistants and other care providers, which is likely to happen anyway.
Bottom line: Medicaid expansion will add an extra $500 million per year in costs but will generate other huge benefits. A healthier North Carolina benefits us all.
Next, fund the balance of the Leandro settlement plan, which is calculated to cost some $785 million per year. Let’s end all the court cases and constant bickering, instead spending our energy on improving education outcomes for our schoolchildren. Spending alone won’t improve outcomes, but starving our schools won’t do it either.
State employees received pay increases in last year’s budget, but not enough to account for many years when they got nothing. It’s for sure government won’t work efficiently with too few or underqualified workers. We’ve talked for years about a professional compensation strategy. Let’s do something now.
Finally, let’s spend on infrastructure, especially our roads. Major economic expansions have been announced for our state, and more are coming. Our road system needs help.
Further, we must add mass transit in rapidly growing urban areas. No, transit won’t pay for itself, but we subsidize plenty of other services. If the only criteria for government spending is that it must pay for itself, we would shut down schools, law enforcement, fire protection, health care, parks and other services people expect from their state.
The above are wise investments for a growing state, and I hope our legislature will stay focused and not venture into subject areas like abortion, education theories or issues likely to see a gubernatorial veto. These would only cause frustration, take time and cost taxpayers more money. Lawmakers, get the job done and adjourn to spend the Fourth of July back home with your families!
We all want the best state of any, a state we can be proud to say is our home.
Tom Campbell is a North Carolina Hall of Fame broadcaster and columnist who has covered North Carolina public policy issues since 1965. He recently retired from writing, producing and moderating the statewide half-hour TV program “N.C. Spin” that aired for 22 ½ years. Email him at firstname.lastname@example.org.
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