Decision to Boost N.C. Reserves Looks Good Now | Eastern North Carolina Now

    Publisher's note: The author of this post is Mitch Kokai, who is an associate editor for the Carolina Journal, John Hood Publisher.

    Hurricane Matthew still sits a couple of days away from the North Carolina coast, and those in its projected path root for the storm to turn to the east.

    But the threat of a potential landfall in North Carolina reminds us that state government already has taken an important step to prepare for potential hurricane damage. It's one that's unlikely to get much attention as reporters scramble to cover both beaches and grocery store bread aisles across eastern North Carolina.

    Facing the pleasant surprise of unanticipated extra revenue earlier this year, state budget writers decided to forgo extra spending. They could have used extra taxpayer proceeds to target one or more of the special-interest groups that constantly clamor for cash. Instead policymakers beefed up North Carolina's savings reserves.

    Nicknamed the "rainy-day fund," the largest reserve account is designed to help North Carolina cope with unanticipated expenses linked to unforeseen events. That could mean the general economic downturn that's bound to arrive after one of the longest - if slowest - economic expansions in memory.

    Or it could mean a literal "rainy day" tied to major damage from a storm like Hurricane Matthew. We're just one month removed from the 20th anniversary of Hurricane Fran, a storm that claimed 24 lives and caused the equivalent of $11 billion of damage in North Carolina alone.

    No one wants Matthew to wreak similar havoc. But state lawmakers' decision to eschew current spending for savings offers a cushion to deal with the aftermath of a major storm ripping through the state.

    The latest state budget plan added $475 million to rainy-day reserves. That pushed the total toward $1.6 billion. It's close to Republican legislative leaders' stated goal of maintaining savings equal to 8 percent of annual General Fund spending. Another $108 million, as proposed in the N.C. Senate budget plan, would have met that goal. (Some fiscal hawks recommend an even higher percentage of General Fund spending for the rainy-day reserve. The imminent threat of a hurricane might push a few more people toward their way of thinking.)

    While sensible, the increased attention to rebuilding long-neglected state reserves was not universally applauded during budget debates. Responding to N.C. House Republicans' plan to add a smaller amount ($300 million) to the rainy-day fund, long-time Democratic Rep. Mickey Michaux of Durham complained that the money should have been spent instead on employee bonuses.

    "It's going to take a whole lot of rain in order to use $1.4 billion," Michaux said in May, long before Matthew started churning in the Atlantic. One hopes North Carolina will not have to learn any time soon just how much rain it takes to eat up $1.4 billion in emergency reserves.

    Setting aside more money in reserve accounts didn't generate many headlines during the last state budget debate. But it is the type of action that attracts attention from other quarters.

    The libertarian Cato Institute doesn't mention savings reserves specifically, but it does cite "spending restraint" in awarding Gov. Pat McCrory this week the second-highest score - and one of only five A grades - in the latest Fiscal Policy Report Card on America's Governors. Praising McCrory's support for tax reforms that have lowered and flattened individual and corporate income tax rates, the Cato report also labels McCrory's spending record as "good." "The general fund budget will be just 8 percent higher in 2017 than it was when he took office in 2013."

    The same fiscal discipline within the executive and legislative branches of government is helping North Carolina edge closer to another top-10 list. This one, from the Tax Foundation, highlights states with the best business tax climates. With a No. 11 ranking on the latest list, North Carolina's most recent reforms are likely to elevate the state into the nation's top echelon.

    No one knows yet what Matthew holds in store for us this weekend. What we do know is that forward-looking policymakers already have taken steps to help limit the potential damage.
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