State Leaders Won't Blow Surplus | Eastern North Carolina Now

    Publisher's note: This article appeared on John Hood's daily column in the Carolina Journal, which, because of Author / Publisher Hood, is linked to the John Locke Foundation.

    Over the past two weeks, government budget agencies have delivered two key reports to North Carolina taxpayers. One should infuriate them. The other should please them.

    The infuriating report was, naturally, about the federal budget. The Congressional Budget Office updated its deficit projections. Even after accounting for the economic growth fostered by the Republicans' tax package - yes, the CBO confirms that tax cuts will boost growth substantially - federal revenue will be significant lower than originally projected last summer. On the other side of the ledger, thanks to the recent bipartisan budget "deal" that pulverized previous caps on spending growth, federal outlays will grow about $1 trillion more than originally projected over the next decade.

    The net result is that the federal deficit will exceed $800 billion this year. Through 2028, it will total $11.7 trillion. That's $1.6 trillion higher than the previous 10-year deficit projection. Every year, federal borrowing will run about 5 percent of American's gross domestic product, driving total federal debt near 100 percent of GDP by 2028.

    This is daft. The president, his predecessors, and both parties in Congress are all culpable. They talk a good game about fiscal responsibility. Few act on it.

    By contrast, North Carolina's leaders have proven to be responsible stewards of taxpayer dollars. The other new report I mentioned, from the state controller's office, showed that over the first three quarters of the 2017-18 fiscal year, North Carolina state government spent just over $16 billion for General Fund programs (such as schools and public safety) while taking in $16.6 billion in General Fund revenue.


Senate leader Phil Berger (at podium) and House Speaker Tim Moore (at left), along with other legislative leaders, urge Gov. Roy Cooper to sign the 2017-19 General Fund budget at a June 2017 news conference. (CJ photo by Don Carrington)
    That cash surplus of about $600 million is healthy, although not particularly out of line with previous experience. Fiscal analysts for the state legislature estimate that General Fund revenues are running just shy of $300 million above what was forecast when lawmakers passed the budget last summer. The rest of the cash surplus represents the fiscal cushion state lawmakers usually, and wisely, build into the state budget.

    What if we head into a recession? At the federal level, the daft will become the disastrous. But in North Carolina, lawmakers have prepared us well. We have $1.8 billion in the state's rainy day fund, plus another half a billion dollars in other reserves. A steep recession would surely translate into tight state budgets, but lawmakers won't have to resort either to massive layoffs or stiff tax hikes.

    Other states aren't so well-prepared. Indeed, most of them have experienced revenue shortfalls (tax collections falling short of state projections) either in 2017, so far in 2018, or both. According to the Pew Charitable Trusts, 36 states have smaller rainy-day funds, as a percentage of their budgets, than North Carolina does.

    As you might expect, news that North Carolina is running a revenue surplus so far this year has spending lobbies in Raleigh licking their chops. I would urge them not to start ordering steak or lobster. For one thing, the state doesn't yet have a report on April tax filings, which always play a disproportionate role in determining annual revenue collections.

    More importantly, today's legislative leaders have studied their recent history. They know that in the past, state budgets zoomed during boom years only to run into recessionary brick walls. In each case - in the 1990-92, 2001-03, and 2009-11 periods, the Democrats then in charge resorted to large tax increases, primarily regressive sales-taxes hikes, to help fill North Carolina's budget holes. These tax hikes punished struggling families at just the wrong time, and hampered the state's economic recovery.

    House Speaker Tim Moore, Senate leader Phil Berger, and their colleagues are determined not to repeat this sad history. There are real needs, to be sure, in such areas as prison safety, school security, and pay increases for critical public employees. Lawmakers will tend to them. But they'll continue to keep overall spending growth from surging above a sustainable level.

    Few Washington politicians deserve the label of fiscally responsible. Fortunately, North Carolina's politicians are made of stronger stuff.