Agenda 2012: State Spending Restraint | Eastern North Carolina Now

   Publisher's note: Agenda 2012 is the John Locke Foundation's charge to make known their wise political agenda to voters, and most especially candidates, with our seventh installment being the "State Spending Restraint," written by Fergus Hodgson, Director of Fiscal Policy Studies, John Locke Foundation. The first installment was the "Introduction" published here.

    A majority of North Carolinians support a cap on total state spending at inflation and population growth. This expresses a healthy understanding that more government spending, whether borrowed or from immediate taxation, diverts resources away from personal consumption and the private sector. It also acknowledges that government spending ought to become more, rather than less, cost-effective over time, as occurs in other sectors of the economy.

    Over the last four decades, however, voter will has failed to bring about that outcome. Despite a rapid population influx since the turn of the century, for example -- an 18.5 percent increase between 2000 and 2010 -- state spending has grown at an even faster rate. That trend of growth beyond inflation and population growth included the recession years of 2007, 2008, and 2009, despite declining in-state tax revenues.

Key Facts

    •    When all sources of revenue are considered, including federal funds, North Carolina's inflation-adjusted state spending per person is at a record high in 2012 and more than triple what it was in 1970.

    •    Had total state spending tracked population and inflation growth since 2000, as denoted in the Figure opposite, it would be $38.6 billion in 2012. That's 25 percent less than the current level of $51.5 billion.

    •    Since the year 2000, total state spending has consistently grown faster than resident incomes. In 2012, it is set to be 14.4 percent of personal income, up from 10.7 in 2000 and 12.7 just last year.

    •    The share of the total state budget represented by the General Fund has fallen dramatically. It is 38 percent of total state spending in 2012, down from 53 percent of state spending in 1970 and 59 percent in 2000.

    •    General Fund spending per person has declined by 16 percent since 2009 after adjusting for inflation. However, per-capita spending outside of the General Fund has increased by 26 percent, more than compensating for the General Fund's decline.

Recommendations

    1.    Add a Taxpayer Bill of Rights (TABOR) amendment to the state constitution that limits annual state spending growth to no more than the projected growth of inflation and population. The amendment should allow spending growth to exceed the cap if approved by public referendum. Such a spending cap would halt four decades of government growth and better align the long-term interests.
    2.    The TABOR should establish other constitutional constraints on fiscal policy, such as a requirement that any state tax hikes receive supermajority approval in the legislature. The amendment should also mandate that any revenues collected above the annual spending cap be either deposited in a rainy day fund or returned to taxpayers. These measures should ideally be applied to total state spending, not merely the General Fund.
    3.    Mindful of the unsustainable growth in state spending over the past four decades and the current weakness of the state's economy, legislators should seek areas for budget savings and apply "priority-based budgeting." Promoted by the American Legislative Exchange Council in the State Budget Reform Toolkit, this is a plan to change status-quo spending trends and direct spending towards core functions of government.

    Analyst: Fergus Hodgson

     Director of Fiscal Policy Studies
     (919)828-3876 fhodgson@johnlocke.org


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