If you listen to the drive-by media or the zombies and trolls following Bill Barber around, you’d think North Carolina state government was now a shoe-string operation. Thanks to media misinformation, and some fancy accounting by politicos, we’re getting quite a dishonest picture about our state government’s financial practices — which threaten the future of our state if not addressed immediately.
Let’s take a look at 2012 — the second year into Raleigh’s “conservative revolution”:
“Total state spending per capita is at its highest level ever in the 2012 fiscal year and has more than tripled since 1970,” said report author Fergus Hodgson, JLF Director of Fiscal Policy Studies. “Adjusting for inflation, state spending has increased in that period from $1,701 per person to $5,247.”
That spending expansion has far exceeded personal income growth, Hodgson said. “State spending stood at 10.9 percent of personal income in 1970, dipped as low as 9.3 percent in 1984, and never exceeded 12 percent prior to 2008,” he said. “Yet for 2012 it is on course to be 14.4 percent of North Carolinians’ income.”
Spending on all reported state budget categories has more than doubled since the mid-1970s, Hodgson said. “This is true for education, corrections, health and human services, transportation, and debt payments.”
Other evidence refutes arguments about declining education spending. “Gauged as a percentage of income, state spending on education has fluctuated around 4 percent of total income for the past 40 years,” Hodgson explained. “This year, 2012, sits right on the 40-year average of 4.2 percent.”
Meanwhile, transportation spending is set to reach its highest level on an income-percentage basis since 1979, and Hodgson notes a “disproportionately high rise” in spending on debt service payments. “Since 2000, debt servicing has increased in per capita terms by 128 percent and more than doubled as a percentage of income.”
A spending cap would have made a major difference over the past decade, Hodgson said. “If adopted in 2000, a simple cap limiting state spending increases to inflation plus population growth would have restrained current spending to $38.5 billion, which is 75 percent of the actual spending of $51.5 billion.”
Much confusion about state spending stems from an undue focus on the general fund, Hodgson said. Media reports about the North Carolina budget generally refer only to general fund numbers.
“General fund spending per capita has declined by 16 percent since 2009, but per capita spending outside of the general fund increased by 26 percent at the same time,” Hodgson said. “This more than compensated for the general fund’s decline. It’s also important to note that the general fund makes up just 38 percent of total state spending this year, down from 53 percent in 1970 and 59 percent in 2000.”
Most budget debates also ignore the growing role of federal dollars, Hodgson said. “Federal aid makes up 36 percent of state revenue now, up from 21 percent in 1975 and 24 percent in 2000,” he said. “While this funding source has no immediate impact on state taxes, it still merits concern. North Carolinians will feel it through federal taxes or through debt and inflation.”
North Carolina’s approach to accounting conceals another important fact. “State officials across the U.S. — including North Carolina — use something called cash-basis accounting, which does not account for bills that will be due in future years,” he said. “The largest future bill, or unfunded liability, is retirement health benefits. Those benefits totaled $34.2 billion at the end of the 2010 calendar year. That figure had increased by $4.4 billion in just two years.”
Now, let’s turn to 2013, THREE YEARS into the conservative revolution in Raleigh:
“Regardless of competing political platforms and campaign speeches about the state budget, one thing is clear: North Carolina’s inflation-adjusted per-person budget expenditures increased significantly over the last 30 years,” said report author Sarah Curry, JLF Director of Fiscal Policy Studies. “In particular, there have been rapid increases in state spending across all categories in the last 10 years. That’s a dangerous precedent when one considers that the financial stability of state and federal governments is not at its strongest.”
State government reached its highest General Fund appropriation in 2009, with an inflation-adjusted amount of $22.5 billion, Curry reports. “Since that time, General Fund spending has been slowly decreasing, but total state expenditures have increased, as more and more state spending moves outside the General Fund.”
The shift away from the highly publicized General Fund has created a lack of transparency in North Carolina’s budget process, Curry said. “Government budgets have a reputation for being difficult for the typical citizen to understand, and North Carolina is no exception,” she said. “For many, the persistent growth in state spending is not easily visible because of the undue focus on the General Fund, particularly within the media.”
Media reports often label North Carolina’s General Fund as “the state budget.” Curry’s report explains that state spending also includes federal dollars, along with spending on non-General Fund items such as transportation and debt service.
“North Carolina has received about 45 percent of its total budget from the federal government over the past 10 years,” Curry said. “The number was even higher in 2010 and 2011, when the so-called federal stimulus package boosted federal funding to a historic high of 56 percent of North Carolina’s total budget.”
State government officials should be “wary” of allowing such a large part of the state’s expenditures to be dependent on federal funding, Curry said. “In reality, the federal government borrows all of this money before sending it to North Carolina state government,” she said. “This funding source suffers from the same uncertainty that plagues all of Washington’s deficit spending.”
Because of the lack of transparency in state government spending, many people might not realize that the state spends more on health and human services than on education, Curry said. “Since 2005, during former Gov. Mike Easley’s administration, the total HHS budget has been consistently higher than the total amount of funds spent on public education.”
Within non-General Fund spending categories, North Carolina spent about $4.5 billion on transportation-related items in the most recent fiscal year, Curry said. “That expense has grown by 123 percent since 1980,” she said. “In addition, the state’s debt service spending was relatively stable until surges in 1997 and 2003. Debt service spending increased by 193 percent during this period.”
A focus on total state spending would help policymakers who are interested in improving North Carolina’s economy, Curry said. “Total state spending is a more complete measure of the extent to which state government diverts real resources — land, labor, and capital — away from the private sector, where all economic growth is generated,” she said. “This diversion, also known as ‘crowding out,’ leads to less economic growth and job creation. This is why our elected officials must begin the process of reducing the size of state government.”[…]
So, it appears a lust for spending other people’s money is a bi-partisan affliction.