Setting the stage for a long budget fight

Posted

When the U.S. Bureau of Labor Statistics released revised employment data a few days ago, North Carolina got some unwelcome news. After years of outpacing the national and regional averages in job creation, our state posted lackluster performance in 2018. Total employment rose by 1.3 percent in North Carolina last year, slower than the average job-growth rates for nation (1.8 percent) and the Southeast region (1.7 percent).

Some political activists took notice of the slowdown and then tried to blame it on the conservative fiscal policies of the Republican-controlled General Assembly. But those same conservative policies were also in place during North Carolina’s previous years of better-than-average job creation. Did the Republican legislature’s policies work before but stop working in 2018? Or were they irrelevant before, in which case why should we assume they are relevant now?

If one wanted to put a partisan spin on the available economic data, it would make more sense to contrast Democratic Gov. Roy Cooper with his Republican predecessor, Pat McCrory.

From 2012 to 2016, North Carolina’s economy added some 361,000 positions, an average of about 7,500 net new jobs per month. The comparable monthly rate during Cooper’s tenure to date is 6,200 net new jobs. During the McCrory years, the state’s gross domestic product grew faster than the Southeastern average. Under Cooper, North Carolina’s growth has been below average.

However, simply lining up economic statistics with the terms of politicians isn’t sufficient to establish causal connections. If I cited these statistics to prove that the Cooper administration has been hampering the state’s economic growth – by adopting adverse regulatory policies, for example – I’d be overstating my case. Among other things, it’s foolish to draw firm conclusions until we have a better sense of how much Hurricane Florence is to blame for the 2018 results.

Rather than resort to spin, I’d urge North Carolina politicos to view the economic data in the context of the coming state budget battle.

As my John Locke Foundation colleague Joe Coletti has pointed out, Cooper is proposing a 5.6 percent in General Fund spending for the coming fiscal year, using the most appropriate apples-to-apples comparison. According to the same methodology, legislative leaders are pitching a 3.45 spending increase.

That’s a significant difference. Toss in the fact that the governor wants to issue billions of dollars more in state debt than either the House or Senate want to issue and you have the makings of a lengthy and frustrating budget negotiation this summer.

Keep in mind that for many North Carolina Democrats, Cooper’s budget is too conservative. They believe that the state’s tax burden is billions of dollars too low, which in turn keeps state expenditures billions of dollars lower than required to deliver good-quality public services. They wanted the governor to propose a large tax increase to fund lots of new spending. With his 2020 reelection campaign approaching, Cooper wisely ignored them.

And some conservatives – I’m among them – believe that the legislature’s announced target of 3.45 percent spending growth is too liberal. We would have preferred that lawmakers enter the negotiation with a lower opening bid, one well under 3 percent.

The spread we actually ended up with between the two sides is large enough, however. I suspect it won’t be closed quickly. This may take a while.

So here’s my recommendation. Both Gov. Cooper and the Republican-led legislature should approach the negotiating table with the assumption that North Carolina’s economy is not magically going to surge back into its top gear. The state will collect enough revenue to address top priorities and reasonable increases in the operating expenses of state government. But we shouldn’t expect a massive “April surprise” to pay for everyone’s favorite new ideas.

Make sure to set aside money for emergencies and to repair and renovate state buildings. Fund increases in caseload and some pay raises. Don’t take on massive new spending obligations. And don’t make major changes in the tax code. Be precise. Be prudent. And be patient.

John Hood is chairman of the John Locke Foundation. Follow him @JohnHoodNC.

Comments

No comments on this story | Please log in to comment by clicking here
Please log in or register to add your comment