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Slowing growth in state spending would have serious consequences

For more than a century, North Carolinians have pooled their resources to invest in great achievements, including a statewide K-12 system, the oldest public university system in the country, transportation infrastructure and a lot more. Taxes matter for the economy and society that we all enjoy so how the state government raises the billions of dollars that fuel the state budget is very important.

And, the ability of the state tax system to grow with the economy and keep up with the cost of public services and the changing needs of the population is critical. Yet, this continues to be a missing part of the debate over the impact of tax plans under consideration

Senate and House leadership say that their plans merely slow the rate of state spending to around 3 percent and 4.5 percent, respectively, compared to the long-run average of 4.8 percent. A 1.5 percentage point drop and a .3 percentage point drop in the revenue growth rate sound innocuous at first glance, but further analysis shows just how devastating this would be.

A look back demonstrates what North Carolina would have lost if the state would have held spending to a restrictive level. If North Carolina were to have experienced a 3 percent growth over rate the past 20 years, the state would have had lost out on a cumulative $93 billion (unadjusted) to spend on public services. The current fiscal year would have been $6 billion in the hole. Or, in the 2008 fiscal year—when the Great Recession hit—North Carolina would have had nearly 8 billion fewer dollars. So what does $8 billion mean in terms of state services? It is more than our combined budget for the Department of Health and Human Services, Department of Commerce, Department of Justice, Indigent Defense Services PLUS funds to address the NC pre-K waiting list and the child care subsidy waiting list.

If North Carolina were to have experienced a 4.5 growth rate over the past 20 years, the state would have had lost out on a cumulative $46 billion (unadjusted). The state would have been nearly $1 billion in the hole in the current fiscal year and $5 billion in the 2008 fiscal year. Five billion dollars is roughly the size of the Health and Human services budget section, which includes the Medicaid program, the child health program known as S-CHIP, the Division of Public Health, the Division of Social Services, and several other divisions.

Now, let’s look ahead. Slowing the rate of growth would make it difficult to make progress on rebuilding after the devastating cuts that occurred because revenue collapsed during the Great Recession.  The self-imposed revenue losses resulting from these tax plans would make it more difficult to move the state forward and keep up with projected rapid population growth—which has significant budget implications for the state’s ability to provide education, employment, healthcare and all of the other public services.  

As I mentioned [1] earlier this week, we must remember that in 5 years North Carolina will have more children to educate, more seniors to care for, and more citizens to serve and protect—but if either tax plan becomes law, there would not be enough dollars to keep up with demand for public services. The state will add approximately 100,000 people to its population each year over the next five years, according to the Office of State Budget and Management (OSBM) [2]. By 2032, OSBM estimates that the state population will grow by more than 2 million people—a figure that is equivalent to nearly 2,000 people every week. And, the senior population will increase by 73 percent during that twenty-year period.

Moving forward with the Senate and House tax plans would leave North Carolina unable to maintain its most important investments in the education and health of our families, which are the very building blocks of a strong economy and strong future.

This is the second post of a week-long blog series that will uncover just how far behind North Carolina’s current services levels are compared to pre-recession levels as well as how far behind the state would fall if the House and Senate tax plans were implemented. The first post is available here [1]