NC Budget and Tax Center

#ThrowbackThursday: North Carolina can’t compete by spending at 1973 levels

Policymakers have chosen to reduce state spending in recent budgets and appear poised to continue that approach even despite a recovering economy.   Such small thinking ignores the fundamental role of state budgets in supporting the broader economy and delivering opportunities to communities and families.

The state’s most recent budgets (and current budget proposal from the Governor) break dramatically with our state’s past and put at risk the foundations of a strong economy by spending at historically low levels as a share of the economy. An analysis of data back to 1970 on state spending shows that North Carolina today is dedicating a lower level of our total resources to public services than we did in 1973 (see graph). That year was the start to the 1973-1975 recession characterized by the oil crisis and stagflation, and largely recognized as the end of the post-World War II economic boom. It’s also when computers conducting sophisticated analysis took up entire rooms or buildings, office work had not yet been impacted by the use of personal computers and those that did exist could store just 16 lines of text.BTC - Collective Commitment 1973

Today, North Carolina has passed the fifth year of the official recovery from the Great Recession that started in 2007. For six years in a row state spending has continued to erode and the Governor’s budget would continue that trend.

Looking at state spending as a share of the economy, or total state personal income, is akin to the way in which federal budgets are assessed relative to GDP. Importantly it represents a reflection of our collective commitment to build an economy that works for everyone. Such a measure also provides a way to assess whether we are spending more or less over time while also considering that with economic growth there are more resources available and needed to support the economy.

The evidence is clear on this point: smart state spending is necessary to support positive economic outcomes. Higher educational attainment, made possible through smart investments in student achievement, classroom experience and professional development for teachers, is connected to higher wage levels in a state. Analysts at the Federal Reserve Bank of Chicago found after analyzing data from 1904 to 2004 that the greatest driver of per capita income growth is the stock of educated workers, research institutions and other knowledge factors. Findings of a strong and positive economic benefit from infrastructure investments, early childhood education and public health care among other state budget items are also available. And more recent work found an overall positive relationship between state spending and economic growth.

But we also don’t need to look far to know that state spending matters. Past spending choices set North Carolina apart from the rest of the South and made possible more broadly shared economic opportunity and stronger growth. That is why the current spending levels remain so troubling: they reflect a reduced collective commitment to these critical economic goals and ignore the lessons of the past. For example, in the early part of the last century, policymakers chose to establish an income tax that made it possible to deliver a universal public education to all children in the state. In the post-War period as the state became a center for industry, policymakers expanded opportunities for workers to get training by building a statewide system of community colleges that provided local education and skills training opportunities.

Through our government, we are able to commit to strengthening our communities and building an economy that works for everyone. Our collective commitment to those goals is reflected in our level of state spending. It is clear that we are falling far short of what is needed to make those goals a reality.

One Comment

  1. LayintheSmakDown

    March 21, 2015 at 10:04 am

    Good post! It certainly looks as if we are going in the right direction. I even appreciate your highlight on one of the efficiency gains that enable this type of trend….computers certainly allow fewer people to do more than they would have in the past.
    I would also hate to see the progresso nirvana in a chart, it would certainly be much higher on the y axis as it would have to get to 100% or more.

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