Civitas Review

Time for Some Spending Discipline

By | Posted in Budget & Taxes |

House Bill 188 was filed last week.  Several House lawmakers yesterday held a press conference to discuss the bill. The bill would establish a restraint on the growth rate of the state's budget. I outline a summary of the bill in this Civitas Note here.

What would North Carolina's budget situation look like had we had such a spending restraint in place for just five years prior to the current recession? In the Civitas note, I used the "Growth factor" included in HB 188 to project what spending would have been versus the size of the state budgets actually passed. In short, rather than facing a $2 billion budget hole in fiscal year 2009, the state would have had more than $1 billion in surplus revenue. Plus there would have been roughly $10 billion in excess revenues over the course of those five years to be used for a rainy day fund, to cover state retiress health care obligations and to return to taxpayers.

A measure like HB 188 is so needed because lawmakers have shown no fiscal restraint over several decades, and in fact the restraint is most needed during the good economic times when revenue is flowing into state coffers. It is during these flush times of little "need" that budget writers can't help themselves, and end up ratcheting up spending to unsustainable levels. Much better to temper spending growth during the good times to avoid massive deficits when times turn bad and revenue dries up. A smoother and more predictable trendline also makes it easier for state agencies to plan their budgets year to year.

HB 188 could use some minor tweaking, but would certainly provide a better alternative to the roller-coaster trend of wild spending swings the state has demonstrated over the last few decades

The public seems to understand the need for fiscal discipline as well. Our April 2010 poll shows that 66% of North Carolina likely voters support a measure to tie state budget growth to the rate of inflation and population change, while only 14% oppose .

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