What the legislature isn't telling you about 2015

by Tom Campbell, Executive Producer and Moderator, NC SPIN, July 25, 2014.

Our lawmakers have been embroiled in contentious debates about teacher pay and Medicaid, among other issues, as they struggle to revise our $21 billion state budget. While these are undoubtedly important and deserve attention they are symptoms of a much larger problem.

The 2013 session of the legislature implemented the largest state tax cuts in modern history. We were told these cuts were necessary to put money back into people’s pockets and stimulate our economy. Whether true or not, one thing is certain: the cuts have resulted in a reduction in state government revenues. What our leaders have not talked about is a second round of tax cuts, which, according to the NC Budget and Tax Center, will further reduce state revenues by as much as $300 million in calendar year 2015.

A Charlotte Observer editorial recently stated that elected officials could find the money needed to pay for teacher and state employee pay raises if lawmakers would postpone the implementation of the next round of tax cuts. Few believe such a delay will get serious consideration.

North Carolina’s state budget has experienced boom-and-bust budget cycles for decades. Some years we’ve had surplus money to spend and in others we’ve had to cut state budgets. Yo-yo budgeting doesn’t lead to good governance. No doubt these cycles are caused by fluctuations in the state’s economy but the spikes are made more pronounced because we failed to modernize our tax codes to help level out those cycles.

For years state leaders talked about the need to reform our manufacturing-era tax codes and the 2013 legislature enacted what they labeled as tax reform; mostly what they did was cut taxes and left most of the tax preferences, exceptions and loopholes from the antiquated codes in place. Whenever serious consideration was given to closing loopholes, such as film tax credits, historic preservation tax credits or other tax preferences proponents quickly mounted effective campaigns that resulted in most of them remaining in place.

We are debating whether tax cuts were needed or even whether they have helped stimulate our economy. There is evidence our state’s economy is improving, albeit slowly, however since the tax cuts have only been in effect a short time it would be difficult to prove they are the primary reason for our economic improvement. We are merely observing that we continue nibbling around the edges of the current issues du-jour, like teacher pay raises, while simultaneously reducing state revenues through tax cuts.

There never seems to be a proper time to hold honest debate and deliberation on the real issue, mainly what is the proper role for state government, what programs and services are we willing to provide and how we will fund them? In the long legislative sessions there are more pressing immediate concerns, like passing a biennial state budget. In the short session lawmakers are mostly interested in revising the second year of the budget and adjourning to campaign for re-election.

Einstein said that if you keep doing what you are doing, you will keep getting the results you’ve been getting. What this means to North Carolina is that state government can expect less revenue in 2015, accompanied by more contentious arguments over how and where to spend it.