TAR HEEL VIEW: Though NC is fiscally healthy, legislators should be cautious

North Carolina Democrats, including Gov. Roy Cooper, jumped at a legislative staff report projecting a large state budget deficit opening a few years from now.

Republicans pushed back against that risk.

Tax-and-spending issues are sure to provoke partisan arguments these days. Yet, North Carolina — unlike, say, Illinois — is in remarkably good fiscal condition.

It’s true that the legislature’s Fiscal Research Division, a nonpartisan office, found that the budget enacted this month by Republicans over Cooper’s veto puts the state on track toward a billion-dollar deficit down the road. Expenditures are on pace to exceed revenues by 2019, the analysis requested by Senate Democrats said.

“This is exactly what Governor Cooper meant when he called this budget fiscally irresponsible,” the governor’s office said last week in a news release.

Republicans called the idea nonsense. Before a budget gap opened, they would plug it by slowing expenditures or drawing on reserves, they said.

That is entirely possible. North Carolina must balance its budget, and it always manages to do so. It happens to be in an exceptionally strong position now, thanks to more than $1 billion in reserve funds.

That’s one reason why the nation’s top bond rating agencies recently renewed the state’s AAA rating. In addition, the Mercatus Center at George Mason University in Virginia last week moved North Carolina up from 21st to 15th in its rankings of states based on fiscal condition. One indicator, according to Mercatus: “Long-term liabilities are 17 percent of total assets, or $1,028 per capita, which is far lower than the average across the states of $4,272 per capita.” There was a caution: The ratio of pension obligations to income is rising in North Carolina.

Nevertheless, whatever criticisms Democrats might hurl at Republicans in North Carolina, fiscal irresponsibility should not be high on the list.

Yet, there are different approaches to fiscal responsibility. One is to establish tax rates sufficient to generate enough revenue to cover necessary expenditures. In North Carolina, that would be enough to pay for schools that offer a sound, basic public education to all children; first-rate public university and community college systems; well-maintained roads, bridges and ports; strong public safety, public health and social services programs; and a court system that ensures equal and timely justice for all.

There are legitimate policy arguments about the right level of taxation and spending to achieve the best balance for the overall health of our state. Democrats think Republicans balance the budget too much with spending constraints while cutting taxes too much. Republicans think Democrats would spend and tax excessively.

There’s another debate about how to target tax cuts. Republicans have aimed the most relief at the wealthiest taxpayers and corporations — not for the sake of helping those who don’t need it, they say, but to stimulate the most positive economic effect. So far, revenues have continued to increase despite these rate cuts, but that benefit could begin to wane as economic growth slows. There’s also evidence — from a recent study by N.C. State University economist Michael Walden, for example — that North Carolina’s middle class is losing ground at a rate much faster than the national average. So, for many people, conservative fiscal policies aren’t bearing much fruit.

With tax rates already slashed to low levels, it’s time to hold them steady. If revenues dip or flatten, it would be detrimental to the state’s overall health for the legislature to limit spending further or tap into reserves just to balance the budget.

— The Greensboro News & Record