State Spending Rose Most Quickly During Times of Little “Need”

In light of the continuing deep recession, much of the current debate surrounding North Carolina’s state budget deficit involves concern over the public’s demand for government services.

Indeed, with more people out of work and turning to programs like Medicaid to cover medical expenses and community colleges for job training (not to mention several other state-provided social services), enrollment in taxpayer-subsidized services has swelled.

Liberal activists are using this argument in an attempt to lobby against any sort of state government spending reductions, on the basis that state government should meet the public’s heightened demand for such services.

According to such logic, state government spending should increase during recessions to meet rising demand – usually through tax hikes.

Meeting “Needs” or “Wants”?
But the flip side to this logic that liberals overlook is that during healthy economic times there is less demand for government services. Therefore state spending should decline or at least see a severely restrained rate of growth.

After all, with fewer unemployed and less people in need, what would justify an expansion of government spending?

An examination of state spending trends over the last two decades in light of economic conditions, however, reveals that North Carolina lawmakers increased state spending the most rapidly during times when the “need” for government services were at their lowest levels.

Spending Explodes During Economic Booms
Dating back to 1991, we can use two primary indicators as a proxy for North Carolina’s economic health: unemployment and poverty rates.

Unemployment
Most observers would agree that an unemployment rate of 5.5 percent or below would indicate pretty healthy economic times. North Carolina’s unemployment rate peaked at 11.2 percent during the current recession.

• Since 1991, North Carolina’s annual unemployment rate was 5.5 or below twelve times.¹
• Eight of those twelve years were consecutive years from 1993 to 2000, during the booming 90s.

Did North Carolina lawmakers use this time of limited “need” to save up a portion of the rising revenue streams for a rainy day? Not a chance.

• Between fiscal years 1993 to 2000, the state budget exploded by 74 percent.
• Even accounting for inflation and population growth, inflation-adjusted, per capita state spending rose a whopping 33 percent.²
• In other words, even after adjusting for inflation, state government spending per person still increased by a third over a seven year period that included several years of historically low unemployment rates.

The other four years since 1991 to feature unemployment rates below 5.5 percent were the years 2003 to 2007. A look at state spending during that span yields similar results.

• For fiscal years 2004 to 2007, North Carolina’s state budget grew by 27 percent in just three years.
• Furthermore, per capita inflation-adjusted spending rose by 11 percent over the same period.

Poverty
Unsurprisingly, those boom years yielding low unemployment rates also saw relatively low poverty rates in North Carolina. Since 1991, the state’s overall poverty rate stood at 13.5 percent or lower in six of those years.³

• Four of those low-poverty years were in the 1993 to 2000 boom era (1995, 1996, 1997 and 2000), with a fifth falling in the 2004 to 2007 span (2005).

In short, during times of low unemployment and poverty, state lawmakers nevertheless decided to embark on aggressive expansions of the state budget.

Education Enrollment Not an Excuse
Another expenditure item certainly worthy of examination is the state’s largest appropriation: public education. The two periods of sharp budgetary increases may partially be explained away by rapid increases in K-12 enrollment.

A comparison of enrollment trends during the years of high budgetary growth, however, suggests that very little of the spikes in spending can be attributed to an influx of new students.

• During the years 1993-2000, annual K-12 student enrollment never increased by more than 2.3 percent year-over-year. In contrast, over the same time period the state budget saw five annual increases exceeding 8.5 percent.
• Enrollment rose by a total of 13 percent during the 1993-2000 time frame⁴, while the state budget expanded by a total of 74 percent.
• From 2004 to 2007, annual enrollment increases peaked at 3.9 percent, with two years during that time experiencing enrollment increases under 2 percent. Meanwhile, annual budget expansions peaked at just under 10 percent, with two other years exceeding 7 percent.
• K-12 enrollment rose by a total of 8 percent from 2004 to 2007, with the state budget expanding by a total of 27 percent.

Conclusion
As shown in the chart, we can see that the most rapid increases in state spending in the last two decades occurred during time spans that saw tremendous economic growth and comparatively little “need” for government programs.  

Clearly, North Carolina’s state spending growth can not be explained away by state leaders merely responding to increased public demand for social services.

Where exactly did that money go during the booming economic times? It certainly didn’t go to assisting the needy or for “essential” services.

In reality, state spending grew simply because politicians in Raleigh had more of our money to spend.

The rapid growth of countless pet projects, the granting of special interest wish lists, adding layers of non-essential state workers and a laundry list of pork projects are what largely drove the sharp increased in the state budget.

A more responsible approach would have been to aggressively set aside excess revenues during flush economic times, so that when another recession occurs programs serving those in need can draw down from reserves.

Instead, state lawmakers couldn’t resist zealously spending our money on non-essential priorities during the boom years. Make no mistake, the current budget deficit is a hole dug by our state lawmakers’ short-sighted and reckless spending habits which continue to prove unsustainable with every economic downturn.