A Tale of Broken Promises…House Budget Keeps “Temporary” Taxes, Lacks Fiscal Discipline

The newly released House version of the 2007-2009 budget increases spending by 7.4 percent, continues the “temporary” taxes yet again, and features some proposed spending increases that may leave taxpayers scratching their heads. Coming in at $20.3 billion, the General Fund expenditures would mark an increase of 41.5 percent since FY2002-3 — nearly double the rate of population plus inflation growth (22 percent). This dramatic jump in spending has been made possible in large part because of a sharp increase in tax revenues. The amount of money taxpayers are forced to contribute to the state’s General Fund has grown 32 percent since FY2002-03 (the rest of the spending growth has been financed by increased fees, transfers, etc.).

Major Surpluses, But No Tax Relief

The most recent revenue estimates reveal an anticipated revenue surplus of $1.14 billion for FY2006-07. This will be the fourth consecutive surplus, for a total of more than $3.1 billion over the last four years. The House budget would also extend the “temporary” taxes implemented in 2001. These taxes added a half percent to the statewide sales tax and the highest income tax rate. Taxpayers were promised these taxes would end in 2003. Last year, lawmakers allowed a quarter percent (half the increase) of each of these rates to expire, but they continue to drag their feet on the remaining quarter percent. If left intact, this will be the third time the taxes have been extended. As a result, the tax increase will remain in effect at least until 2009 — six years longer than originally promised.

Lack of Spending Discipline

In spite of this windfall of tax dollars, some House leaders are claiming it isn’t enough. According to House Finance Committee co-chair Paul Luebke (D-Durham), “there’s no way to meet the educational and health care needs of the state.” Yet, as usual, state representatives have packed the budget with a variety of “pork projects.” These include business subsidies to benefit representatives’ home districts, as well as money for pet projects and favored nonprofits. These include:

• $21 million as requested by James Crawford (D-Granville, Vance) for special projects: $2 million for the “Kerr-Tar Regional Economic Development Corporation;” and $19 million for the Rural Center’s Economic Infrastructure Fund.
• $14 million for unclearly defined “economic development, spot safety, and transportation improvement” projects.
• More than $10 million in recurring funds requested by Representative Mickey Michaux (D-Durham) for nonprofit organizations in his district.
• $1 million to the Johnson & Wales University — a private university in Charlotte that “specializes in the culinary and hospitality industries.” Apparently, the money is being allocated to fulfill a promise made by former Speaker Jim Black (D-Mecklenburg).
• $2 million — contingent on passage of legislation — for “implementation of swine waste technology initiatives.”
• $1.2 million to “provide transportation services for annual or semiannual trade shows of international significance.” In other words, a chauffeur service for conventions.
• $1 million to the “Natural Science Center of Greensboro, Inc.” — a nonprofit organization planning to provide “experiential science education facilities and programs.” This spending is sponsored by three representatives (Maggie Jeffus-D; Alma Adams-D; Earl Jones-D) who hail from Greensboro.
• $1 million to subsidize short-line railroad companies.

Additionally, there are several million dollars in smaller projects. These include:

• $330,000 for an “Equine Industry Study” that will “assess the numbers, composition, and value of the equine industry in North Carolina … and develop a comprehensive plan to maximize the economic opportunities presented by the industry.”
• $300,000 for “Shellfish Restoration Funds.” Among other things, this money would be used to “conduct a pilot project to protect oyster sanctuaries from cownose ray and skate predation.”
• $300,000 for “Poultry Waste Management.”
• $200,000 for the “North Carolina in the World Project.” This program focuses on the vague goal of “improving students’ knowledge and skills about the world.”

Summary

• The proposed House budget continues the dramatic growth of government spending in North Carolina. Under this budget, General Fund expenditures will have increased 41.5 percent since FY2002-03.
• The House budget extends the “temporary” sales and income taxes again. This would be the third time in a row that lawmakers have broken promises to end these taxes.
• House members have stuffed the budget with pork projects to finance pet projects and favored nonprofits.