Gov. Cooper’s History of Supporting Tax Hikes

• Governor Cooper’s recent budget vetoes should come as no surprise given his history of tax increases, massive spending, and budget gimmicks.
• North Carolina has seen the consequences of liberal spending policies since taxpayers are left to foot the bill.
• North Carolina must adhere to fiscal responsibility, which involves difficult decisions and financial discipline.

Roy Cooper has vetoed each of the two budgets passed during his time as governor. The Republican-controlled General Assembly overrode both vetoes. As an explanation for his veto decisions, Cooper said that the 2017 budget “comes up short” and the 2018 budget “doesn’t cut it.” Indeed, Cooper’s 2018 budget proposal would have spent a half-billion dollars more than the budget he vetoed.

It is easy for Cooper to call for more spending since he knows there is little chance he will ever be held accountable for the tax increases that would be needed to make his proposals viable. In fact, according to the nonpartisan Fiscal Research Division of the General Assembly, Cooper’s 2018 budget proposal contained a $469 million structural budget shortfall. This type of spending is irresponsible and unsustainable.

Gov. Cooper’s present-day budget approach is not surprising when you examine his record as a state legislator. Cooper served in the House from 1987 to 1990 and in the Senate from 1991 until being elected attorney general in 2000. During his 14-year legislative career, Cooper displayed a pattern of voting for tax increases and bills with budget gimmicks that created and sustained structural imbalances in the state’s budget.¹ By looking back on that time, we can learn some valuable lessons about the consequences of that type of fiscal philosophy.

In his first term in the House, Cooper and fellow Democrats voted to increase the corporate income tax rate from 6 to 7 percent. Are we surprised Cooper’s 2018 budget proposed a halt on the scheduled corporate income tax decrease? Old habits die hard.

In his second term, Cooper and his like-minded colleagues passed a budget that implemented a “creative” method of balancing the budget: using transfers from special funds. In 1989, the General Assembly passed legislation to create the Highway Trust Fund. The fund was intended to earmark money for various highway and road construction projects across the state. A series of tax and fee increases were adopted to finance these projects, including raising the motor fuel tax by 5.25 cents per gallon and implementing a 3 percent “highway use fee” on car title transfers.

The first two years after the fund’s creation, more than $63 million was allocated from that special fund to pay for expenditures not related to transportation.² Of that, more than $53 million was used to finance pay increases for teachers and state employees. Cooper and his fellow legislators essentially implemented the fee and tax increases under pretenses, using them for expenditures outside of their stated purpose.

The 1991 session was Cooper’s first in the Senate, and the state was facing significant revenue shortfalls due to an economic recession. Instead of balancing the budget through cutting non-essential state spending, Cooper voted to raise taxes. The 1991 budget contained seven different tax increases, including:

• Increasing the sales tax from 3 to 4 percent.
• Increasing the corporate income tax from 7 to 7.75 percent.
• Creating a new personal income tax rate of 7.75 percent for income over $100,000
• Increasing some liquor surcharges and ABC permit fees
• Increasing the cigarette tax from 2¢ per pack to 5¢ and levies a 2.0 percent of the wholesale price on other tobacco products
• Raising insurance tax from 1.750 percent of gross premiums to 1.875 percent for 1991 and 1.900 percent beginning with 1992
• Establishing a 6.5 percent charge against gross premiums tax liability (except HMOs and BCBS) for a special trust designed to eliminate general fund support for Department of Insurance and allow a 20 percent credit against premium tax for guaranty fund assessments.³

 

The 1991 recession did not deter Democratic support for higher spending. If anything, it is clear that Cooper and other left-leaning legislators learned nothing from that economic hardship. When the recession passed, the tax increases implemented in 1991 created a $1.2 billion revenue surplus by 1994. Instead of returning that money to taxpayers, the General Assembly increased spending by $1 billion.⁴

In the mid-1990s, the Republican-controlled House led the campaign for a series of tax cuts, including increases to the personal income tax exemption and reducing the corporate income tax rate back to 6.9 percent. But an expanding economy meant that, despite tax rate decreases, Cooper and his fellow Senate Democrats never felt compelled to rein in their spending. They could agree to tax cuts – sometimes in the form of targeted corporate welfare, but technically decreasing tax obligations – because revenue was still coming in at a level that did not require them to curtail their spending habits.

The consequences of this lack of fiscal discipline became apparent when revenues began to decline in 1999 and 2000. By 1999, Cooper was the Senate majority leader, and Democrats had control of the Senate, House, and governorship. They lamented the budget shortfalls as a product of the prior tax cuts instead of considering that inflated government spending was a major factor. A series of natural disasters and lawsuit settlements owed by the state compounded the state’s financial problems.

Despite the tight financial situation, Cooper and company continued to increase spending in the 1999 and 2000 budget bills for the pet projects of then-Governor Jim Hunt, including yearly increases in Smart Start funding and teacher and state employee pay increases.⁵ Cooper’s unwillingness to deal with budget problems was revealed in 2000 when he supported a General Assembly plan to delay payments for teacher salaries to the next fiscal year.⁶ This accounting gimmick allowed the budget to appear balanced on paper when it, in fact, contained a funding gap.

The budget crisis created by reckless spending and structural imbalances reached a breaking point in 2001 when the state faced an $820 million budget shortfall. Cooper, however, had just been elected state attorney general and did not have to face the reckoning that resulted from the irresponsible budget practices that characterized much of his time in the legislature.

When you review Gov. Cooper’s legislative record, it is no surprise that, as governor, he has advocated for big government spending. Higher spending levels are appealing to Cooper’s Democratic and left-leaning base. But, there are two sides of the ledger. State spending has to be financed, and it is essential to remember that taxpayers are footing the bill.

Luckily for North Carolina, policymakers that share Cooper’s liberal fiscal philosophy no longer control the state’s purse strings. As Cooper has demonstrated with his budget vetoes, his approach to budgeting has not changed much in the past 30 years. The governor continues to support unsustainable levels of government spending, and North Carolina should be careful not to follow his lead.

–Leah Byers, Civitas Summer Fellow

 

Endnotes

1. Structurally balanced budgets are those in which current revenues support current expenditures. Budgets may sometimes be balanced on paper using accounting gimmicks such as the use of one-time funds, delaying expenditures into the next fiscal year, or using borrowed funds to pay for recurring expenditures. Budgets using such gimmicks may meet the state requirement for a balanced budget, but contain a structural imbalance if current expenditures exceed current revenues. For more information, see this article by the Government Finance Officers Association: http://www.gfoa.org/achieving-structurally-balanced-budget
2. 1989 Budget Bill – Senate Bill 44, S.L. 1989-752. Page 9.
3. For more information about significant tax changes from 1985-2016, see the Civitas State Budget Policy Guide: https://www.nccivitas.org/public-policy-series/
4. Civitas State Budget Policy Guide, page 145.
5. Teacher and state employee salaries are an important obligation of state government. However, the budget choices from this era prioritize pay raises – money above and beyond the state’s commitments – at the expense of the financial health of the state.
6. Civitas State Budget Policy Guide, page 199; S.L. 2000-67, H1840, 2000 budget bill. See then-Senator Cooper’s voting record for that session here.