By John Hood
Raleigh, NC – As a fiscal conservative, I long for the days when North Carolina had responsible governors who responded to recessionary budget gaps with fortitude and common sense. You know, governors like Bev Perdue, Mike Easley, and Jim Hunt.
All three Democratic governors presided over economic downturns that tore ragged holes in the state budget. While I disagreed with some of their responses — significant tax hikes, in the case of Perdue and Easley, that worsened the burden on cash-stripped households and businesses — all three also quickly instituted significant budget savings in the face of yawning deficits.
Current Democratic Gov. Roy Cooper hasn’t. Indeed, his budget director told reporters that the administration does not anticipate any significant reductions in state spending.
Cooper’s proposed 2020-21 budget plan, announced just days before a scheduled legislative session, would increase General Fund spending by nearly $1 billion. It would spend down much of the state’s cash reserve, including some $457 million in “unexpected” receipts that really just represent revenue collected in 2020 rather than 2021.
Republican lawmakers called Cooper’s proposal a “spend now, pray later” plan and explicitly compared it to the fiscal policies of past Democratic governors. While it is certainly the case that unsustainable budget growth during the 2000s help set the stage for North Carolina’s fiscal meltdown in 2009, I believe this comparison to be somewhat unfair to Easley and Perdue. During recessions, with massive deficits looming, they were willing to control spending even though it was unpopular with their political bases.
Some of Cooper’s proposed spending is necessary, to be fair. North Carolina has received federal COVID-relief funds that must be spent this calendar year. The state must provide adequate funding for protective equipment, testing supplies, and other resources to combat the coronavirus pandemic itself as well as its social, educational, and economic consequences.
But much of the governor’s election-season announcement was little more than a sack of treats for political supporters and favored causes.
Consider, for example, a proposal to issue $988 million in new state debt without a vote of the people. These special-obligation bonds would, among other things, fund a $249 million relocation of North Carolina’s Department of Health and Human Services from its current location at Raleigh’s Dorothea Dix property and a $275 million initiative “for projects supporting vaccine development and public health” at several University of North Carolina campuses.
Should North Carolinians go hundreds of millions of dollars into debt to help fund the development of a COVID-19 vaccine? Of course the goal is laudable, but this would be a drop in the bucket given the immense worldwide investment already being made in rapid development and testing of multiple vaccine candidates.
Here are the stark facts. This year’s General Fund revenues came in $1 billion below the original forecast. Some of that reflects recessionary hits on tax revenue from households and businesses. And some represents revenue shifted forward in time, to be collected during the 2020-21 fiscal year rather than 2019-20.
However you wish to describe it, the net result is that the state had already promised billions of dollars in spending over the coming year that it cannot finance with expected revenue. Now it faces additional spending requirements because of COVID. North Carolina’s $1.2 billion rainy-day account, federal funds, and other reserves can close some of this gap. But not all of it.
I can think of three reasons Cooper might not be worried. First, he might be expecting another big round of federal aid. Second, he might be expecting an immediate economic recovery that will replenish state coffers. Third, he might be counting on a Democratic takeover of the General Assembly in November, to be followed in early 2021 by large tax increases.
It is risky for the governor and his team to bank on any of these scenarios, however. Why not budget conservatively in the short run and then adjust upward if conditions radically improve? That’s what previous governors, from both parties, would be doing right now.