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North Carolina’s incredible shrinking state budget

Budget-squeeze1-400 [1]Short-changing public investments is no way to grow a state

[Editor’s note: North Carolina’s conservative elected leaders have changed their tune in recent months. After railing for years about “runaway spending” and having slashed state budget appropriations in virtually every area of government service, this year – an important election year – officials have suddenly started bragging about teacher pay raises and other efforts to boost essential services like mental health programs. Unfortunately, while the change in rhetoric is a welcome one, the hard reality is that it is only that – rhetorical. A look at the actual budget numbers reveals that appropriations for essential public services and structures will continue to slide in North Carolina.

In the coming days, fiscal policy experts at the North Carolina Budget and Tax Center will release a detailed report on the Fiscal Year 2017 budget that was approved by state lawmakers last month and signed into law by Governor McCrory last week. In the meantime, however, the most recent entry in the BTC’s “Prosperity Watch” series [2] provides a brief and instructive preview of some of the group’s key findings – including a remarkable graph (see below) that documents the decline in public investments as a share of the economy. We’re happy to share it with Policy Watch readers here.]       

Public investments—quality schools, affordable healthcare, housing, and safe, healthy neighborhoods— are the essential building blocks of long-term economic growth and shared prosperity. In the past, North Carolina leapt ahead of its Southern neighbors when lawmakers invested in good roads, early childhood programs, quality public schools and universities, and healthcare. Today, state lawmakers have drifted far from this bipartisan legacy that primed the state for economic growth and inclusion for decades.

Case in point: The $22.34 billion budget that lawmakers enacted reflects their limited aspirations for North Carolina, increasing spending by only 2.8 percent, or $606.7 million, over 2016. While the budget reinvests in some worthy programs and services, these additional investments represent a small fraction of what is needed to boost economic opportunity and help North Carolinians doing their best to get by—North Carolinians like the children stuck on persistently long waitlists for early childhood education, jobless workers facing too few jobs and job training programs, and older adults going without the in-home and community support that they need.

In fact, the state budgets enacted since the 2010 fiscal year have increasingly failed to keep up with public needs. State spending as a part of the economy—measured by state personal income—has consistently fallen year after year in the past few years. The new budget continues this trend. It caps off the only period as far back as 1971 in which state spending declined as a part of the economy for eight consecutive years while the economy itself grew (see the chart below).

Under this measure, state spending remains below the 45-year average in the 2017 fiscal year. Why is that a problem? State budgets typically allow spending to grow as the population grows and the economy changes, especially after an economic downturn when revenues plummet and services are frozen or cut. This growth in spending isn’t done for its own sake. Rather, it enables the state to keep up with the needs of the people it serves—like building schools and purchasing enough textbooks to meet a growing number of students, or providing quality medical care and residential services to our growing number of older adults.

Lawmakers’ fiscal strategy of flawed rigid formulas and persistent tax breaks is holding back our economy by leaving many investments that support thriving communities unmet or underfunded.  This approach hampers North Carolina’s ability to generate improved economic outcomes today and in the future through proven strategies [3]—strategies like investing in public services and programs that expand opportunity, build pathways to the middle class, and connect people to jobs and communities to markets.

BTC - Prosperity Watch--Issue 62 Issue 4 [4]

Note: This chart has been updated to reflect actual 2015 fiscal year state personal income data provided by the Bureau of Labor Statistics on July 22, 2016.

Tazra Mitchell is a Policy Analyst at the N.C. Budget and Tax Center.