A Budget that Taxes Our Recovery
By Rick Martinez

RALEIGH -- The state's new budget has been called "doing the right thing." I don't think so. The softening economy has forced the layoffs of thousands of North Carolinians. Evidence of recovery remains elusive. Yet the General Assembly and governor imposed hefty tax increases.

The budget is months late. Forty eight states figured out their finances before North Carolina did. State leaders should be embarrassed at how they bumbled and stumbled their way to this sorry excuse of a budget. Instead they celebrated.

"I'm not ashamed to try and do the right thing and move the state forward," state Rep. David Redwine was quoted as saying at the budget bill signing ceremony. "Even in tough times you can't move the state backwards."

Redwine and colleagues just did. Show me the credible economist who advocates raising taxes during a serious economic downturn.

The "tough times" talk wears thin when the state increases spending by digging deeper into our pockets. Such rhetoric only adds to the growing credibility gap our leaders are nurturing. Less than a year ago, voters were told North Carolina could afford the largest education bond program in its history without needing to increase taxes. Oops. And the credibility gap isn't limited to rhetoric. The federal government is using tax cuts to fight off recession. North Carolina has done the opposite.

The $1 billion tax increase (over two years) is a textbook example of political expediency, not financial prudence. The hike includes a half-percent sales tax increase, a half-percent income tax rate increase for households with net taxable income of more than $200,000, and new taxes on HMOs, out-of state phone calls, booze and satellite TV. What kind of tax policy is that?

Here's the scary part -- it may not be enough. The budget is based on a projected revenue increase of 4 percent, year to year. The growth rate for July and August tax receipts was less than 2 percent. Anyone want to guess what September's tax receipts will be?

Significantly cutting spending would help solve this problem, but is that possible with this legislature? I contacted two Wake County representatives and asked a few questions.
Republican Art Pope voted against the budget. Democrat Dan Blue voted for it, but only after he was able to help defeat a full cent increase in the sales tax.

I asked Pope and Blue if the tax increase was enough to balance the books. Perhaps, they said, but perhaps more likely not. I asked if any major state program is being significantly cut or consolidated. The answer was no. Does this General Assembly have the discipline to make significant cuts in state spending? Both said no.

If legislators don't have the guts to make meaningful cuts, they should delegate tough choices to people who do. They've done it before with some success. In 1991, North Carolina faced a budget crisis at least as severe as this year's. The state was dealing with a decrease in revenue, not just a smaller-than-anticipated increase.

Economic reality forced the General Assembly to form the Government Performance Audit Committee, GPAC. Its task was to discover ways the state could be more efficient and to make sure taxpayers were getting their money's worth. The results were impressive. GPAC came up with 450 proposals to save money and streamline state government. It called for the closing and consolidation of facilities, privatization of selected government services and a reduction of 3,000 positions from the state payroll.

The legislature adopted some of GPAC's ideas in 1993, but Pope and Blue agree that GPAC was never given the opportunity to reach its full potential. After the first round of adoptions, times got better and the General Assembly lost interest in efficiency.

Blue has floated the idea of reviving GPAC to help with next year's budget process: "If you're going to make meaningful change, you need to be talking about it in May and June, not in September."

I asked him about the reaction of his colleagues to the "Bring Back GPAC" suggestion.

"What reaction? I haven't got any."

So much for doing the right thing.

Rick Martinez can be reached by e-mail at rickjmartinez@mindspring.com