Budget Deficits as Far as the Eye Can See

Click here to download a PDF file of this report

The Raleigh Report seems to be gaining in power. For months my requests for a five-year projection of spending yielded no results. When I mentioned that fact in the last edition, Voila! Numbers! Read them and weep.

As I suspected, the party in power has managed to create a structural deficit that is actually even worse than the chart suggests, and it is depressing enough.

You see the chart assumes revenue growth that is just as ridiculous as the estimates used last year that contributed to the present budget mess. The chart assumes revenue growth of 1.49% in the current year, leaping to 5.99% in 2003-2004, 6.74% in 2004-2005, 7.45 in 2005-2006 and 7.91% in the fifth year, 2006-2007. I hope the economy recovers that quickly, but I don't think we can count on it. Overly optimistic forecasts helped cause the present problems.

When You Find Yourself In A Hole – QUIT DIGGING

This seems like fairly obvious advice. Unfortunately, the people running the show here in Raleigh don't want to take it. Things are so bad that some are beginning to wonder if the Democrats expect to lose control of the legislature and are trying to create the biggest mess possible in hopes the public will blame the Republicans.

In my opinion, the damage being done isn't really intentional. The people in charge just happen to be Democrats who like to spend other people's money and they're quite willing to raise taxes so they can keep spending. To demonstrate my point, let's compare actual general fund expenditures over the last 10 years.

In the early nineties the Democrats controlled the legislature and grew spending 9.7% in 1993 and 15.1% in 1994. Of course, the public got tired of the taxes and gave the House (and almost the Senate) to the Republicans. With Republicans controlling the House, spending growth was limited to 4.9%, 3.4%, 8.4% and 6.1%. I actually voted against the conference report that called for 8.4% in part because I thought the spending was excessive.

But wait; when the Democrats took back the House they grew spending in 1999 by 9.5% and in 2000 by 13.0%. They planned to grow 2001 spending by a similar amount, but they ran out of money to spend so actual spending growth was only 1.9%, no thanks to them. In other words, the Democrats increased general fund spending by 22.5% in two years and were surprised when revenue wouldn't sustain that rate of growth. Their OPM addiction (other people's money) blinds them to fiscal reality.

Where Have All the Good Jobs Gone? Good Question.

Ever since attending the Treasurer's Economic Roundtable a few weeks ago, I've been showing people a fascinating chart that was part of the Bank of America Capital Management presentation. It shows the percent change in jobs in North Carolina in various industry categories between April 2001 and April 2002. The only category showing much growth was government, which grew by 6%. The only other category showing any growth was services, which grew by less than 1%. All of the other industries showed a loss of jobs, with construction dropping over 3% and manufacturing shrinking more than 6%.

The big spenders in Raleigh and their media friends keep talking about the state's revenue shortfall. Maybe it is time to talk about the fact that last year's tax increases, combined with increasing disregard for the rule of law, are destroying our state's economy. I'll talk about the rule of law another time, but for now let's focus on tax policy.

Some people blame the national economy for our job losses, but the same Bank of America presentation compared US and NC job trends and showed that the US is positive compared with January 2000 while North Carolina is negative.

Others blame NAFTA and textile losses, conveniently forgetting that automation has been reducing labor required by the textile industry for many years and that a lot of recent plant closings aren't affected by NAFTA. In the past, job losses were more than offset by job gains. Now we're not seeing much job creation in North Carolina. Wonder why?

When I talk to manufacturers, I hear that NC doesn't want manufacturing. They say much the same things as John Hood, who recently wrote, “Our state and local governments tax too much, they regulate too much and they spend too much on luxury goods and not enough on basics like highways.”

NC used to be business friendly and revenue kept rising. It is now viewed as unfriendly to business and revenue is falling. Does anyone else see a correlation here?

Tobacco Companies Sued For Health Care Costs

There is a campaign (organized by the Democrats?) to demand legislators “raise revenue to fund services.” Most of the people writing are quite sincere but seriously misled. I strongly agree that we need to fund many services the Senate budget plans to cut, but I disagree on how we should go about doing that.

Based on past experience, I believe many of the Senate Democrats' cuts were just intended to generate a demand for higher taxes. Given the items still being funded, it is clear to me that there must be a plan to revisit the cuts. How could anyone in their right mind fund planning a party to honor the Wright Brothers while cutting essential health services? They can't be serious.

Besides, if the people doing the budget had more money to spend, given their track record, why would anyone believe it would go to essential services like healthcare?

Remember the tobacco settlement? I think the headline above summarizes what the public was told about it. The tobacco settlement was supposed to offset the state's healthcare costs and state funds were used to secure it. Yet most of the funds aren't available to offset our soaring health costs because the attorney general (now the governor) and his Democrat friends in the legislature diverted the money to funds they control. It was done legally, but it was bad public policy.

Now we find that a significant part of the settlement has gone to subsidize growing more tobacco. In fact, according to Fox News, “since 1999, 75 percent of the cash has gone back into the production and marketing of North Carolina tobacco.” That Fox story didn't even mention that thousands of dollars went to the members of the board handing out the money.

Sign up for email from Fern
and add your friends and
family to our update list!

Join our effort to improve North Carolina by signing up for occasional e-mail updates. Please enter your e-mail below or sign up your friends and family.






Official website of NC Senator Fern Shubert - Republican Candidate for NC Governor in 2004. All rights reserved 2001 © 2004
Paid for by People Who Want Better Government