John Hood: State Budget is bigger than reported
RALEIGH — Last month, the North Carolina General Assembly passed a $30 billion state budget for the 2023-24 fiscal year. Gov. Roy Cooper, disappointed with many provisions but keen on the bill’s expansion of Medicaid, allowed the $30 billion budget to become law without his signature.
That’s the way the event was widely described last month, not only by media outlets and affected institutions but by many legislators themselves. Alas, my initial paragraph contains a major factual error. The 2023-24 state budget spends way, way more than $30 billion.
For starters, this commonly reported number refers only to the appropriation of General Fund revenues, primarily income and sales taxes. When the legislature enacts a budget, it doesn’t just spend General Fund taxes and other revenues. It also spends federal grants (such as for Medicaid and public schools) and receipts from program beneficiaries (such as university students paying tuition).
Total spending on General Fund programs, from all revenue sources, will be $66 billion this year, not $30 billion. And if we add all transportation spending, regardless of source, the 2023-24 budget grows to more than $71 billion.
I’m not alleging a coverup here. To describe only the net General Fund appropriation from state dollars as “the budget” is a standard convention — one that I’ve complained about ever since I began writing about the state legislature in the 1980s.
North Carolinians certainly deserve to know how much of the state taxes they pay are expended every year. But they also deserve to know how much their state government will spend in total. Otherwise, they have a distorted view of the size and scope of their budget — and of the extent to which their state government has become dependent on the fiscal irresponsibility of their federal government.
So far, I’ve discussed the ways in which the standard story of this year’s state budget has misreported within normal parameters. The problem can be rectified by encouraging lawmakers, other public officials, journalists, and interest groups to read and summarize the budget bill itself (which contains all the numbers I’ve mentioned) rather than just the committee report on the General Fund.
Unfortunately, in recent years lawmakers have increasingly moved major expenditures of public funds “off budget,” to reserves that aren’t always accounted for in the same way that General Fund appropriations are.
My John Locke Foundation colleague Brian Balfour has pointed out some $7.2 billion in such spending in the 2023-24 budget. His figure includes such items as $2.4 billion for the State Capital and Infrastructure Fund (SCIF), $1 billion for clean-water projects, $1.25 billion for regional economic development, $450 million for information technology investment, and $250 million for a private entity, NCInnovation, that seeks to commercialize research conducted within public colleges and universities.
There’s nothing wrong with setting money aside in reserves. In fact, there’s much right with the practice! I’ve praised the SCIF in the past, for example, as a mechanism for guaranteeing a steady, reliable flow of funds to build and maintain public assets.
The problem here is that, for at least some of these accounts, neither the transfer of revenues nor the subsequent expenditure of funds is accounted for as part of General Fund appropriations. That has the effect of understating how much money our state government is spending.
Opinions may differ about the wisdom of these expenditures. Moreover, while conservatives have long advocated a fixed cap on annual spending increases — a combination of inflation and population growth is the most common version — critics say North Carolina ought not to follow so formulaic a rule.
What we should all agree on, however, is that every dollar spent by our state government should be clearly reported. In the case of reserves, if revenue transfers into them aren’t going to be counted as spending, then the money should be counted as part of the General Fund appropriation in whatever year it is withdrawn and spent.
I don’t think that’s too much to ask. Do you?
John Hood is a John Locke Foundation board member. His latest books, Mountain Folk and Forest Folk, combine epic fantasy with early American history (FolkloreCycle.com).
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