State Spending At Highest

Special Report - May 18, 2012

A new report from the John Locke Foundation has found that North Carolina’s state spending for the 2012 fiscal year is the highest ever in the state’s history. The report, “2012 State Spending At A Record High” by Fergus Hodgson, director of fiscal studies for the John Locke Foundation, was released May 8. One of the report’s key findings is that much of the record increase in state spending, both per capita and as a proportion of income, has come in the last 40 years. Per capita spending in North Carolina has increased from $1,701 in 1970 to $5,247 in 2012. That rate of growth is “much faster than [the growth rate of] personal income.” In 2012, state spending “is on course to be 14.4 percent” of personal income. Government spending in every reported category—education, corrections, health and human services, transportation, and debt servicing—“has more than doubled since the mid-1970s.” Hodgson points out that the size and increase in state spending has been concealed by a shift “toward spending outside of the general fund, increased reliance on federal aid, and spending through deferred compensation.”

Interestingly, the report did find a difference between general fund spending patterns and “per capita spending outside of the general fund.” Over the last three years, general fund spending per capita has actually decreased by 16 percent. However, “per capita spending outside of the general fund increased by 26 percent and more than compensated for the general fund’s decline.” According to the report, the percentage of state funding through the general fund has declined by more than 20 percentage points since 2000—from 59 percent to the current 38 percent of total state spending. At the same time, the percentage of state revenue from federal aid continues to grow from 21 percent in 1975 to 24 percent in 2000, and finally to more than one-third of the state spending (36 percent) in 2012. The report goes on to highlight massive unfunded liabilities created by “North Carolina’s cash-basis accounting.” It specifically examines employee retirement health benefits, which grew by $4.4 billion between 2009 and 2010 to a whopping $34.2 billion in unfunded liabilities at the end of 2010—nearly five percent of total state spending.

In the report, Hodgson highlights several policy changes that could have curbed the growth or that could still be put in place to help reverse the trend in ever-increasing state spending. Hodgson argues that because “the growth has been so consistent in one direction, against the wishes of constituents, a constitutional protection appears necessary.” He suggests a “cap on state spending at inflation and population growth.” According to the report, had such a policy been in place since 2000, it “would have restrained spending to $38.5 billion, 75 percent of the current $51.5 billion.” Finally, the report encourages North Carolina’s congressional delegation to oppose “debt-financed federal aid” for state spending, which “enables the state to bypass its balanced budget amendment and increase spending beyond tax revenues,” and to call “for a federal balanced budget amendment similar to what 49 of the 50 states have.”

Related resources:
Governor Vetoes State Budget - June 13, 2011
House Passes State Budget - May 6, 2011
House Takes Up Budget - April 29, 2011
Legislative Highlights - April 21, 2011

Copyright © 2012. North Carolina Family Policy Council. All rights reserved.

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