Tuesday, December 21st, 2010
By Edwin McLenaghan
North Carolina has a revenue problem. Falling revenues created by an outdated tax system and the worst economic crisis since the Great Depression have created a much-publicized budget shortfall - and some shortsighted parties want to try to cut our way out of the problem.
Most people know that cutting vital public investments will cause great pain throughout North Carolina's communities and imperil our economic future. But what many don't know is that even the most drastic cuts-only approaches currently being explored by Governor Beverly Perdue will not close the state's budget gap.
There is just one possible conclusion: raising revenue is the only way to preserve critical investments in North Carolina's future.
The numbers are clear. The most recent estimates by the General Assembly's Fiscal Research Division show that anticipated revenues will fall $3.7 billion short of what is necessary to maintain this year's already-inadequate level of investments in public structures in next year's budget.
To assess potential solutions, Governor Perdue asked state agencies to examine what budget cuts would look like. Even the worst-case budget cut scenarios of 10 percent for public schools, community colleges, and universities and 15 percent for all other state agencies will come up $1.1 billion short of closing the state's $3.7 billion estimated revenue shortfall next year.
That's right: in order to "fix" the budget problem, we'd have to slash the crucial investments that create prosperity in North Carolina to a worse-than-worst-case level.
What if we went that extra step, and tried to close the budget gap with a cuts-only approach? Closing the shortfall with additional cuts to non-education agencies would force across-the-board cuts of 27 percent compared to this year and more than one-third compared to pre-recession levels.
If those sound like just numbers, think of those numbers as thousands of fired teachers, mental health workers, and gutted public safety infrastructure. Think of people with special needs who will be separated from their families, seniors and people with disabilities who can't get health care, and children with swollen class sizes and shrinking learning opportunities.
Cuts of this magnitude would jeopardize long-term investments in North Carolina's public structures and would compromise public safety, environmental protection, and the health of communities across the state.
This would not only be cruel, it would be counter-productive to the state's long-term health - fiscal and otherwise. Creating thousands of unemployed schoolteachers and public safety workers is a precisely backwards way to fix our state's revenue problem, now or in the long term.
Fortunately, there is another way. We need to take a balanced approach that recognizes the need to reform our outdated revenue system.
Comprehensive revenue reform could raise even more revenue and preserve many of the public investments in initiatives like Smart Start, More At Four, smaller class sizes, and community-based care that North Carolinians overwhelmingly support and that save the state money in the long run.
It would also make future budget crises easier to manage, because reform could modernize a system that hasn't been updated since the 1930s. What better time to make these long-overdue reforms then a time when they could help our state the most?
A cuts-only budget approach isn't just harmful to North Carolina's people in the short-term, it's also undermines North Carolina's fragile economic recovery in the long run. If we want a prosperous North Carolina, we have to start by acknowledging this simple reality.
Edwin McLenaghan is a Policy Analyst at the N.C. Budget & Tax Center
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