New Report Outlines 8 Strategies for Addressing the State’s Budget Gap
A cuts-only approach would kill jobs and prosperity; instead, lawmakers should use all the tools in the toolbox
RALEIGH (Jan. 24, 2011) -- To fix North Carolina’s revenue crisis, lawmakers should leave no stone unturned, a new Budget & Tax Center report released this morning says.
The report, by BTC Director Alexandra Forter Sirota, offers eight strategies Gov. Perdue and the legislature should consider to solve the state’s budget gap.
“A cuts-only approach will just destroy jobs and North Carolina’s economic future,” said Sirota, “especially after two years of budget shortfalls that have already resulted in cumulative reduction of the budget by 10 percent. Instead, the state should take a balanced approach that includes revenue.”
The eight strategies Sirota outlines include:
Finding Efficiencies: Evaluate expenditures based on their goals and determine whether there are better ways to reach those goals. For example, the NC legislature’s Joint Select Committee on Ex-Offender Reintegration recommendations on changes to North Carolina’s sentencing laws that identify the need to invest in community corrections programs and ways to reduce recidivism by helping ex-offenders successfully reintegrate back into communities can result in short- and long-term savings.
Eliminate Ineffective Tax Expenditures: Evaluate all special tax breaks (credits, exemptions, deductions, etc.) and eliminate those that have not achieved their goals. In Fiscal Year 2009-2010, the state lost $5.8 billion in tax revenue due to special tax breaks that have been created over the past several decades. This tax spending does not appear in the state’s budget and most of these special tax breaks are never evaluated to measure the extent to which they are meeting their goals.
Improve Collections: Aggressively seek taxes due that are not being paid. Closer scrutiny of corporate tax liability to North Carolina of major corporations resulted in nearly $420 million in taxes collected in 2009. And further efforts by the Department of Revenue to ensure the collection of use tax from on-line shoppers could result in an additional $162 million in revenue for the state.
Raise Reform-Minded Revenue: To reduce the devastation of a cuts-only approach, economists have recommended that states consider tax increases that are primarily paid by higher income taxpayers. These residents, unlike lower- and moderate-income residents, are likely to respond by reducing savings rather than cutting their spending, thus maintaining economic demand.
Prioritize when Making Cuts: Make careful decisions based on goals and effectiveness when budgets must be cut. State policymakers should consider developing a list of priorities by which they can judge current and proposed state spending. The state of Washington has established an ambitious prioritization process called Priorities of Government that could serve as a model for North Carolina.
Rethink the Distribution of State and Local Responsibilities: In 2007 the State and Local Fiscal Modernization Study Commission recommended that the state take steps to redistribute the responsibilities between state and local governments.
Pay Close Attention to Future Impact: Ensure that today’s budget solutions don’t make matters worse for future policymakers. Relying on one-time spending cuts and revenues represent short-term solutions and fail to plan for the state’s future economy. To do so, policymakers must protect investments in areas that generate long-term savings, such as early childhood development and community-based health interventions and corrections programs
Reform the State’s Revenue System: Build a system that is adequate, stable and based on ability to pay. Now is an important time for state policymakers to take steps to modernize the revenue system. Doing so can reduce volatility, improve long-term adequacy and ensure that low-income families and local businesses are not paying more than their fair share.