One of the biggest increases in state investment in decades has occurred under Republican rule in Raleigh — but it wouldn’t surprise me to discover that you’ve heard little or nothing about this.
The standard political narrative is that Democrats spend and Republicans cut taxes. That has been a chief priority for GOP leaders, and frequently criticized by Democratic ones. Beginning in 2011, the conservative-led General Assembly, joined by former Gov. Pat McCrory in 2013, devised and implemented the largest tax cuts in the history of North Carolina. The state’s tax burden has fallen by billions of dollars a year, a new 5.25% flat income tax has become a national model for pro-growth reform, and a low and declining corporate tax rate (slated to fall to 2.5% in 2019) has become a centerpiece of the state’s economic-development pitch.
To say these tax changes have precluded significant spending on core services doesn’t convey the full picture. For one thing, the second-largest tax cut in North Carolina history occurred in 1995 under a Democratic governor (Jim Hunt), a Democratic Senate and a Republican House. For another, the Republicans in power since 2011 haven’t ignored the spending side of the budget. It has risen every year. After years of decline or stagnation, the average pay of teachers in North Carolina’s public schools is rising, too. While still not much to brag about, the state now ranks 31st inthe nation, up about 10 notches from a decade ago when adjusted for differences in cost of living. Teacher pay may approach the national median as the legislature’s new 9.6% average raise for teachers is implemented over the next two years.
Still, liberals can certainly argue that North Carolina could have spent more on education, health care and other services if the legislature had not enacted tax cuts. A dollar used for one thing is a dollar than can’t be used for something else. While tax reduction and reform may induce economic growth over time, which in turn feeds more revenue back into the treasury in the long run, there is no disputing that state government has taken in less revenue since 2011 than it would have in the absence of tax cuts.
The problem is that, so far, I’ve been using terms such as “state budget” and “tax cuts” and “revenue” in a loose fashion. I’m not alone. While North Carolina’s total state budget for the 2017-18 fiscal year will exceed $50 billion, virtually all media coverage of the General Assembly focuses on the “$23 billion state budget” for this year. That refers only to the general fund portion of the budget, the portion paid for by generally applied taxes and fees that pay the state’s share of expenses for schools, prisons, Medicaid and other familiar services.
Fixating on the minority of the state budget embodied in the general fund can mislead. What about transportation? Nearly all the several billions of dollars North Carolina spends each year on roads, bridges, rail, airports and other transportation assets come either from the federal government or from earmarked state taxes and fees on vehicles and motor fuels. It’s one of the most significant and tangible functions that state government performs. But it gets relatively little attention.
The new state budget allocates $3.7 billion in gas and car taxes and fees to highways and other transportation expenditures in 2017-18, with $3.8 billion authorized for 2018-19. That represents a 46% increase in state transportation spending since2010, compared with a 25% gain in general fund spending. During the eight years preceding 2010 — when Democrats controlled both legislative chambers and the governorship — general fund spending rose 32% and state-funded transportation spending by 28%.
Factoring in federal funds doesn’t change the pattern here. Under Democratic rule, transportation declined as a share of total spending while other priorities received more investment. Under Republican rule, it’s gone up.
Why? In the past, the state transferred hundreds of millions of dollars a year out of the Highway Fund and Highway Trust Fund to finance law enforcement, driver education and general state spending. The Democrats began phasing this out toward the end of their tenure in power. Republicans accelerated the process and by 2016 had eliminated the transfers altogether. That freed up money to build and maintain the state’s transportation network. Republicans also changed taxes and fees in ways that will boost transportation revenue over time.
Feel free to disagree about the priorities they set. But it’s clear that roads are receiving a bigger piece of the budgetary pie.
