Study: Limits on public investment would not prevent budget shortfalls, but would cripple vital public structures and block the road to shared prosperity

 Study: Limits on public investment would not prevent budget shortfalls, but would cripple vital public structures and block the road to shared prosperity

The TABOR amendment would have cost North Carolina $35 billion in critical public investments since 1993, led to deep and painful cuts up to to near one-fourth of state budget
 
RALEIGH (March 16, 2011) -- An artificial limit on public investments would cripple the critical public structures that generate prosperity, a new study finds – and experiences from other states show these limits would not help prevent budget shortfalls, either.
 
“Public investments like education, health care and infrastructure are essential for North Carolina’s economic future,” said Edwin McLenaghan, a policy analyst with the NC Budget & Tax Center and the report’s author. “Eliminating the flexibility to make wise investments has proven economically devastating to other states.”
 
Legislation currently before the North Carolina General Assembly commonly known as TABOR, the so-called “Taxpayers Bill of Rights,” would cap growth of state General Fund appropriations to a rigid formula of population growth plus inflation.
 
But this formula fails to take into account that the costs of certain services, such as health care and education, grow faster than inflation. This is a recipe for chronic underfunding of these vital needs, says the report.
 
Had North Carolina implemented TABOR in 1993, the TABOR formula would have reduced North Carolina’s cumulative investment in public structures by almost $35 billion between fiscal year 1993 and the current fiscal year, the report finds. In fiscal year 2008, state policymakers would have had to cut state appropriations by 23 percent to meet the TABOR limit.
 
“Even with the budget constraints we have now, North Carolina is losing thousands of jobs in education, mental health, and other important sectors,” said McLenaghan. “With this type of artificial constraint, policymakers would have to cut dramatically deeper, meaning more unemployed teachers, firefighters, and public health workers.”
 
Contrary to the claims of TABOR proponents, TABOR would not prevent North Carolina from facing state budget shortfalls. Colorado, the only state with a TABOR amendment, saw significant state budget shortfalls in the current recession and in the early 2000s recession. Colorado faced the second-worst budget shortfall in the nation in 2003.
 
Weakening public structures actually made Colorado more vulnerable to recession. Colorado passed TABOR in 1992, and its budget constraints have seriously weakened Colorado’s public structures. Because of TABOR, Colorado’s funding for K-12 education, colleges and universities plummeted to near the bottom for the nation. In addition, the share of low-income children without health insurance doubled in Colorado between the passage of TABOR and its suspension by voters in 2005.
 
The report is also critical of TABOR because the bill ignores demographic shifts, such as the increasing share of North Carolina’s population made up of elderly residents and college students. Thus, the “population plus inflation” formula is not an appropriate way to measure the cost of providing basic government services and would ensure perpetually insufficient funding.
 
 
The TABOR proposal under consideration would also reduce the maximum size of the state’s Rainy Day Fund, from 8 percent to only 5 percent, and harshly constrain access to the Rainy Day Fund in times of fiscal crisis. These backward provisions would weaken the state during recessions, increasing the pain felt by North Carolina families and hampering the state economy at the worst possible time.
 
FOR MORE INFORMATION, CONTACT: Edwin McLenaghan, Policy Analyst, 919.856.3192,ed@ncjustice.orgAlexandra Forter Sirota, BTC director, 919.861.1468, alexandra@ncjustice.org; Jeff Shaw, director of communications, 503.551.3615, jeff@ncjustice.org.
 
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