RALEIGH (AP) — A popular idea among conservatives to try to limit the growth of government spending was approved Thursday by a North Carolina legislative committee despite arguments it could hurt the state’s ability to borrow money cheaply.
The panel voted mostly along party lines for a “Taxpayer Bill of Rights” that ultimately would have to be approved by citizens in a constitutional referendum in November 2014. The measure would limit spending growth annually to a percentage equal to the combination of a rolling three-year average of population growth and inflation.
For example, if the state spent $20 billion one year, the state could spend no more than $20.8 billion the next year if there has been 3 percent population growth and 1 percent inflation on average — for a combined 4 percent “fiscal growth factor.”
“This is a common sense way to just keep … expenditure growth within a certain track so we don’t get the periodic budget emergencies that we’ve experienced and I think we will again in the future,” said Rep. John Blust, R-Guilford, a chief sponsor. The bill still must clear two committees before going to the House floor.
Revenues that exceed the spending cap would be placed in the state’s rainy day reserve fund. Revenues beyond the amount needed for the fund to reach an amount equal to 5 percent of annual state spending would be refunded to taxpayers, perhaps through rebates.
The Republican-penned bill was approved by a vote of 22-14 despite warnings by State Treasurer Janet Cowell’s office that implementing the restrictions could jeopardize North Carolina’s treasured high bond rating that allows state government to borrow cheaply. The spending limit could be bypassed only by approval of two-thirds of the members of the House and Senate.
“This will tie your hands to respond with increased revenues in a time of fiscal stress,” Deputy State Treasurer Vance Holloman told committee members. “This is going to create a ‘super-sub majority’ — 33 percent plus one vote will make the decision for the entire state.”
Holloman said North Carolina is one of only nine states that receive the top grades at all three major bond rating houses. The rating agencies reflect negatively upon states whose legislatures have significant restraints on raising taxes — such as statewide voter approval or requiring supermajorities.
“This is going to hurt us with the rating agencies,” Holloman said. Cowell is a Democrat.
Bill supporters and conservative advocates said they don’t know why rating agencies would be averse to North Carolina putting a method in place to bring spending under control. They said the bill is designed to discourage legislators from spending largesse during periods of prosperity, followed by shortfalls and recessions.
The bill would “keep this body from overspending when times are great so that they don’t have to make mean and cruel and difficult cuts when we have economic downturns,” said Dallas Woodhouse, state director of the fiscal watchdog group Americans for Prosperity.
Tazra Mitchell, the Budget & Tax Center analysts, said the bill would be unable to keep up with the growth in the costs of health care and education that well exceed the inflation rate. Blust said the legislation has been tinkered with to ensure that lawmakers wouldn’t be forced to ratchet down spending should inflation and population fall below zero.