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The NC budget debate

RALEIGH — It’s the journey, not the destination, that matters most — or so we have been assured by deep thinkers ranging from Ralph Waldo Emerson to Steven Tyler. When it comes to North Carolina’s revised 2014-15 state budget, however, the journey proved to be less an idyllic journey through the countryside than a drive through rush-hour traffic with a station wagon full of cranky kids.
It took longer than expected for the House and Senate to resolve their differences (although not particularly long by historical standards). The dialogue among conferees was often heated. Other legislators fidgeted in the backseat and repeatedly asked “Are we there yet?”
Still, I must say that the destination was worth it. The revised budget continues to implement the crucial tax reforms and reductions approved in 2013. At $21.25 billion, the General Fund will grow by just over 3 percent, less than inflation and population growth. The budget contains both structural reforms and sizable enhancements to teacher compensation, while giving other public school staff and state employees smaller but welcome raises. It also makes significant additions to the state’s savings accounts (a wise precaution given that the current national economic “recovery” is, again by historical standards, getting long in the tooth).
The provision attracting the lion’s share of attention is an average teacher pay raise of 7 percent, which will cost $282 million. It works out to roughly $3,500 per teacher, on average. Under different circumstances, I and other fiscal conservatives might have questioned the wisdom of such a large hike in one year. In the past, politicians have oversold the premise of North Carolina’s underpaid teachers — using national rankings without adjusting for variances in cost of living, years of experience and the value of non-wage benefits. They’ve also tended to pour more money into a broken compensation system that put too much emphasis on longevity-based salary schedules at the expense of offering competitive starting salaries and paying teachers more for high performance or challenging jobs.
But in 2014, the circumstances are different. During the lean budget years of the Great Recession and its aftermath, teachers received only a single across-the-board pay raise (in 2012). Even after adjusting for relevant factors, North Carolina’s compensation package has clearly become less competitive. It needed attention this year.
Moreover, legislative leaders and Gov. Pat McCrory didn’t simply propose to hike average pay. They proposed a comprehensive, multi-year effort to reform how we pay teachers — an effort that the 2014-15 budget advances significantly. The outmoded 37 steps of the statewide salary schedule will shrink to six. Early-career teachers will receive an average 14 percent boost over two years. The stage is now set for the legislative and executive branches to continue the reform process by differentiating teacher pay in relation to student performance gains, hard-to-fill jobs, and hard-to-staff schools.
Regarding the state’s fast-growing Medicaid program, House and Senate leaders haven’t yet agreed on a long-term framework for reform. But the budget does contain some $135 million in savings in Medicaid and other public-assistance programs. While the state will continue to provide a social safety net, legislatures have in the past let public assistance supplant expenditures on other programs with a greater potential to boost North Carolina’s economic growth. The new budget reflects the right priorities here.
Over the past four years, conservative reformers in Raleigh have set out to create a smaller, more efficient government that uses innovation and competition to deliver core public services at a lower cost. They have also reformed the state’s tax code, regulatory process, highway-funding formula, and education system — all with the goal of making North Carolina a more attractive place to live, work, invest, and create new businesses.
It would be premature to draw any definitive conclusions about the results, although the early signs are positive. Over the past two years, North Carolina has experienced the fastest rate of economic growth in the Southeast. The new 2014-15 budget will continue this momentum — meaning that it was well worth that frustrating summer drive in the station wagon.

Hood is president of the John Locke Foundation.

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