State reserves

By: JournalNow Staff | JOURNAL EDITORIAL
Published: June 04, 2009

North Carolina has been locked in a boom-or-bust finance cycle for more than a decade. State leaders can't allow this to continue.

In good years, state revenues have increased beyond anticipation by hundreds of millions of dollars. In bad years, they have fallen short by similar numbers.

This year, revenues fell several billion short in the worst economic downturn since 1929.

The result has been a series of drastic shifts in the state's ability to provide services. Some years they expand, some years they are chopped. This year, significant cuts are being proposed even to core services such as public schools and the university system.

We need a better way, one that smoothes out the peaks and valleys and allows the state to provide a more consistent level of service to its residents. Such a "better way" would have to include larger state reserves.

After the disastrous recession of the early 1990s, legislative leaders established the rainy-day fund. They hoped to save enough money to cover future revenue dips. The fund would provide enough one-time cash to protect core services until the economy recovered.

The fund was not a new idea. North Carolina has long required municipalities to maintain significant reserves. The fund, however, was a meek imitation. It was too small, paling in percentage terms with the reserves demanded of local governments.

This year, North Carolina's fund stood at about $850 million. That's more than many states had, but it is also well short of the more than $4 billion shortfall in the proposed budget for next year. It was less than three percent of what was this year's original $22.1 billion budget. Municipalities, on the other hand, often reserve as much as 15 percent of their budgets.

When the economy recovers and revenues expand again, lawmakers must build a reserve significantly larger than what is currently held. This will require a form of political will we don't often see.

Legislators who like to spend will have to tell their constituents to be patient until the reserves are restocked. Those who like to cut taxes will have to resist the urge to do so. North Carolinians who want both better services and lower taxes will have to be realistic.

A larger rainy-day fund, one on the order of 10 percent of the state budget, still would not cover a once-in-a-lifetime recession such as the one we're in now. But it would provide the cash needed to protect core services like education and mental-health treatment.

North Carolina leaders need the foresight to pursue such a goal in coming years.