Up and Coming Weekly is a weekly publication in Fayetteville, NC and Fort Bragg, NC area offering local news, views, arts, entertainment and community event and business information.
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WWW.UPANDCOMINGWEEKLY.COM JUNE 1 - 7, 2022 UCW 5 JOHN HOOD, Board Member, John Locke Foundation. COMMENTS? Editor@upandcomingweekly.com. 910-484-6200 According to the latest estimate from fiscal analysts at the North Carolina General Assembly, our state government will take in about $6.2 billion more in General Fund revenue over the 2021-23 budget biennium than was origi- nally projected last year. at's a huge number. It repre- sents nearly a quarter of the entire General Fund budget for the cur- rent fiscal year. And it's not even the full amount of funds available. As of April 30, there's $8.2 billion in unspent and undesignated money sitting in the General Fund. Now that state legislators have returned to Raleigh for their 2022 short session, we are about to hear a spirited debate about how to spend the revenue bonanza. Democrats are insisting that the General Assembly fully fund a court-ordered settlement on education funding. Republicans are looking at in- frastructure needs and tax relief. Both parties are telegraphing a desire to increase compensation for public employees. I favor some of these ideas. But may I offer a few words of cau- tion? Our broader economy is in trou- ble. America's real GDP shrank by an annualized rate of 1.4% during the first three months of this year. And in an attempt to bring down rampant inflation, the Federal Reserve is raising interest rates. at's the right response, to be sure, but everyone needs to be mindful of the probable tradeoffs. Eight of the past nine periods of monetary tightening by the Fed were followed by recessions. Although a "soft landing" is theo- retically possible, then, there's a very real possibility that the GDP will contract sometime over the next year. If the contraction hap- pens in the second quarter, that would constitute a recession by the standard definition. I know North Carolina's eco- nomic fundamentals look pretty strong right now. Our labor mar- kets improved markedly in April, with the headline unemployment rate falling to 3.4% (down from 5.1% a year ago) and our labor- force participation rate topping 60% for the first time since the onset of the COVID-19 pandemic. Other states in our region post- ed good jobs numbers last month, too (in fact, North Carolina's un- employment rate is the highest in our neighborhood, though it's low by historical standards). Still, it doesn't require Eeyore- level pessimism to worry about a possible recession and its effects on state revenues and expendi- tures. It only requires realism. It also requires looking more closely at that surplus-revenue figure of $6.2 billion cited earlier. Most of it, $4.2 billion, is oc- curring during the first year of biennium, and involves one-time shifts in the timing of reported income. e pandemic produced some rather weird financial patterns in both the public and private sectors. It would be a mistake to assume these patterns will continue into future years. If even a modest recession fol- lows the Fed's actions on interest rates, that will both reduce reve- nue collections and increase state expenditures on Medicaid and other forms of public assistance. e projected surplus would shrink. It might even become a deficit. anks to years of conservative budgeting, North Carolina has ac- cumulated a large rainy-day fund and other reserves. Unlike some states, we wouldn't have to close a fiscal gap by raising taxes, cancel- ing contracts or laying off em- ployees. Indeed, the state could actually play a countercyclical role by giving teachers and state employees a pay bump. at argues for a balance between addressing immedi- ate needs and hedging against future risks — which is precisely what I think House Speaker Tim Moore, Senate President Pro Tem Phil Berger, and other legislative leaders are likely to do during the short session. ey know that if a recession occurs, they can't (and shouldn't) rely on another round of massive federal borrowing to paper over state and local deficits. ey also know that their steady and dis- ciplined approach to state bud- geting is a big reason why North Carolinians have become increas- ingly comfortable with GOP ma- jorities in the General Assembly. We should all hope the Fed can engineer a soft landing. But hop- ing is not governing. OPINION Legislators should not count on a soft landing by JOHN HOOD Photo courtesy of Pexels Contributing Writers Wanted Join the Up & Coming team Use your creative talents to promote community events (people, concerts, theater, festivals, sports, etc.) Basic writing and interviewing skills needed Intern opportunities available for college students Contact editor@upandcomingweekly.com (910) 484-6200 Contributing Writers Wanted Don't Just Read About it, Write about it! Join the Up & Coming Weekly team • Use your creative talents to promote community events (people, concerts, theater, festivals, sports, etc.) • Basic writing and interviewing skills needed • Intern opportunities available for college students Contact editor@upandcomingweekly.com (910) 484-6200