North Carolina’s Senate is considering a drastic step to restrict state revenue: A proposed constitutional amendment would cap the state income-tax rate at 5.5%, sharply limiting the state’s ability to support services in a downturn or natural disaster.
Higher education would likely bear the brunt of that policy. Much of state spending is mandated by law — public school enrollment, public safety and Medicaid, for instance. That means shortfalls in revenue affect parts of the budget that are flexible — primarily higher education.
That could mean greater costs for students and families as tuition rises to make up for lost state funds – even though tuition at North Carolina’s public universities has already risen 72% in the past 10 years.1
In 1992, Colorado passed a constitutional amendment that artificially capped spending by state government. It works differently than the proposed income-tax cap, but the aim to constrict state budgets is the same. Since the measure passed, funds for Colorado’s public colleges and universities have dropped nearly to the bottom of all states.2
“Higher education sustained a disproportionately larger General Fund reduction because it is generally considered a balancing mechanism of the budget,” according to a University of Denver study.3 “It is perceived that higher education has the ability to generate new revenue through tuition increases.”
In other words, when Colorado lawmakers are faced with a recession and a constitutional restriction on balancing revenue, they must make steep budget cuts. And higher education is one of the few areas that can be legally defunded.
That has forced Colorado colleges and universities to inflict major tuition increases and damaging cuts to academic programs. Per-capita support for public higher education is the second worst in the country, barely half the national average.4
A republic is a form of government where we elect officials to make decisions on our behalf. But strict constitutional caps leave lawmakers little room to do their jobs. Instead of making thoughtful decisions about budgets, legislators would be forced to make automatic, damaging cuts to vital services.
That’s why no state — none — has chosen to repeat Colorado’s experience. Lawmakers across the country recognize constitutions are not budget documents — they’re meant to enshrine basic principles of government, not spell out specific tax and spending policy.
State Treasurer Janet Cowell, who is responsible for safeguarding North Carolina’s sterling credit rating, warns that the proposed income-tax cap could place that rating at risk. Rating agencies would view the cap as a limit on the state’s budget flexibility.
“Losing the State’s coveted AAA rating would expose North Carolina not only to increased borrowing costs, but also sends a negative message about our overall management capabilities,” Cowell wrote in a cautionary memo to lawmakers.5
North Carolina’s world-class universities took generations to build; removing options during economic downturns risks starving them. Sticking students and families with the consequences of an inflexible policy could also run afoul of another constitutional dictate that a college education must be as close to free as possible for North Carolinians.6
Lawmakers already have a constitutional obligation to balance North Carolina’s budget, year in and year out. We shouldn’t handcuff future legislatures before they start.
1 http://ncleg.net/Sessions/2015/Bills/Senate/PDF/S873v4.pdf.
2 http://sheeo.org/sites/default/files/project-files/SHEEO_FY15_Report_051816.pdf, P. 44.
3 http://digitalcommons.du.edu/cgi/viewcontent.cgi?article=1085&context=etd , P. 64.
4 http://sheeo.org/sites/default/files/project-files/SHEEO_FY15_Report_051816.pdf, Pp. 52-53.
5Department of State Treasurer, Position on “Constitutional Amendment Maximum Income Tax Rate,” Senate 817.
6NC Constitution, Article IX, Section 9: http://www.ncleg.net/Legislation/constitution/article9.html.
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