NC Republicans are crowing about the rainy day fund. But there are two sides to that story.
Bob Rucho is no longer a state senator, but the former Republican chairman of the Senate Finance Committee still called with a beef about a News & Observer editorial on state finances as the COVID-19 crisis ravages the economy. What annoyed him was a line that said, “Whatever the reasons, North Carolina is fortunate to come to this hour with reserve funds at hand.”
“You know the reason,” said Rucho, who retired from the legislature at the end of 2016. The reason, he said, was the fiscal prudence exercised by Republicans. They took control of the legislature in 2011 and have built funding reserves by resisting Democratic calls to increase state spending.
“No one expected this, but it is exactly what we planned for, to make sure government would be ready for something in the future, and unfortunately now is the future,” he said.
There’s no disputing the good fortune of having big reserve balances now that COVID-19 social distancing measures have shut down much of the economy.
The state has $1.2 billion in its rainy day fund and nearly $2 billion that went unspent because of the budget impasse between Democratic Gov. Roy Cooper and the legislature’s Republican leadership. Those funds could cover a major shortfall in tax revenue that the General Assembly’s chief economist estimates could be between $1.5 billion and $2.5 billion for the two-year budget cycle ending in June 2021. In addition, the state’s unemployment insurance reserve fund has a balance of $3.9 billion that will help meet a record surge in unemployment claims.
“Those reserves didn’t happen magically. There was a plan,” said Rucho, a retired dentist who represented part of Mecklenburg County. “Clearly the only one who can pick up the slack when things go bad is government. They’re the last one who can live paycheck to paycheck.”
It’s good to have the cash on hand now, but it hardly justifies Republican spending polices since 2011. In fact, Republican lawmakers have been spendthrifts in doling out tax breaks that mostly benefit the wealthy and big corporations.
To make up for the lost tax revenue, teachers, state employees and retired state employees have received meager pay increases. Republicans deemed expanding Medicaid too costly, leaving hundreds of thousands without insurance and rural hospitals vulnerable or closed as this health crisis arrives. The massive unemployment fund reserve was built on Republican changes that reduced the size and duration of weekly payments and tightened rules so that the great majority of the unemployed don’t qualify for benefits.
While Rucho hails the reserves, the real test will be how the money is spent. Will it go out quickly to people and small businesses in need, or will it be used to support basic government operations? The latter is the more likely Republican course. Meeting costs with reserves would push back the point at which the state will have to sharply cut services, or Republicans will have to do the unthinkable – raise taxes.
The reserves will be useful, but not nearly enough if the economic shutdown is drawn out. Rucho said, “If this lasts longer than four or five months, there are going to be a lot of cuts being made.” But for now, he noted, “We’re in better shape than we ever were. Put credit where it’s due.”
Fair enough, but the story of Republican stewardship is only beginning. The rainy day has come. We’ll see how the legislative leadership performs in the storm.
This story was originally published April 6, 2020 at 12:00 AM.