Tax increases, but not too much; budget cuts, but not too much; sex education, but not too much—education, that is (on the sex part, abstinence until marriage remains "the expected standard"): The General Assembly session that ended last week was in one sense a typical split-the-difference affair, but viewed against the backdrop of a horrendous revenue shortfall caused by a major recession, progressive observers were inclined to give it a not-bad rating.
A landmark anti-bullying law directing the public schools to protect gay kids as well as straight kids—the first time a state law recognized sexual orientation and gender identity as protected groups—helped boost the legislature's grade. So did measures to address racial bias in administration of the death penalty and to allow Triangle counties to fund mass transit.
Chris Fitzsimon, president of N.C. Policy Watch, was among the legislature's positive graders, and his budget math cut through the right-wing noise about the shortfall not being so serious. The state began the 2008-09 fiscal year with a $21.3 billion budget, and the final revenue projections for the 2009-10 year came in at $17.6 billion (download the budget). Even without accounting for inflation or the chronic underfunding of state social services programs (mental health, for example), that's a gap of about $3.7 billion, or 17 percent of previous state spending.
The solution was to close the shortfall in thirds: Federal stimulus money filled about $1.3 billion of the gap, and the General Assembly raised taxes by $1 billion, resulting in budget cuts of $1.4 billion. It was a predictable outcome for a legislature in which Democrats dominated both houses but were split between a conservative group that ran the Senate and a more progressive one that ran the House. (Republicans, meanwhile, were shut out of budget deliberations, allowing them to vote no on everything with impunity.)
On the issue of how to raise $1 billion in new taxes, however, conservative Democrats called the tune. About $800 million will come from a 1-cent sales tax increase, augmented by approximately $75 million in alcohol and tobacco tax hikes. (The state tax on cigarettes will increase from 35 cents to 45 cents Sept. 1.)
Small surcharges on personal and corporate income taxes will bring in the rest, but as the N.C. Budget & Tax Center's Elaine Mejia noted, the net result is that low-income taxpayers, not the wealthy, will shoulder the heaviest load because the sales tax is so steeply regressive.
Gov. Bev Perdue, on her first budget mission, embodied the Democratic dichotomy. She spoke up at strategic moments in favor of raising taxes in order to avoid crushing cuts to state school-aid budgets. But when the time came late in the game for her to say which taxes should be hiked, she cast her lot with the regressive 1-cent sales tax increase—only to object days later that the tax hikes were landing too heavily on "working people."
It was, to say the least, an uneven performance.
As Perdue looked on impassively, the legislature again punted on key tax reforms, including the extension of the sales tax to such services as legal and accounting fees, landscaping and the like—which upscale people buy more of than the poor. Taxing services would make the sales tax less regressive.
And the legislature decided against requiring "combined reporting" of income by national corporations doing business in the state, another long-sought reform by progressives. "Combined reporting simply requires corporations to be honest," the Budget & Tax Center argues, "when filing state corporate income taxes" and pay according to what they earned in North Carolina. Our law now permits parent corporations and their subsidiaries to file separate tax returns, enabling them to move profits to other states where the tax rates are lower.
With enactment of House Bill 148, Wake, Durham and Orange counties can now ask their voters for permission to levy a local half-cent sales tax dedicated to bus and rail transit improvements. When they will do so, though, is unclear. Durham and Orange leaders are anxious to hold the referendum in concert with Wake, but Wake County Commissioners have made it clear that "it will not be any time soon," in the words of Commissioner Joe Bryan.
The half-cent sales tax would be worth upward of $70 million a year if enacted by all three counties, with two-thirds of that amount generated in Wake. (Each county controls its own money and can proceed regardless of how the others vote, however.) The money could jump-start work on an ambitious transit plan drawn up last year by a regional commission, including 300 more buses on Triangle roads within a decade and a 56-mile commuter rail line from Chapel Hill to Durham to Raleigh by 2035.
The counties bordering the Triangle—Chatham, Harnett, Johnston, Nash, Franklin—are also permitted to levy a quarter-cent sales tax for transit, again with their voters' approval.
Federal aid, not yet on the horizon but more likely under the Obama adminstration than it was in the Bush years, would help accelerate the move to transit even more.
Wake Sens. Richard Stevens and Neal Hunt, both Republicans, crossed party lines to support the bill, which was backed by all of the Triangle's Democratic legislators.
"The Healthy Youth Act" (House Bill 88) represents a compromise, according to the ACLU of North Carolina, one of its proponents. The bill doesn't displace the current law mandating that abstinence until marriage be "the expected standard" in sex-ed teaching. But beginning in 2010-11, it will require for the first time that schools also provide age-appropriate information starting in the 7th grade about sexually transmitted diseases, the effectiveness of various contraception methods and the incidence of sexual abuse and rape. Parents can remove their kids from such classes if they choose, though surveys show that the overwhelming majority of parents want their children to know what's up with sex.
The bill passed on party line votes in the Senate and House, with most Democrats in favor and Republicans solidly opposed.
The "School Violence Prevention Act" (Senate Bill 526) is the first law in the state's history to recognize sexual orientation and gender identities as protected categories akin to gender, race and religion. Its passage was thus a huge breakthrough for gay rights groups, who've argued for years that gay kids in particular need protection from bullies in school.
They'll get it: Under the bill, every school system must adopt, by the end of this year, a detailed plan for assuring that no students are bullied, including training for employees about who the bullies and the bullied are likely to be.
This bill, too, passed in both houses along party lines, with Democrats in favor and Republicans, who objected to the language protecting gay students, opposed.
One of the legislature's final acts was one of its most controversial—and important. The landmark N.C. Racial Justice Act—which passed after Sen. Floyd McKissick, the Durham Democrat and a bill sponsor, worked some kind of backstage magic with his fellow party members—prevents the execution of defendants on the basis of race.
Defendants who can prove race was an underlying factor in the decision to seek or impose their death sentence will instead be sentenced to or tried for life in prison without the possibility of parole.
Opponents wrung their hands and clucked that it would be the first step in phasing out the death penalty in North Carolina—not true. And Rep. Paul Stam (R-Wake), even contended the bill would force prosecutors to sentence more white people and women to death in order to fill racial and gender quotas—again, not true.
Finally, on Aug. 5, clearer heads prevailed, and the General Assembly took a giant step toward curbing racial bias in the state.
"It's the tough bills that test our character, and this was the right thing to do," said Rep. Larry Womble, a Winston-Salem Democrat and the House sponsor. "Regardless of politics, regardless of what's sociable or acceptable, right is simply right."