I started writing my column for North Carolina newspapers in 1986. From the start, I resolved to focus primarily on state and local issues. Newspapers were already chock-full of opinions about national politics and international affairs. As a then-college student, I didn’t think my views on these topics would be distinctive enough to interest editors and readers. I still think that’s largely true.
In recent years, however, I have devoted an increasing share of columns to a national issue: the federal budget. North Carolinians are, of course, directly affected by federal spending, federal taxes, and the inflationary consequences of federal deficits. But you could say that about any federal action.
What makes it impossible for this state-oriented columnist to ignore the federal budget crisis is its implications for states and localities. If their leaders aren’t paying close attention to fiscal debates in Washington, that’s a mistake. Indeed, it’s no exaggeration to say that the federal government’s irresponsibility constitutes a grave threat to North Carolina’s fiscal health.
As you probably know, President Joe Biden, the Democratic-controlled U.S. Senate, and the Republican-controlled U.S. House are currently at odds over the federal debt ceiling. Biden wants Congress to increase the cap without conditions. The House has just released a proposal to raise the ceiling by $1.5 trillion, which will paper over the federal deficit through March 2024, in exchange for some $4.5 trillion in savings over several years, including an annual cap on spending growth, the imposition of stronger work requirements for welfare programs, and other cuts.
Some Democratic members of Congress want Biden to negotiate a compromise with GOP House leaders. Other Democrats would rather let the crisis unfold, confident that Republicans will either panic and cave or suffer lasting political damage.
I think the Republicans are in the right here, but that’s not my point today. One way the U.S. House plan would reduce federal deficits is to claw back unspent COVID-19 relief. While federal dollars already sitting in state and local coffers appear to be excluded, the plan would block some previously authorized funds from being distributed.
In my opinion, this proposal represents only the tip of a very large, very sharp iceberg. As Social Security and Medicare continue to grow as a share of federal expenditures — driven in large part by the aging of our population — future presidents and congresses won’t be so dainty about intergovernmental transfers. Faced with the prospect of raising taxes, cutting entitlements for seniors with a high propensity to vote, or cutting other spending, they’re going to choose the latter course as much as they can.
Although you’d never know it by reading most news coverage, North Carolina’s state budget consists of more than just the General Fund financed by state-imposed taxes and fees. It includes transportation accounts funded by gas and vehicle taxes. And it includes many programs funded either entirely by federal grants or, as with Medicaid, by a combination of state and federal dollars.
Last year, federal funds made up nearly as large a share of North Carolina’s state budget (39%) as the General Fund did (41%). Local governments also receive federal funds, as do our public and private colleges and universities in the form of research grants, student subsidies, and other programs.
When push comes to shove, Washington is going to tighten this spigot, either explicitly or by imposing new conditions that make it less attractive to accept federal dollars. It requires no superhuman prescience or crystal ball to make such a prediction. It requires only the application of experience and common sense. Consider what state politicians often do when faced with a budget crisis: they curtail grants to localities or foist responsibilities on them that used to be shouldered by the state.
Publicly held federal debt is projected to rise to a whopping 130% of GDP by 2032. The crisis is no longer in the distant future. We’re heading into it now. North Carolina’s leaders, please take note.
John Hood is a John Locke Foundation board member. His latest books, “Mountain Folk” and “Forest Folk,” combine epic fantasy with early American history (FolkloreCycle.com).