{mosimage}Is Beverly Perdue thinking big? Really big?
    That’s the indication you get after reading a Triangle Business Journal interview last week with the incoming governor. Citing the model of Max Gardner, who served from 1929 to 1933, Perdue suggested that the multi-billion-dollar budget deficit facing North Carolina should prompt policymakers to rethink the fundamentals of state government.
    With numerous local governments headed for bankruptcy in the early years of the Great Depression, Gardner famously fashioned a grand deal in which the state assumed primary control over education, transportation and the judicial system, while levying new statewide taxes to replace local levies. Now, Perdue told TBJ, “maybe it’s time to give (those programs) back. I don’t know the answers. But the box is so broken, the timing could not be more perfect for folks to do some things differently.”
    I doubt that the governor-elect truly meant to send a signal to state and local leaders that a radical devolution of North Carolina government will happen. It was probably meant as an example of the kind of sweeping changes that might be in the offing.
    On the Left, the operating assumption is that even after years of rapid growth state government is still too small, so the deficit is the result of North Carolinians keeping too much of their own money. That’s not how the lefties put it, but that’s what they believe. They have suggested that the incoming administration increase sales taxes (albeit through base-broadening rather than a higher rate), increase the business-tax burden, hike taxes on alcohol and tobacco and eliminate the requirement that counties submit new sales taxes to a vote of the people, since the people keep inconveniently saying no.
    On the Right, the operating assumption is that state government is at least a couple of billion dollars too big, that North Carolina taxpayers don’t get nearly enough benefits to justify the extra cost compared to nearby states with less-expensive governments. They recommend significant changes in Medicaid, university subsidies, non-teacher expenses in public schools and the crazy quilt of state agencies and departments.
    Although I suspect that the impulse of the incoming administration and legislative leaders is to side with the Left in this dispute, there’s at least some compelling evidence that they haven’t quite decided what to do. A few days ago, in response to a question about whether the general assembly would enact tax hikes to close next year’s budget deficit, House Speaker Joe Hackney was less than enthusiastic. Another key legislator, Rep. Mickey Michaux, was even clearer in stating that the budget could be balanced without tax increases. As for Perdue, she told TBJ that she was “against a new tax to fix a hole.” She did leave open the possibility of some kind of grand deal on reforming the entire revenue structure, but that doesn’t necessarily mean that the resulting plan would significantly increase net revenue in the short run — because major tax reforms are easiest to pass when they are at least revenue neutral.
    A key reason the aforementioned impulse to increase taxes may not actually translate into higher taxes is, to put it bluntly, electoral politics. State officials are already looking ahead to the 2010 cycle, when control of the General Assembly will again be up for grabs, as will the power to redraw legislative and congressional districts after the 2010 census. Democrats are loath to give Republicans a powerful election issue by seeming to mismanage the budget crisis or increasing the tax burden on households and businesses already coping with economic recession.
Perdue’s not up for reelection until 2012. But she doesn’t want to play a state version of Bill Clinton to a 1994-like Republican resurgence in two years. So, she’s downplaying talk of major new initiatives and emphasizing talk of budget savings and reform.
    “Are state employees, teachers, parents and elected officials going to yell and scream at me? Yes,” she said. “But I have been yelled and screamed at before. It doesn’t bother me, and I am going to do what’s right.”

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