North Carolina’s spending – past, present and future – is taking a central role in the campaign for the state’s U.S. Senate seat.
Republican House Speaker Thom Tillis is attacking incumbent Democrat Kay Hagan over her role as a chief budget writer in the state Senate between 2002 and 2007, saying the state’s current problems are rooted in the budgets she helped write.
Hagan counters that Tillis has presided over a House whose budgets have hurt education and whose others actions have hurt the state’s middle class.
“She failed the citizens of North Carolina when she was in the state Senate and for the last three years I have been cleaning up her mess,” Tillis said in one of the primary debates.
He repeated the phrase often during the primary but didn’t elaborate. Recently, though, he and his staff said that the problems he referred to were tax and spending increases. Tillis said that since Republicans took control of the legislature in 2011, their cuts to taxes and regulations have improved the state’s business climate.
In an interview, Hagan defended her record in the state Senate, where she served from 1999 to 2008, when she was elected to the U.S. Senate. She gave up her position as budget chair during her campaign. Then as now, the state had a constitutional requirement to balance the budget.
Hagan said one of her priorities as a budget co-chair was to make sure the budget was balanced.
“We actually also had a rainy day fund that had close to $1 billion in it,” she said. “Most of the years we had a AAA credit rating and we invested in the future of North Carolina, and we had an over-funded pension plan. And there are not many states today that can lay claim and credit to that.”
She also fired back at Tillis, saying he had made excessive cuts to the state’s education system. Her campaign argued that the Republican tax cuts hurt the middle class and that Republicans’ cuts in state unemployment benefits made North Carolina the only state to lose federal benefits.
The sales tax
Tillis says: Hagan and other Democrats who were in the majority in 2001 voted to increase the sales tax and then extended it rather than let it expire.
“Sen. Hagan professes to be concerned with the poor and more economically distressed citizens, and sales taxes disproportionately impact the poorest people,” he said.
Facts show: In 2001, when Hagan was in her second term, the legislature increased the state sales tax from 4 percent to 4.5 percent. (Counties levied their own sales tax, most in the 2.25 to 2.5 percent range, with the exception of Mecklenburg, which was 2.75 percent). The next year, Hagan became a budget writer, and her budgets postponed the expiration of the increase in 2003 and 2005.
But in 2006, she pushed to cut the sales tax increase by half. And then in 2007, she and other Senate budget writers called for letting the remaining 0.25 percent tax increase expire. The Democratic-controlled House, however, argued successfully against that and instead raised the rate from 4.25 to 4.75 percent effective in October, 2009.
Democrats approved a temporary sales tax increase in 2009, making the rate 5.75 percent, but that was after Hagan went to Washington.
What the GOP has done: In 2011, Tillis and the new Republican majority allowed the temporary sales tax increase to sunset, taking the rate down to 4.75 percent. Currently the average combined local and state sales tax is roughly the same as it was in 2008. Wake County’s combined tax, for example, was 6.75 percent in both years.
In 2013, the Republican majority cut income tax rates for individuals and corporations. But they also shifted to greater reliance on sales taxes, adding it to admissions charges for movies, concerts, sporting events and other forms of entertainment, as well as to service contracts, manufactured homes and meals in college dining halls.
This placed more tax burden on consumption, rather than income, meaning people with low incomes would pay more taxes, while those with high incomes got a break.
Hagan says: Tillis and the GOP have cut the university system, increased community college tuition and “devastated” K-12 public education.
“When I was in the state Senate for 10 years, we increased teacher pay every year for a total average increase of 21 percent.”
The facts show: The University of North Carolina system’s funding this year was $100 million less than in 2007-08, even though it has 9,000 more students now.
In the 2013-14 budget passed last year, community college tuition was increased by $2.50 per credit hour, or a maximum of $80 per year for degree students.
The budget also cut $120 million for teacher assistants, leading to the elimination of up to 3,850 positions, and classroom sizes were increased to cut an additional 5,000 teaching jobs. At the same time, $12 million in lottery money was budgeted for classroom technology.
Teachers saw a series of salary hikes while Hagan was a budget co-chair. The highest was an 8.23 percent raise in 2006, as part of the effort to bring the state in line with the national average. In 2008, North Carolina was rated 25th in the nation for average teacher pay, according to the National Education Association. That was well above Virginia (30th), South Carolina (37th) and Tennessee (40th).
Then the recession hit while Democrats were in control, and pay was frozen. By that time, Hagan was in Washington. Republicans kept pay frozen in 2011 when they gained the majority, and gave a 1.2 percent raise in 2012-13, the first since 2008. The state now ranks 46th in teacher pay.
The House and Senate are now in the midst of budget negotiations with teacher pay being one of the main sticking points. The Senate wants an 11 percent increase but wants to pay for it by making other education cuts, including the jobs of more than 7,000 teacher assistants. The House wanted 5 percent and no cut to assistants. On Thursday, Tillis presented a compromise of 6 percent, which the Senate rejected.
Tillis says: “We’re now at a point to where economy is still continuing just to stumble along, and we’re about to provide one of the most significant raises that teachers have received in the last decade. I think that that is extraordinary given the economic challenges that we have that Sen. Hagan never knew.”
Spending and debt
What Tillis says: Hagan and her fellow Democrats a decade ago were responsible for an increase of the state debt per capita: from $419 in 2002 to $768 in 2008.
“The growth of spending far exceeded what would be necessary to provide for growth because of population or because of inflation,” said Senate leader Sen. Phil Berger, whose tenure in the chamber goes back to Hagan’s days there.
The facts show: The general fund, boosted by tax revenue, rose from $14.8 billion in 2002-2003 to $20.9 billion in 2007-2008.
But North Carolina was not an outlier, according to the conservative-leaning Tax Foundation. Government services grew faster than population in many states. And other states’ debts also increased in the same period. Debt per capita was higher in South Carolina and Georgia in the same period.
Most of North Carolina’s debt from that era was from bonds that were approved by voters. The largest was $3.1 billion in 2000 for higher education. It passed the state Senate 45-0, and voters overwhelmingly approved it.
North Carolina is one of 15 states that now have an AAA rating from Standard & Poor’s, according to the Tax Foundation, a nonprofit research group.
Hagan says: “It certainly showed an outpouring of support from the citizens of North Carolina about how much they wanted an investment in higher education. I think the same would hold true today.”
Tillis says: “The tax-and-spending mentality that Sen. Hagan was very much a part of creating when she was in the state Senate dug a hole that the Republicans have successfully filled.”
He also blames the Democratic legislature for using federal stimulus money for recurring expenses, instead of making cuts during the recession.
The facts show: Hagan and Senate Democrats in 2005 proposed cuts to Medicaid. Then-Gov. Mike Easley and House Democrats objected, and the cuts were not made. When she left state office, there was $786.6 million in the state’s rainy day fund.
The stimulus spending began under President Barack Obama in 2009, after Hagan had gone to Washington. Tillis acknowledged that timing, but said his point was that Hagan should not criticize Republicans for the cuts they made.
“We had to get spending in line with revenue,” he said.
Hagan says: Republicans made poor choices in the cuts following the recession.
“When tax cuts have taken place and the burden has been to cut education, to freeze teacher salaries and increase the workload with fewer people and more students, that is not an investment that I would support,” she said.