Tough Decisions To Be Made About Incentives And The Gas Tax | Eastern North Carolina Now

Tough decisions need to be made during this legislative session, but are they being made in the best interest of the taxpayer or in the spirit of efficient government? Two questions came before the House Finance and Appropriations committees on Tuesday, a change to the state's gasoline tax as...

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    Publisher's note: The author of this post is Sarah Curry, who is Director of Fiscal Policy Studies for the John Locke Foundation.

    Tough decisions need to be made during this legislative session, but are they being made in the best interest of the taxpayer or in the spirit of efficient government? Two questions came before the House Finance and Appropriations committees on Tuesday, a change to the state's gasoline tax as well as a proposal to expand the existing Job Development Investment Grant (JDIG) program. While lawmakers debate these two issues, it seems concern for an efficient use of scarce taxpayer dollars is being left out of the argument.

    North Carolina's gas tax is the highest in the southeast, and is projected to drop from its current 37.5 cents per gallon to 29.9 cents per gallon. The problem is that the Department of Transportation (DOT) needs more money and doesn't want the rate to drop. So the choice before the legislature is, let the rate drop and rework the way DOT operates to maintain operations, or keep the rate high and make a temporary fix for DOT funding. For a more complete list of options, see a recent blog post here.

    The Dept. of Transportation is funded through an enterprise system, a self-balancing set of accounts, segregated for a specific purpose in accordance with laws and regulations. The state's Highway Fund and Highway Trust Fund operate in this way — theoretically. Over the years money has been removed from these two funds to pay for non-transportation expenses. Last year, over $300 million was transferred out of the highway funds for non-transportation purposes such as positions in the Governor's office, training on Breathalyzer tests, and inmate labor custody.

    So instead of keeping the gas tax rate higher than the formula calculates, why not stop transferring money out of the highway fund for non-transportation purposes? In addition to spending on non-transportation activities, last year's state budget said DOT was to eliminate 500 full-time positions. Those positions have not been eliminated. When state law instructs an agency to cut positions, they should do so. Now we have a situation where an increase in the gas tax is going to fund positions that should not exist in the first place — that's not what I call a good use of taxpayer dollars. Lawmakers need to take a serious look at how the transportation funds are managed before they debate a tax increase.

    Speaking of inefficient government programs, the second issue being considered on Jones Street is economic incentives and the expansion of the state's JDIG program. JDIG's goal is to provide new and expanding businesses with enough cash to create additional jobs and make capital investments that they would not otherwise. But despite splashy headlines about new jobs "created" by JDIG projects, the reality is that these jobs often fail to materialize and the program has experienced a 60 percent failure rate since its creation.

    Current law states the amount available to be committed in JDIG grants is $22.5 million, with $7.5 million available for the last half of the 2015 calendar year starting July 1st. According to the proposed legislation, that remaining $7.5 million will be available immediately and will add $15 million of additional capacity that may be committed in JDIG awards for 2015. These changes will increase the cap for the current period from $22.5 to $45 million, with the potential to increase the State's total JDIG commitment by $180 million. Some Republicans attacked the bill for spending government money on private business, while some Democratic House members were upset because the money could be better spent on schools and low-income families. Overall, the bill passed with overwhelming support from both sides of the aisle.

    A report was released last month highlighting some of the poor results from the existing JDIG program and calling for the program to be reevaluated instead of expanded. Thirty-four of the 58 JDIG projects that involved attracting new companies to North Carolina failed to live up to their promises and were terminated. Results also showed the program is particularly failing rural North Carolina — more than 77 percent of JDIG projects in rural counties were terminated. If there is any desire for government efficiency and using tax dollars wisely, why do lawmakers want to spend additional money on an obviously broken program?

    Playing favorites with certain industries or corporations is not in the best interest of existing North Carolina businesses or taxpayers. Legislation should be designed to benefit everyone through low tax burdens and favorable regulatory regimes. Lawmakers should be trying to maximize the individual freedom that produces economic growth and prosperity, rather than giving special breaks to selected companies.

    Lawmakers need to refocus their discussion on both of these proposals. Prioritizing an efficient use of tax dollars should be at the center of these two debates. The Department of Transportation needs to be reorganized so the gas tax can be lowered and is only spent on transportation projects. And hard earned tax dollars should be spent on essential government services, not allocated to centrally plan the state's economy from Raleigh by forcing taxpayers to become venture capitalists through incentive programs. While making the right decision is not always easy, the fiduciary responsibility to taxpayers and efficient government should be the top priorities.
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