John Hood: State faces fiscal, economic challenges

Jan. 08, 2013 @ 01:14 AM

RALEIGH — As Gov. Pat McCrory takes office and the Republican-led General Assembly reconvenes for its 2013 session, they face significant fiscal and economic challenges. While there won’t be a big hole in the state’s operating budget, state government has large unfunded liabilities, and North Carolina’s economic recovery remains feeble.
McCrory and legislative leaders need to embrace bold, innovative ideas. Fortunately, they need not generate all the ideas themselves. Some are already on the shelf, ready to take down and implement. A good place to start would be the inventory of reports produced by the Legislature’s Program Evaluation Division (PED).
Created by statute in 2007, PED has produced nearly four dozen reports on a wide range of state programs and operations. The division’s director, John Turcotte, reported last month that his auditors have recommended policy changes that offered nearly $80 million in one-time savings to taxpayers and about $60 million in annual operating savings. Unfortunately, policymakers have yet to act on most of PED’s findings. Only $2.5 million in one-time savings and $16.6 million in annual savings have been implemented to date.
Will the McCrory administration and Republican supermajorities in the General Assembly do better? An initial test case will be how they respond to the division’s recent report on the state-owned North Carolina Railroad Company (NCRR).
Originally constructed in the 1850s with mostly taxpayer funding, the line connected Charlotte, Greensboro, and the Carolina Piedmont with the Coastal Plain and the port at Morehead City. In 1998, the state bought out the shareholders and became the sole owner of what is nominally a private company.
NCRR doesn’t actually run trains. It leases its facilities. By state law, its income – which also includes utility contracts and land licenses – must be spent on the company’s capital needs. So in 2006, NCRR stopped paying even a modest annual dividend into the state treasury.
In its report, the Program Evaluation Division observed that state taxpayers had plowed copious amount into NCRR but have received no financial return. After considering several options, PED recommended that state law be changed to direct some of NCRR’s income into the state budget – a $15.5 million dividend the first year and approximately $4 million a year after that. The report also recommended selling some 14 NCRR properties with a tax value of $6 million.
I actually think these recommendations were way too timid. The state should get NCRR appraised and then sell the whole thing. A 1997 financial analysis put its value at just shy of $300 million. But taxpayers have funded $134 million of improvements since then, and land prices along much of the NCRR corridor have appreciated. Program evaluators concluded that selling NCRR would sacrifice future benefits from enhanced intercity passenger service. But to state taxpayers, there are no future benefits from such subsidized service, only future costs.
Still, one has to start somewhere. If the Legislature reclaims an annual dividend from NCRR, that will be a promising sign of things to come.

John Hood is president of the John Locke Foundation and author of “Our Best Foot Forward,” a book on North Carolina’s economy. It is available at Representations of fact and opinions are solely those of the author.