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Financing the Future:

Financing the Future is a program of work to modernize state and local finance. ... No magic money tree for the state! Reduced costs and increased efficiencies in all ...

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Financing the Future:

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    Slide 1:Financing the Future: Fiscal Modernization in North Carolina Dr. Roland Stephen January, 2007

    Slide 2:The Institute for Emerging Issues Financing the Future

    IEI is a think and do tank that turns ideas into action. We help new combinations of leaders adopt innovative public policies to prepare North Carolina for its future. Financing the Future is a program of work to modernize state and local finance. 

    Slide 3:North Carolina’s Future: Opportunities and Challenges

    North Carolina: A brilliant future, significant challenges: Population Growth: Urbanization, Dependency Ratio Spending Growth: Healthcare,K-12, Higher Education,Roads,Infrastructure Financial Modernization: Efficiency, Public-Private Partnership, Reform

    Slide 4:North Carolina in the Year 2030

    The population of North Carolina is growing rapidly

    Slide 5:North Carolina in the Year 2030

    Yet population growth is not evenly distributed across the state *Each dot represents 150 additional people over the current population

    Slide 6:North Carolina in the Year 2030

    And the population is aging, especially in rural areas

    Slide 7:Major Expenditure Trends

    Medicaid expenditures have risen rapidly and will continue to rise as the population ages.

    Slide 8:Major Expenditure Trends

    6.0 10.0 14.0 2005 2010 2015 2030 Billions of $ K12 Higher The cost of higher education will rise The cost of new schools will be concentrated in rapidly growing urban areas.

    Slide 9:Major Expenditure Trends

    2.4 million new residential housing units by 2030. $30 billion financial gap for new infrastructure

    Slide 10: North Carolina Revenue Outlook

    General Fund availability in excess of $2.4 billion last year But: 80% of that excess was non-recurring (or one time). Future revenues look bleak.

    Slide 11:Hard Choices

    No magic money tree for the state! Reduced costs and increased efficiencies in all programs Creative public/private funding partnerships Modernization of North Carolina’s system of tax and finance

    Slide 12:Modernization of state system of revenues has two elements: Adopt sufficient, stable and fair system of revenues Review division of responsibilities between state and local government The solution cannot be piecemeal

    Hard Choices

    Slide 13:Modernizing Tax and Finance

    Sales Tax Discriminates against manufacturing Relies on a shrinking base Regressive dependence on goods

    Slide 14:Modernizing Tax and Finance

    The sales tax base is shrinking as percentage of the economy.

    Slide 15:Modernizing Tax and Finance

    The Income Tax Depends on “bracket creep”: Unseen tax increase on the middle class Volatile: New spending or painful cuts Uncompetitive: High rates, often paid by small business

    Slide 16:Modernizing Tax and Finance

    NC depends heavily on the income tax …

    Slide 17:Modernizing Tax and Finance

    Growth in state revenues is volatile.

    Slide 18:Framework for Change

    Change must meet three requirements: Sufficiency Efficiency Equity

    Slide 19:Framework for Change

    Change must be achieved through: Balance among sources of revenues Broad base Low rates Targeted social spending

    Slide 20:Conclusion

    There are things that the state says it will do but does not (ie., roads, adequate school funding) There are things that local government wants to do but cannot (ie, roads in urban areas, water and sewer in rural areas) There are things that local government should do but won’t (ie, capital school construction) Only a comprehensive solution to fiscal modernization can address all of these challenges. There are things that the state says it will pay for, but does not (ie, adequate roads & funding to operate schools) There are things that county governments do pay for, but shouldn’t (ie Medicaid) There are things that local government could pay for (ie, roads in urban areas) or are unable to pay for (ie, water and sewer in rural areas) There are things that local government should pay for but sometimes won’t (ie, capital school construction) State and Local Responsibilities

    Slide 21:State and Local Responsibilities

    This tangled web of state and local finance requires the following: Responsibilities and funding should be matched by an appropriate source of revenue at every level of government. Only a comprehensive solution to fiscal modernization can address all major challenges

    Slide 22:A Word about Politics

    Painful political choices are inevitable Choices avoided here will be forced on us in other ways Change today is likely to be easier than change tomorrow

    Slide 23:Financing the Future: Fiscal Modernization in North Carolina Dr. Roland Stephen January, 2007

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