SOLUTIONS : North Dakota
The North Dakota Policy CouncilNovember 29, 2011
While the nation's economy continues to stand on shaky ground, North Dakota's has become the envy of the nation. Low unemployment, state budget surpluses, and growing personal income are the result of booming energy and agriculture sectors.
But a relatively good economy comes with its own set of problems. For example, budget surpluses have led to dramatic increases in the state budget. It's hard to believe that the state's general fund budget has increased more than 60% over the past two bienniums. The good news is that the state is not allowed to deficit spend, so while the budget has substantially increased, the state has had the revenue to support the increases.
The bad news is that huge increases in state revenue tend to allow our leaders to forget the concept of fiscal responsibility. Prioritizing spending gives way to "yes" votes on spending bills simply because the money is available. They tend to stop thinking in terms of whether or not the government ought to be involving itself in certain areas of the economy and only seem concerned about the perceived benefits of that involvement.
Monitoring the role of government in the economy is important, even when - especially when - times are relatively good. That is why fiscal conservatives, libertarians, and those generally concerned about growing government need to keep their eyes on the ball and work towards winning the hearts and minds of North Dakotans. It is more important than ever to advocate for polices that are based on liberty and that keep government to its constitutionally limited role.
This guide was written to give fiscal conservatives the intellectual ammunition needed to convince their friends and neighbors that the best government is a small government. It is the most comprehensive source for pro-market policy ideas in North Dakota, and it is our hope that fiscal conservatives and supporters of limited government across the state will use this guide to positively influence public policy in the state.
The guide is broken into two main sections: short-term and long-term polices. It is important to have two types of goals when working towards limiting government: long-term policy objectives that show the end-game goals and short-term policies that steer public policy towards the long-term goals. This guide provides both.
While short-term and long-term goals are essential components of the road map that will take us down the road to where government is returned to its proper role, we should not get bogged down in the gritty details of policy-mak- ing. The details are not as important as making sure free-market ideas are embodied in legislation.
Recommendation: NDPERS and TFFR should be converted to defined-contributions plans from defined-benefits plans. See "Pension Reform: Patching the Hole in the Sinking Ship" at www.policynd.org.
Since the economy collapsed in 2008, public pensions across the country have really taken a hit. According to a Pew Center on the States study, the funding gap that exists between what is owed to public retirees and workers and what currently exists in their plans is more than $1 trillion.5 So workers who have not seen their wages keep pace with their public sector equals and who have seen their 401k plans suffer in a volatile stock market can now count on higher taxes to fund guaranteed benefits for public workers.
North Dakota's public pension plans were not immune to the recent recession. According to Sparb Collins, executive director of the North Dakota Public Employee Retirement System (NDPERS), unfunded liabilities had grown to $284.1 million by the end of fiscal year 2009.
While the state's lawyers and other policy experts figure out what can legally be done to benefits that have already been promised, there is one way to ensure that this problem does not come back and that is to change both NDPERS and TFFR from defined-benefits plans to defined-contribution plans where benefits are not guaranteed. It would bring public employees to the same level as private sector employees and taxpayers would never again be asked to bailout the funds.
Recommendation: The people of North Dakota should pass a constitutional amendment to restrict state spending to population growth plus inflation.
Economies grow and our standard of living rises as a result of people producing goods and providing services that consumers demand. In order to produce things and provide services, people need capital, which is money saved by investors after paying their bills and taxes.
Government exists with nothing; it can only spend what it first takes. More government spending means more taxes and more taxes means North Dakotans must sacrifice private goods and services that could be had instead. It also means less private investment, which lowers economic growth going forward. In other words, government should take as little money out of the economy as possible.
North Dakota government has been utterly unable to control its spending. General fund appropriations have grown 86% over the past ten years. Had a similar measure limiting state spending been in place over the past ten years, the state budget would be $1.2 billion less than it is right now.
Because the amount of money government spends reduces the ability of citizens to pay their bills or invest in future jobs and productivity, it must be used wisely. History has shown that if politicians have a dollar, they will spend a dollar, and the only way to get fiscal discipline is to require it; therefore, the legislature should put a constitutional measure on the ballot to restrict state spending to population growth plus inflation.
Recommendations: Personal and corporate income taxes should be abolished.
Taxing income is perhaps the most immoral form of taxation. The system of income tax withholding, where taxes are withheld from workers’ paychecks, gives the government the first crack at each paycheck, whether that worker desperately needs the income or not. For instance, if a worker is struggling to pay medical bills or put food on the table, the government does not care; it still takes its cut first.
On an economic level, income taxes make little sense. There’s an old adage that states: if you want less of something, tax it. The fruits of our labor - income - succumb to that notion. Income taxes discourage people from laboring and investing. Granted, federal income tax rates are much higher than state tax rates; however, state rates have a tremendous impact on migration patterns. Over the past decade, North Dakota has been an “out-migration” state. According to an NDPC study, North Dakota’s out-migration rate is much higher than the rest of its neighbors.
Eliminating income taxes would show compassion to those who live paycheck to paycheck, would make North Dakota more competitive with South Dakota, and would put more than $850 million per biennium back into the private economy.
Recommendation: End all state subsidies for out-of-state students.
There is a largely unnoticed tax paid by North Dakotans that amounts to hundreds of millions of dollars per biennium. That tax is the total amount of money the state uses to subsidize out-of-state students at its colleges and universities.
In fact, according to the North Dakota Pork Report, North Dakota taxpayers subsidized out-of-state students to the tune of roughly $215 million during the 2007-09 biennium. North Dakotans should not be forced to subsidize the education of students who do not call North Dakota home, especially considering the fact that most of those students leave North Dakota upon graduation.
North Dakota universities are attractive to out-of-state students because tuition is relatively low, regionally and nationally. One of the reasons why tuition is so low to out-of-state students is because they do not have to pay the full cost of their education.
To be sure, North Dakota should welcome out-of-state students and offer them the opportunity to study at the state’s higher education institutions and play a role in North Dakota’s economy, but they should be required to pay the total cost of their education.