John Hood

RALEIGH

The precise course of the COVID-19 outbreak and its medical, social, and even political consequences are impossible to know at this writing. But there is at least one thing state lawmakers and other policymakers can take for granted: North Carolina’s economy is in recession.

Many North Carolinians are already feeling its effects. They’ve been laid off, furloughed, or seen their self-employment income dwindle to little or nothing. Although lenders, landlords and others will probably let bills go unpaid for a short time, they lack the capacity to float the economy for long.

That’s why the Federal Reserve, Congress and the White House are scrambling to come up with a policy response that uses some combination of grants and loans to keep enterprises in business and absorb the temporarily unemployed back into the workforce when the immediate crisis abates. State and local governments in North Carolina, as well as private and nonprofit vendors, will play a major role in administering this aid. Good.

As a longtime opponent of federal bailouts and other forms of corporate welfare, I see a governmental response to the COVID-19 recession as an entirely different matter. Businesses are closed and workers sidelined primarily because of government mandates. The mandates may be entirely justified to protect public health. But just as private owners must be compensated when government takes their property for a legitimate public use, private enterprises and workers should be compensated as much as possible when government takes away their ability to earn income and pay their bills.

I know that Gov. Roy Cooper and state legislators are currently considering ways in which North Carolina can supplement the federal response with state relief. I think that idea is reasonable, too — and is only a real possibility because the General Assembly has exercised fiscal discipline over the past decade.

The state has about $2.3 billion in the General Fund’s unreserved credit balance, another $1.2 billion in its rainy-day fund, nearly $4 billion in its unemployment-insurance trust fund, and hundreds of million more set aside for Medicaid shortfalls and other emergencies.

The unemployment fund is the obvious place for policymakers to go to provide immediate relief to jobless and displaced North Carolinians. Cooper has already issued an executive order making it easier to apply for and receive UI benefits. When the General Assembly convenes, it should enact a temporary increase in benefit amount and eligibility to help tide North Carolina families over, since traditional concerns about discouraging people from filling available jobs don’t apply in this case.

Tapping the General Fund reserves would be riskier, however. Remember: Every month that large numbers of workers stay home and large numbers of businesses log few or no sales, the government’s revenue collections will tank. Meanwhile, service demands will shoot up for some programs, including Medicaid.

Just as we should assume North Carolina is in a recession, we should also assume that North Carolina’s state and local governments will soon experience large and growing deficits in their operating budgets. We should be very thankful that the state has billions of dollars in reserves. But we should be mindful that the state’s annual budget is counted in the tens of billions of dollars, and that some localities may soon face fiscal deficits they cannot shoulder without state aid.

If lawmakers and the Cooper administration dip too far into the state’s savings accounts now, they may be forced in the not-too-distant future to lay off teachers and other public employees, cut back precipitously in other programs, and raise taxes — all actions that would lengthen the recession and worsen the hardship for North Carolina families.

We will get through the COVID-19 crisis and the resulting recession. Indeed, North Carolina went into it better prepared than most, and our elected officials appear to be working together more cooperatively and successfully than we see in Washington and many other places.

But as our leaders fashion the state’s response, it can and should be rapid, robust and prudent.

John Hood (@JohnHoodNC) is chairman of the John Locke Foundation and appears on “N.C. SPIN,” broadcast statewide Fridays at 7:30 p.m. and Sundays at 12:30 p.m. on UNC-TV.

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