NC Budget and Tax Center

Weather report for NC: It’s still storming

From the way legislators have been behaving the past two years, you would think that North Carolina’s recovery from the recession has weathered the economic storm. And yet, time after time, the evidence has shown that North Carolina continues to be far from where we need to be to declare clear and sunny days.

Revenue needed to pay for basics like schools and health care is still far below pre-recession levels, there are still too few jobs for those who want to work, and the state’s poverty rate remains higher than normal. Over the past two years, lawmakers have approved budgets that failed to meet classroom needs, reduced funding for health care for those in need and allowed backlogs to grow in our courts.

So their decision to continue to set aside money in the Rainy Day Fund, a reserve they traditionally contributed to in good times to ensure that they didn’t have to make deep, damaging spending cuts during the next downturn, is, well, strange. It’s like digging a storm shelter in the middle of a tornado.

To be clear, the Budget & Tax Center has always been an advocate for a stronger Rainy Day Fund in North Carolina. And yet, boosting contributions to the fund when core public investments are being starved is just another self-imposed limitation on lawmakers’ ability to meet pressing current needs. At each turn in the budget process the Governor, the Senate and the House, have all opted to squirrel away a little more rather than meet current needs. That’s not responsible. It’s counterproductive and short-sighted, especially since North Carolina’s Rainy Day Fund balance currently is about 3 percent of overall state operations, nearly double where it was four years ago, when it was just 1.56 percent.

BTC - Rainy Day Fund ContributionsRight now, the biggest threat to the state’s future is not inadequate Rainy Day Fund contributions. It’s the tax plan lawmakers passed last year, which has drastically reduced the state’s ability to invest in priorities like education, transportation and other keys to building a strong economy that creates widespread prosperity. Indeed, the revenue shortfall that lawmakers will have to contend with in the fiscal year that begins July 1 could be as high as $600 million.

Setting aside money in the Rainy Day Fund won’t do anything to fix the gap that the tax cuts have opened between available revenue and the cost of providing for the everyday needs of North Carolina families, schoolchildren and seniors. While having a strong Rainy Day Fund is nice, having a tax system strong enough to meet our needs is even more fundamental.

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