NC Budget and Tax Center

Budget deal released: Tax cuts and tight revenues are making it hard to meet Tar Heel priorities

The 2013 tax plan continues to rear its ugly head. The final budget deal released late last night is yet another reminder that the state cannot afford cost of the tax plan that primarily benefits the wealthy and profitable corporations.  If the state could afford those deep revenue cuts, budget writers would not be relying on more federal dollars and lottery revenues to make their budget balanced nor including another round of harmful budget cuts and policy changes to early childhood education, public schools, higher education, and social programs. But, those are the conditions North Carolinians will be facing over the next year as we enter year six of the official economic recovery.

While the budget delivered on its promise to provide an average 7 percent teacher pay raise, that boost in much-needed pay came at the expense of dollars needed to pay for other state priorities—even within the public education budget for programs that serve at-risk students, for example. And unfortunately, it’s just a snapshot of what we should expect to see in future years. Meanwhile, other states are moving full steam ahead and replacing the most damaging cuts made during the aftermath of the recession.

The cost of North Carolina’s personal income tax cuts will be much higher than previously expected, at least $200 million more each year. Those income tax cuts will cost more than $5 billion over five years.  Yet, top budget writers failed to acknowledge this information in the announcement of their final budget earlier this week, likely because they know that revenue losses put the state on a fiscally irresponsible and unsustainable path. In total, the net revenue loss of the full tax plan—including not only the personal income tax cuts but also changes to the corporate income tax and the sales tax—could exceed $1 billion each fiscal year by 2016. That is roughly equivalent to the entire state budget for the community college system.

Put simply, the state cannot meet the priorities of delivering a high-quality education to our children, protecting the health and well-being of everyone in our communities, and supporting vibrant main streets with the costly tax plan passed last year. As proof, below is a cursory list of funding tricks, program cuts, and examples of inadequately funded programs in the budget. The final budget deal:

  • Relies on “left over” funding from last year to balance the budget. A huge proportion of that funding comes from forced agency reversions ordered from the Governor’s office last March.
  • Cuts the Teacher Assistant budget compared to what would have been in place under the enacted 2015 budget. Shifts to lottery revenues to pay for a share of Teacher Assistants, and shifts funding from ongoing to one-time only for the TAs in grades K-3 who are paid with General Fund dollars. This means that schools will have to fight to keep a large share of their TAs in future years.
  • Leaves K-12 textbook spending well-below what is needed to provide enough books to children in the classroom (peak levels of $110-plus million in FY2010, adjusted for inflation, despite a tiny boost in funding that raises it to $24.3 million.
  • Cuts at-risk student services program in the public school system by more than $9 million, making it more difficult for vulnerable populations to graduate on time and earn more as adults.
  • Makes it more difficult to access a college education by raising tuition at community colleges to $72 per credit hour for in-state students (comes on top of tuition increase last year) and by imposing another harsh $76 million flex cut to the UNC system (on top of several rounds of flex cuts dating back to the economic downturn).
  • Cuts the Home and Community Care Block Grant by nearly $1 million, despite long waiting lists for in-home and community care programs and services for older adults.
  • Cuts the Housing Trust Fund by 2 percent, or $140,000, making it more difficult for families to access the resources needed to secure affordable housing.
  • Adds an additional 1 percent provider rate cut in the Medicaid program to the 3 percent cut already approved. This could mean providers may be less likely to accept Medicaid, making it harder for vulnerable families to get the health care they need.
  • Scales back the income eligibility guidelines for the child care subsidies program, making it harder for moderate income families to access this work support. As a result, many families will no longer be able to access safe, quality care settings for their children. This is one of the many programs, in addition to the pre-K program, whose funding source is shifted from state dollars to federal funding.
  • Scales back the income eligibility guidelines for state-county special assistance that goes to people who are aged, blind and disabled. The budget grandfathers-in current participants but makes it more difficult to for future participants to access the health care they need.

While there are some important expansion items in the budget such as pay raises for teachers and state employees, more funding for children in the foster care program, and an effort to reduce teacher-to-classroom ratios, one cannot ignore the barrage of harmful cuts to programs that could be avoided through improved revenue choices.

And that is just it: better choices are available on the revenue side that can help put North Carolina on a better path that doesn’t include such deep cuts to programs that are the building blocks of a stronger economy. For starters, lawmakers need to make a u-turn and stop the next round of income tax cuts that are scheduled to go into effect next January. Thereafter, lawmakers need to revisit the unsustainable and damaging 2013 tax plan and reinstate a progressive income tax structure that will help provide for a more stable, fair, and adequate revenue stream.

5 Comments

  1. Alex

    July 31, 2014 at 12:06 pm

    At one time, North Carolina had a great manufacturing base and huge dollars flowing from tobacco and other agricultural products.Much of that base has been eroded over the last several years and coupled with rising entitlement costs have put most of the state in a struggling mode. Simply put, we probably have to lower our expectations and completely reset our priorities. Any tax increases will severely impact many of our middle class working citizens, and we simply don’t have enough rich folks to make up the difference. The national economy has gone nowhere under Obama and created nothing but part-time jobs, so I look for few changes coming in the near future.

  2. Pertains!

    July 31, 2014 at 12:24 pm

    The current legislature has certainly lowered our standard of living so we should lower our expectations?
    If we are lucky maybe picking tobacco
    will resurface and open up employment opportunities.

    Would be interesting if abolishing the next scheduled tax cuts could be added to the voting ballet in Nov and we could really see how many feel the tax cuts have hurt or helped them!

  3. Marena Groll

    July 31, 2014 at 1:30 pm

    Thank you for sharing the details! It is vital we understand it.

  4. ML

    July 31, 2014 at 1:30 pm

    Why lower our expectations? That’s a sad outlook. NC has the money the repubs just decided to give it to few rich people and their corporations instead of helping the many. So no I’m not going to lower my expectations.

  5. Alex

    July 31, 2014 at 5:11 pm

    Why live in a dream world ML ? I travel the state on a regular basis, and many of the medium to small towns that used to be bustling with activity are dying on the vine with deteriorating downtowns, and much of the population living on the government dole. Much of the manufacturing has moved overseas or to Mexico, and the only jobs available are low wage service jobs. The state has changed drastically in the last 20 years, and if it wasn’t for the 3 Metro areas RDU, Charlotte, and Greensboro/Winston, we would be in a huge mess.