NC Budget and Tax Center

Latest proposal in budget debate would lock in harmful policy choices

The Senate Finance Committee this morning voted to approve SB 607 which included a number of proposals that would make the state’s current economic challenges worse and undermine the foundations of a strong economy. This included an amendment to the constitution to cap the income tax at 5% and another undemocratic amendment creating a flawed formula-based limit on state investments that would force permanent cuts to education, roads and highways, health care and other key services that support our economy and quality of life. This amendment would also require a 2/3rd majority vote to increase spending beyond the formula. There is also a third amendment to the constitution included in the bill which would limit access to Emergency Savings Reserves by requiring a 2/3rd majority of legislators to access it.

The flurry of activity on tax and budget matters comes on the heels of the Senate announcement yesterday that they are willing to address certain policy matters outside of the budget, clearing the way for a final budget deal before the August 14th deadline.

A rigid, arbitrary, and fundamentally flawed formula for budgeting

The second proposed amendment which would remove authority from state lawmakers by setting an arbitrary formula for government spending has been tried in only one other state, Colorado, and has been widely acknowledged as a failure. In fact, it did so much damage in Colorado that voters chose to suspend it. Before they suspended it, this rigid formula forced drastic cuts to Colorado’s K-12 and higher education, and it became impossible for the state to keep pace with the rising cost of health care, forcing cuts to child immunization programs and prenatal health care. At the same time, it was clear that it was doing nothing to improve Colorado’s business climate, economy, or quality of life. As a result, business leaders in Colorado were major proponents of suspending the law.

The harm to Colorado was significant, but the use of such a rigid and fundamentally flawed formula would be particularly damaging in North Carolina where recent harmful budget cuts to our schools and other services average people depend on everyday would be locked in permanently and new emerging needs could not be met by future policymakers because their hands would be tied by this constitutional provision.  The capping of state spending to population plus inflation growth would lead to large, annual cuts that over time make it impossible to ensure a quality education for our children, maintain vibrant main streets in communities, and invest in the health and safety of families.

In North Carolina, such a rigid formula would mean forgoing an estimated $500 million in investments next year alone. This $500 million would provide for critical classroom funding for our kids, could allow the state to support rural economic development and support the research and development at public universities that drives innovation.

Additionally, it’s critical to understand that this type of law is a gimmick and does nothing to make government run more efficiently or ensure that tax dollars are well spent. Instead of making meaningful reforms, the proposal passed by the Senate Finance Committee simply turns lawmakers’ decision-making responsibilities over to a flawed formula. Meanwhile, it won’t do anything to make sure the state’s spending priorities are in line with the needs of North Carolinians or make the tax system fairer.

An undemocratic hurdle for our tax system

The other proposal passed today by the committee – a hard limit to the income tax rate of 5% would severely limit the state’s ability to ensure the tax code is adequate and fair over time. Such a proposal could cost taxpayers money by raising the cost of borrowing. It also would likely shift the financing of public investments to fees and other taxes that taxpayers will have to pay, including higher local property taxes, sales tax, vehicle fees, and college tuition.

These proposed constitutional amendments make it harder – not easier – for lawmakers to budget responsibly and they will weaken the foundation of our economy by ensuring the state cannot invest in its people and places. A budget that includes these flawed policy ideas will not help North Carolina move forward.

6 Comments


  1. Pertains!

    August 6, 2015 at 6:00 pm

    At least there was only one crazy wizard behind the curtain in “The Wizard of Oz”!

    How did NC get so unlucky to elect multiple “wizards” who are so intelligent!

    Of course I could be giving them too much credit. Some of these NEW ideas they are churning out are starting to remind me of a child’s game where everyone writes something on a slip of paper, put all slips of paper in fish bowl, stir slips of paper, draw a slip of paper out and POOF! The Great Senate has presented another amazing idea.

    This would all be funny if it wasn’t so pathetically sad. With a majority in the Senate and in the House these same Republicans can’t pass a budget. If they had to reach a 2/3 consensus their terms would expire before we had a budget.

  2. LayintheSmakDown

    August 6, 2015 at 6:11 pm

    Pertin, I am sure it is hard for you to understand but there can be debate even when you are in the same party. The Republicans do not practice shutuppery in the way that the democrat/progressive wing do. Also, the Senate is the last stand against the House in keeping the radical destructive progressive influence to a minimum. It is likely Berger and Co. will get their way, it is only a matter of time.

    And one good side effect is that we are saving about $1,000,000 per day as we continue on last years budget vs. the new bloated house budget.

  3. Pertains!

    August 7, 2015 at 7:31 am

    LSD,
    Everything is not preceded by the negative dollar symbol.
    School systems are already starting a new year without the information needed for basic things such will the positions be funded for the teachers who said “I have had enough” and resigned over the summer and the K-2 TAs who ended last school year wondering if they will have a job when their school system resumes.
    I do realize the state is operating on last years budget while waiting for the over due budget to be passed. That does not make it easy to recruit math, science or EC teachers from other states when the school systems are unsure of the next budget.

  4. TLFK

    August 7, 2015 at 8:31 am

    Well, with all things being the same in my household in 2013/2014, my state income taxes still went UP from 2013 to 2014, even though I kept hearing the NC Senate tout their “tax cuts for everyone”. Why should I believe there will not be more of the same with this new plan?

  5. LayintheSmakDown

    August 7, 2015 at 2:24 pm

    Pertains! that is true, it is pretty certain the schools can continue at previous levels. Little uncertainty there. I also challenge you to specifically identify they teachers who are even concerned over the politicians much less a significant number who have left a job specifically because they “have had enough”. All the surveys that are put out speak a completely different story. Recruitment also has little to do with the state budget as year over year will vary very little.

    My take is you buy the good ol’ narrative that government is in DIRE straits and will not survive, oh the children! Ever notice how the sky is falling when they don’t get what they want, ever notice how everything you hear is some kind of worst case scenario? Well, the sky will not fall, things will go on as they always do, and if a random math teacher does not want to come to NC because they are more worried about politics then they probably are paying attention to the wrong things (and believing the progressive narrative) he/she needs to stay where they are as there is no way they are some kind of superstar.

    And just so you know, I come from a long line of teachers…two aunts, an uncle, grandfather, mother, wife. I know a bit about what concerns them as I talk about this kind of thing with them.

  6. LayintheSmakDown

    August 7, 2015 at 2:25 pm

    TLFK….are you looking at the tax obligation, or what you had to pay in a check to the state?

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