2018 Fiscal Year State Budget, NC Budget and Tax Center

New budget a roadmap full of potholes and an unclear destination

A new BTC report highlights how the new two-year budget passed by state lawmakers continues to choose austerity and failed trickle-down economics over broadly shared prosperity. House and Senate leadership garnered the needed votes to override Gov. Cooper’s veto of the budget, resulting in approval of the budget. Under the budget, total state spending for the 2018 fiscal year (FY18) will remain below 2008 pre-recession spending. This marks nine consecutive years that state spending as a share of the state’s economy has declined.

Under the budget, overall spending for FY18 – which will run from July 2017 through June 2018 – is a 3.1 percent increase over the prior fiscal year. Beyond additional state funding provided for state employee pay increases, year-over-year net new spending for FY18 is a modest 1.4 percent above spending for the prior fiscal year. Consequently, nearly all core areas of the state budget remain below or near pre-recession spending levels when adjusted for inflation.

 

 

Tax cuts included in the budget will reduce available annual revenue by a total by $900 million; however, the budget only shows an annual cost of $521 million in the budget. This is because the tax cuts kick in starting January 2019 and thus will only apply to the second half of fiscal year 2019 (which runs from July 2018 through June of 2019). These tax cuts build onto those passed since 2013, which have greatly reduced the level of revenue available for public investments. This self-inflicted revenue challenge has allowed lawmakers to lower their expectations in regards to what is possible for the state and has created a budgetary landscape based on false choices where some public investments are funded at the expense of others. Furthermore, according to a News & Observer article yesterday, North Carolina is looking at serious future revenue shortfalls:

“State expenses are expected to grow faster than revenue starting in 2019, according to a five-year budget forecast.

“The report by nonpartisan legislative staff offers a half-dozen suggestions for dealing with future shortfalls, including not paying for inflationary increases in spending items such as state salaries; using money unspent from previous years; calling off planned income tax cuts; or increasing the sales tax rate from 4.75 percent to 5 percent.

“The budget projections prepared by the legislature’s Fiscal Research Division show shortfalls of $1.2 billion to $1.4 billion in years 2019-2020 to 2021-2022.”

From ensuring a high quality education for all students, to promoting healthy and safe communities, to pursuing economic development initiatives that target rural and distressed communities, the budget falls short of ensuring broadly shared opportunity and prosperity. The new BTC report highlights missed opportunities to make adequate public investments so that all communities across the state can thrive.

Cedric Johnson is a Policy Analyst with the Budget & Tax Center, a project of the NC Justice Center.

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