Note: An earlier version of this post stated that this year’s proposed budget is $13 million less than last year’s enacted budget; however, that did not take into account the funds allocated to the State Capital and Infrastructure Fund, which will take effect with this biennial budget.
Late on Monday, the North Carolina House of Representatives released their proposed budget for the next two years. Our budget is a reflection of our state’s values, and this vision falls flat. There is no effort to fix our state’s upside-down tax code, and it falls in line with the decades-long trend of decreasing investments in North Carolina as a share of our economy.
After taking into account the monies set aside for the State Capital and Infrastructure Fund – a policy enacted in the 2017 session, which takes effect July 1, 2019 – the house budget spends $721 million, or 3 percent, more than the budget approved for Fiscal Year 2018-19. Due to the statutory nature of this requirement, the funds are not appropriated and therefore are not reflected in the total budget amount.
With our growing population and growing needs, this proposal will fail to serve all North Carolinians and falls short of the investments we need to sustain an economy that delivers prosperity to all.
1. State spending as a share of the economy continues to decrease.
State investments have continued to decline since the recession, largely fueled by our lawmakers’ backwards commitment to lowering taxes, which began in 2013. With fewer revenue dollars as a result, the state’s commitment to funding the basics such as public education, health, and infrastructure diminishes, and so do the quality of such services across our state.
2. The House budget proposal uses unappropriated balances and reversions to cover required services.
Without changing the tax code in North Carolina, it is clear that adequate investments are not possible. Indeed, House budget writers make their budget balance by using unappropriated balances, reversions from state agencies, and expected revenue growth, which remains modest relative to historic levels of growth in an expansion.
Notably, House budget writers do put in place a gross premium tax on prepaid health plans as part of the state’s transformation of Medicaid to a managed care model—a transformation that will happen starting in the fall. Lawmakers have rightly recognized that this shift in the state Medicaid structure requires contributions from those providers who will benefit from the state’s business.
3. Even where House budget writers tout their increases, their investments fall short of where the state was investing pre-Recession when fewer North Carolinians lived in the state.
4. The House budget doesn’t address the upside-down tax code.
Our state tax code continues to place a greater burden on those with low and middle incomes, all the while benefiting millionaires at the top.
House budget writers seem to recognize that there are better ways to deliver tax cuts than just lowering the flat rate on taxable income. However, again in this budget, their proposed standard deduction increase represents a modest tax cut of just $36 for North Carolinians, and the tax cut flows to all those who select the standard deduction, which means it doesn’t target just those with middle and low incomes. A state EITC, as we have written about, would be a much better use of our tax dollars to help those who have trouble making ends meet.
The current tax code will continue to fall short of what is needed to maintain current services each year without cuts to areas of the budget. The reduction in rates this year on individual income and corporate profits means $900 million less than what the state would have had to invest in shared priorities. The result of failing to align our tax code with the priorities in our state is a growing structural deficit that will continue to leave our state and families further behind.
Suzy Khachaturyan is a Policy Analyst at the Budget and Tax Center, a project of the North Carolina Justice Center.