Over the past decade, growth in N.C. agency fee revenue outpaced growth in corporate and personal income tax revenue, according to a new report released today by the N.C. Budget & Tax Center. This increasing reliance on fines and fees is posing challenges for state agencies that are trying to provide relief to North Carolinians during the COVID-19 crisis while coping the uncertainty of lost or delayed fee revenue. These agencies include the Judicial Branch, the Department of Transportation, and the UNC System.
“The COVID-19 pandemic has made clear that increasingly relying on fees to fund public services is hurting our ability to provide for North Carolinians,” said Alexandra Sirota, Director of the N.C. Budget & Tax Center, a project of the NC Justice Center. “In order for North Carolina to better respond to things like COVID-19, we need to rebalance our tax code away from regressive revenue streams like fines and fees and toward more equitable and adequate revenue. We should start by looking at corporate tax rates, which are the lowest in the region.”
The report, “Pandemic lays bare North Carolina’s reliance on fines and fees,” provides an analysis of changes in state revenue collections by source from 2011 to 2018, showing that state revenue from sales tax and fines and fees increased the most during this time, followed by personal income tax revenue. The analysis also shows that revenue from the corporate income tax decreased dramatically following changes enacted by the General Assembly that went into effect in 2014.
The report argues that, taken together, these changes demonstrate an increasing reliance on regressive sources of revenue in the state, with the burden falling disproportionately on low-income North Carolinians and people of color.
“The current crisis is exposing not only the inequities inherent to North Carolina’s regressive revenue system, but the system’s inability to meet the state’s public investment needs,” said Sally Hodges-Copple, primary author of the report. “North Carolina’s policymakers have repeatedly and steadily shifted the burden for public investment onto those least able to pay, raising fees everywhere from the court system to the DMV to our college campuses, while at the same time asking less from the wealthiest individuals and most profitable corporations.”
The analysis also highlights the impact of regressive revenue changes on higher education in North Carolina, demonstrating how dramatic declines in corporate income tax revenue coincided with decreasing state appropriations to the UNC System and increasing tuition revenue.