2017 Fiscal Year State Budget, NC Budget and Tax Center

More evidence that limiting our Constitution puts NC’s coveted AAA bond rating at risk

The Bond Buyer, an insider investment industry publication, has taken note of North Carolina Senators’ passage of a proposed change to the state’s Constitution that would limit the income tax rate to the low and arbitrary level of 5.5 percent.

In a recent article on the risk to the state’s “gilt-edged credit rating,” the reporter quotes a Moody’s analyst who provided general comments about the challenges with the direction that Senators seek to take North Carolina in. From the article:

“A majority of state budgets rely on a combination of income and sales tax revenues, according to Nick Samuels, vice president and senior public finance credit officer with Moody’s Investors Service. … Whatever the source, state budgets are sensitive to volatility in revenue, depending on how spending plans are structured, said Samuels. He declined to comment directly on North Carolina’s bill because it hasn’t passed. …

“Illinois has a flat income tax rate mandated by the state’s constitution that can be difficult to change, he pointed out.

“Moody’s rates Illinois’s senior debt Baa2 with a negative outlook as the state nears its second fiscal year without an adopted budget due to a political stalemate over spending issues between parties.

“In North Carolina, Moody’s rates the state’s general obligation bonds AAA because of its strong fiscal management and economic growth, which benefits tax collections, the agency said in a report in February. …

“Samuels said state ratings tend to be high because budget leaders have flexible governing strength.”

Read the full article here.

NC Budget and Tax Center

Floor debate brings false claims, misses key facts

Tuesday night, the Senate debated and passed House Bill 3, a proposal containing multiple changes to the state Constitution including provisions that would set arbitrary and low income tax rates in the state Constitution and limit access to the state’s savings in times of emergency.

The debate itself was full of false claims, and it represented a failure to embrace the reality of how North Carolinians are doing and communities are faring under the tax-cut-for-millionaires regime of the current General Assembly leadership.

Here are some of the false claims made and key facts missed:

False Claim #1: Cutting the income tax and expanding the sales tax base has given North Carolinians a net tax cut.  Changes to the tax code have resulted in nearly $1.3 billion less in revenue coming in to the state, which has made it impossible for policymakers to provide teachers and state employees a pay raise or make sure college remains affordable for students with low-incomes, children have textbooks and pre-schoolers at risk are prepared for kindergarten.  Those losses in revenue have generated losses for families and communities, and the broader economy has missed opportunities.

At the same time, it has not given every North Carolinian a net tax cut.  In fact, those taxpayers with incomes below $34,000 have seen their taxes go up on average, and those with incomes averaging $1 million (the top 1 percent of taxpayers) have seen their taxes cut by $15,000 on average. Read more

2017 Fiscal Year State Budget, NC Budget and Tax Center

First look at the Health and Human Services Budget in the joint budget agreement

The joint budget relies on two particular sources of dollars for narrow expansions to targeted programs and services that promote the health and well-being of North Carolinians through Health and Human Services. The first is the $318 million reduction in Medicaid that   is largely due to projections that suggested the demand for Medicaid services would grow even beyond what has been experienced in recessionary periods, as NC Health News reports.  The second is an increased use of federal funds through available block grants to expand access to programs like child care, which limits the state commitment to fund these programs.

Here are a few of the key items in the HHS budget: Read more

2017 Fiscal Year State Budget, NC Budget and Tax Center

Follow the Money: How the joint budget is funded

Last night, the House and Senate held a press conference, and they subsequently released their joint budget agreement, which will be voted on over the next week or so in both chambers.

The final budget holds to the rigid formula of population plus inflation, spending only $22.3 billion to operate core public services, as well as meet the needs of a growing state population undergoing significant demographic shifts and the persistent challenges in ensuring that every community has access to opportunity. This spending level is a mere 2.8 percent above spending for the current fiscal years and does not reflect the actual needs of North Carolina. Opportunity exists to invest in North Carolina to meet those challenges and pursue every opportunity for greater success and well-being; however, policymakers have instead chosen to reduce the state’s collective commitment bringing state spending to 4.14 percent relative to the size of the economy, well below the historic average of 6 percent.

Lawmakers are relying on a largely disproven theory that cutting public spending and reducing taxes for the wealthy and profitable corporations will deliver improved economic outcomes for all North Carolinians. Some point to the state’s apparent recovery, which mimics the overall national recovery, but lawmakers have failed to address the fact that wages aren’t recovering for everyday North Carolinians, there aren’t jobs for everyone who wants to work in the majority of North Carolina counties, and there is persistently high poverty in urban and rural communities alike.

Our leaders’ loyalty to severe budget constraint and lopsided tax cuts, which primarily benefit profitable corporations and the wealthy, are making it impossible for them to meet the needs of communities and families across the state. And as research and prior experience shows, this tax-cut, disinvestment approach will not deliver the economic gains they promise. It diminishes the ability of the state to pursue the investments that do deliver returns to the broader economy: preparing every child for kindergarten, increasing post-secondary attainment of the workforce, and targeting investments in main streets and small business development in struggling areas, for example.

While most of the public budget debate this week will be on the spending side (see our initial take here), examining how the North Carolina General Assembly plans to pay for their proposal is just as important. They pay for their 2017 budget proposal in the following way: Read more

2017 Fiscal Year State Budget, NC Budget and Tax Center

Statement from Budget & Tax Center Director Alexandra Sirota on final state budget

All of the state budget proposals this year have fallen short of what it will take to get North Carolina back on track. The final budget agreement appears to be no exception based on the press conference releasing topline details this evening. Rather than respond to what families, communities and the economy need to thrive, policymakers have followed a rigid formula divorced from our day to day realities.

The final budget agreement continues to plow ahead on the path to a reduced income tax and an expanded sales tax that will continue to benefit the wealthiest North Carolinians and profitable corporations at the expense of our communities and working families.

The reality is that North Carolinians know the path to a better future is built through shared commitment to good schools, protection of air and water quality, support for main street development and other building blocks of a strong economy and healthy community. It’s time for lawmakers to see that as well.