NC Budget and Tax Center

North Carolina leaders have missed another opportunity to build an economy that works for everyone.

Rather than making the truly tough choices that reflect the priorities of North Carolinians, policymakers have once again decided to cut taxes and forgo critical investments that boost the economy.

Such investments include providing every child with a sound education; bolstering the public sector foundation that supports innovation, builds opportunities for research and development, and trains workers; and protecting the health and well-being of our state’s residents and communities.

These should be our leaders’ priorities, not tax cuts that continue to shift the tax load onto average North Carolinians and push costs down the road.

NC Budget and Tax Center

This Labor Day has renewed focus on the reality that wages for working families have been stagnating across the country and declining here in North Carolina.

This focus is a welcome change for our state where the full-throated defense of tax cuts as the solution to working families’ economic challenges has hit a hard reality. Income tax cuts have increased the tax load for many working families in North Carolina and generated untold costs for communities in the form of foregone education investments, crumbling infrastructure and more.

Still policymakers in North Carolina remain relentless in their pursuit of more income tax cuts. The final budget contemplates another $110 million in tax cuts for individuals on top of the already costly tax cuts for profitable corporations that will cost $100 million this year and $350 million next.

In our State of Working North Carolina report this week, we documented the fall in wages for the median worker since the start of the official recovery in 2009. The result is that working people don’t have the same buying power that they did before the Recession and that means businesses don’t have the same level of consumer demand for the goods and services they produce. Under such conditions, it will be hard to sustain growth in the economy and ensure that more are included in the benefits of that growth. No tax cut, especially one paid for through increased costs elsewhere, will fix that.

Policymakers have an immediate and direct mechanism in the final budget for addressing the state’s wage problem. By aligning state workers’ pay with what it takes to make ends meet, policymakers can boost the economy and strengthen the private sector. After all, state workers in North Carolina shop in privately owned grocery stories, bank at private financial institutions, purchase lawn services from private landscaping companies, and on and on.

Some would say that policymakers are trying. They have proposed an across the board $750 bonus for all state workers and bumped up the starting pay for teachers to $35,000. But by stopping their pursuit of flawed tax cuts, policymakers could actually make sure wages for public sector workers boost the economy.

Here are a few fast facts about wages and the reality for the state workers who run our courts, clean state buildings, manage permitting and support to businesses, and educate our children:

  1. Analysis by the Office of State Human Resources finds that “salary increases in state government have …cumulatively trailed CPI (aka inflation) by 4 percent over the last ten years, effectively decreasing employee “buying power.”
  2. The average weekly wage for state employees of $901 lags the national average and ranks the state 39th for its low pay.
  3. Those serving as housekeepers, health care technicians and office assistants in state government earn well below the statewide Living Income Standard for one adult, one child. In 12 out of 16 jobs that serve as benchmarks for the Office of State Human Resources, the base salary is below market rate.
  4. Base pay for a number of public-sector workers, including the teachers who educate our children, falls below what it actually takes to make ends meet today. The proposed starting pay for teachers of $35,000 is still below the statewide Living Income Standard for one adult, one child in 6 North Carolina counties.  The average pay for teachers in elementary and secondary schools has fallen by $5,000 since 2009 reducing their purchasing power even as the national economic recovery began.

The myopic interest in tax cuts on the part of policymakers has not only failed to boost the economy, it has also generated significant cost to the state. State agencies experienced a voluntary turnover rate of 7 percent in FY 2013-2014 which equates to roughly $201 million in cost to the state. Human capital is hard to replace and that is why competitive compensation and a positive work environment is critical. In the public university system, the state has lost a reported 3 out of 4 retention battles. Researchers who have left state universities took grants totaling $91 million and likely significant intellectual property of far greater value to the state.

It is time for policymakers to take seriously the wage challenges facing workers in North Carolina. Starting now with the budget to increase the buying power of state workers is the first step, the next one is to follow 29 other states and raise the minimum wage for all workers.

NC Budget and Tax Center

The new state labor market data will come out tomorrow.  Ahead of that and in light of the current discussion of unemployment insurance in the General Assembly, it seemed a good time to revisit the state of the labor market for jobless workers and the effectiveness of unemployment insurance in providing workers with the support they need while looking for work and in buttressing the economy.

Prosperity Watch this week looked at data available from the North Carolina Department of Commerce that shows at the county level the ratio of jobless workers to job openings. More than two-thirds of the state’s counties still have more jobless workers than job openings.  Even if all the job openings in those 83 counties were filled, there would still be workers looking for work.

Even while North Carolina has cut the number of weeks that workers can claim unemployment insurance, a lack of job openings means that a lot of people are spending prolonged periods out of work..  Despite the official recovery, one out of three jobless workers has been out of work for 26 weeks or more.  The long-term unemployed face a host of additional barriers to employment including discrimination in the application process, lapse in skills for the work place and mounting debt that may make transportation or housing difficult to sustain.

Unemployment insurance was designed to prevent just this kind of vicious cycle.  The system is meant to ensure that workers who lost their jobs through no fault of their own—like because of a business downturn—can meet their basic needs while they look for work and thus not withdraw completely from participating in economic life as consumers, renters or homeowners.  Today however, the system is not meeting that goal:

  • The state has a 15% recipiency rate, measuring the number of jobless workers who receive unemployment insurance, for the first quarter of 2015 which ranks us 47th in the country.
  • The state has an average weekly benefit amount of $231.30 which ranks us 47th in the country.
  • The average duration that a jobless worker receives unemployment insurance is 12.9 weeks which ranks us 45th in the country.

Read More

NC Budget and Tax Center

The radical changes to the state Constitution passed out of the Senate today puts policymakers’ primary responsibility of creating a budget each year on auto-pilot.

These arbitrary and flawed formulas for spending growth and income tax collections will reduce revenue by nearly $2 billion annually and restrict access to the state’s rainy day fund in times of crisis. It’s clear these proposals are a fiscally irresponsible path that will harm our state’s families and future.

NC Budget and Tax Center

Last night on the Senate floor, the initial debate about a suite of constitutional changes that would undercut our state’s economy focused on having North Carolina voters weigh in on all three changes in one vote in March 2016.

These changes would:

  1. Limit investments in education, health, and other services through a rigid, arbitrary, and fundamentally flawed spending formula. A 2/3rd majority vote of legislators would be needed to override that formula.
  2. Cap the income tax at 5 percent, which significantly reduces the resources available to run our schools and maintain investments in other critical priorities.
  3. Limit access to the state’s rainy day fund – the Emergency Savings Reserve Fund – by requiring a 2/3rd majority vote of legislators.

The result of these changes to the constitution would be an ongoing and annual budget crisis in which revenues are dramatically limited—while taxes are likely increased for middle-class consumers and property owners—and a flawed formula determines spending each year, reducing the ability of policymakers to meet the needs of a growing economy.

As the debate continues on the Senate floor, it’s particularly important that lawmakers remember a two key things so they don’t fall for some of the most common myths about these proposals: First, there is no use having a rainy day fund for emergencies if you restrict access to those funds.  Second, tax and spending limits and formulas built into the constitution are anti-democratic because they limit the ability of lawmakers to craft budgets that reflect the will of the people. Read More