2017 Fiscal Year State Budget, NC Budget and Tax Center

An initial review of General Government in the Senate budget proposal

Like other areas of the Senate budget, the area of General Government makes little effort to significantly change the way in which the state is investing in the efficient and equitable delivery of public services and in strengthening local economies.

The biggest changes from last year’s budget are for salaries and retirement contributions in many administrative offices of state government funded through the General Government. Additional investments in various technological and analytic capacities are also funded through non-recurring allocations, such as tax fraud analysis through a vendor in the Department of Revenue.

Other notable changes in the Senate proposal

  • Restores funding for Human Relations Commission ($545,407) and adds an administrative assistant position.
  • Allocates funds for the administration for the Connect NC Bond by adding 9 staff people.
  • Renames the Youth Advocacy and Involvement Office to the Council for Women and Youth Involvement.
  • Authorizes the Housing Finance Agency to expend receipts to increase access to permanent, community-based integrated housing for individuals with disabilities ($25.6 million).
  • Provides $5 million in non-recurring funds to retrofit and purchase equipment for a regional career and technical education center in Onslow County.
  • Expands in-patient capacity for behavioral and mental health treatment ($12 million in non-recurring funds).
  • Provides $2 million in non-recurring funds to child facility-based crisis centers.

Examples of what is missing in the Senate proposal

  • Provides no additional funding for the Housing Trust Fund or the Workforce Housing Fund, despite rising housing costs and a decline in state investment since the recession.
  • Fails to include funding to expand elections outreach to help ensure fair elections, as was included in the Governor’s budget proposal.
NC Budget and Tax Center

Follow the Money: The Senate once again chooses tax cuts

The Senate released their $22.225 billion budget proposal a little before midnight last night.  Like the House, the proposal represents a 2.26 percent — or $490.3 million — increase over the current 2016 fiscal year budget.

The arbitrary spending target agreed to at the outset of the budget process has led to a whole host of bad decisions in the proposals from the House and Senate.  Most fundamentally, it has meant our leader’s 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 in communities and for families.

While most of the public budget debate this week will be on the spending side (see our initial take here), examining how the Senate pays for their proposal is just as important. They pay for their 2017 budget proposal in the following way:

 To start out, the Senate, like the House, relies on revenue collections coming in above what officials anticipated, money they anticipate agencies will return to the state (known as reversions), and other one-time dollars to help finance the budget.  Revenues are expected to come in above conservative projections by $330.2 million for the 2016 fiscal year. In addition they rely on money that the agencies return through the course of the year through reductions in services or because of changes in costs to delivering services.  Because they left money unappropriated last year, this $175 million is one-time money used in their budget.

  • The Senate contributes $584 million to the Rainy Day Fund. This is double the contribution made by the House, which takes a slightly more pragmatic approach to saving while also meeting needs today.  The Senate’s aggressive effort to contribute to the Rainy Day Fund is ill-timed given the unmet needs in communities.
  • On top of the money that the House expects to carry over at the end of this fiscal year, they expect to receive $22.2 billion in base revenue — an amount that is severely constrained by previously-approved tax cuts. The $22.2 billion projection is a modest 1-percent growth rate over the current fiscal year. This modest growth is “below long-term average growth and typical growth during economic expansions,” as state budget officials pointed out earlier this month.
  • The revenue total is diminished by the sizeable cuts to the personal and corporate income taxes that lawmakers approved over the last few years. On net, the already-approved tax changes (that also include sales tax expansions) are expected to result in a $1.3 billion loss in the upcoming fiscal year.

Perhaps most interesting in the Senate’s availability statement is the decision to double down on tax cuts and the resulting ways in which they seek to hold the cost down. 

  • First, the Senate raises the standard deduction at a cost of $145 million. This approach is more costly and not as well targeted as restoring the state EITC, which does a better job of helping working families and addressing inequities in our tax code.
  • They offset this revenue loss in part by phasing in more services that are subject to the sales tax.  This was the bill that was discussed yesterday in Senate Finance and identifies new services to which the sales tax would be applied and which were not specified in prior law.  The anticipated increase in sales tax collections fully realized under that proposal would be $140 million according to Fiscal Research, effectively eliminating the tax cut delivered through the standard deduction.
  • The other source of revenue for their budget is to eliminate the state contribution to local sales tax distribution by $17.6 million, another blow to local governments across the state.
  • They reduce General Fund availability by another $4 million to further reduce the tax on airplanes and boats and repeal certain service contracts.
  • They take $3 million from the NCGA Special Fund which was intended for use to support the operation of the General Assembly.
  • They boost General Fund availability by nearly $1.7 million due to transfers from the Insurance Regulatory Fund and the Treasurer’s Office.

See the chart below for a summary.

follow the money senate

2017 Fiscal Year State Budget, NC Budget and Tax Center

Senate budget proposal fails to meet state needs: Statement from Alexandra Sirota, Director, Budget and Tax Center

RALEIGH (May 31, 2016) — The Senate seems to have taken the most extreme approach to the state budget yet, putting forward a proposal that fails to meet community and family needs and holds our state back from a brighter future.

While we have yet to see the full details, it is very likely that the Senate has once again cut core public services in order to facilitate a new round of income tax cuts that cost $200 million—nearly half the cost of their teacher pay plan. These cuts are just one more blow in the year after year onslaught on public institutions as the Senate continues their commitment to flawed economic theories that aren’t helping our communities or our economy.

The Senate is irresponsible at best in pledging commitments to North Carolinians’ priorities today without ensuring that the state can continue to prioritize them in future years. They believe that North Carolinians won’t figure out that they have sacrificed our state’s future at the altar of tax cuts.

The reality is that North Carolinians know that the path to a better future is built on the middle ground 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. The House must reject the Senate’s flawed approach and get much closer to meeting the needs and priorities of North Carolinians across the state.

NC Budget and Tax Center

Top 5 Reasons why TABOR is wrong for North Carolina

There are at least 10 million reasons that the House shouldn’t change North Carolina’s constitution to arbitrarily limit what the state can do to build a stronger economy in every community: the 10 million people of North Carolina who deserve leadership that finds out what our state needs and what it will reasonably take to meet those needs,  instead of insisting on a budget formula that lawmakers pretty much picked out of thin air.

Here are five more reasons that a state constitution restricted by arbitrary and flawed formulas and income tax caps limits NC’s ability to do great things for all of its people and is the wrong approach for North Carolina.

  1. It’s already been tried and failed. Colorado enacted the nation’s only TABOR in 1992. In 2005, voters temporarily suspended it because of the deep damage it caused K-12 schools, colleges and universities, and health services. It neither improved Colorado’s business climate nor its economy. Rather, it contributed to a credit rating downgrade and so many other financial problems that and business leaders who originally supported it joined the broad coalition that won TABOR’s suspension.  As a result, other states are avoiding TABOR. It has been rejected in the nearly 30 other states where it’s been seriously considered, including at the ballot box in five states.
  2. It will lead to a tax shift and costly losses across the state. Already North Carolinians are clear that the income tax cuts pursued by state leaders are shifting taxes onto middle-class and low-income taxpayers, while giving the biggest breaks to the wealthiest households. Just today in Senate Finance, members heard that another $140 million will be raised through the sales tax to fill the hole from income tax cuts – $140 million that will come disproportionately from the pockets of those who can least afford it.  Limits to income taxes will continue to push policymakers to pursue revenue through sales tax collections, and local governments will feel the pressure to raise property taxes too.
  3. It messes with the state constitution. Pursuing amendments to the state Constitution should be done with great care and attention to core principles that advance our shared commitment to be part of a community that works.  TABOR and other tax limits would actually hurt the intention of the state Constitution to set up the rules that govern our communities by reducing our ability to make the public investment in the things that make our communities thrive.
  4. It makes future decisions more complicated and harmful. There will be no further progress toward the national average in teacher pay. There will be no effort to turn the tide on infant mortality or child abuse. There will be no possibility to revitalize rural communities or protect the health and natural resources of our state and its residents. There will be no flexibility to make sure the state has what it needs in case of a natural disaster or big economic downturn. Rather than simplicity,  TABOR is another gimmick that makes it more complicated for future policymakers faced with the needs of a growing state to represent their constituents.  Common-sense investments will be less common under a rigid formula.
  5. It doesn’t do anything that policymakers can’t already do. Already the Governor and House have chosen to be guided by the flawed formula of population plus inflation in setting the state budget. The Senate will do the same and continue to aggressively pursue more ill-advised income tax cuts at the expense of our future. North Carolina leaders have continued to cut public investments year over year despite an economic expansion and they have enacted income tax cuts that fuel these cuts. If they are already sticking to a flawed formula, why do they need to enshrine it in the state constitution?
NC Budget and Tax Center

Statement on House Budget from Alexandra Sirota, Budget and Tax Center

When it comes to building prosperity in North Carolina, the House has sets its sights even lower than the Governor’s already limited budget.

The House decision to use an arbitrary, flawed formula to determine spending won’t meet the needs of communities and families across the state.

The phase-in over the next three years of another poorly targeted tax cut represents yet another gimmick.  The increase in the standard deduction is not an effective way for policymakers to address the upside down tax code. More than half of taxpayers who make more than $95,000 a year get a tax cut under such a proposal.  North Carolina would be better off with a state Earned Income Tax Cut that helps people who work hard for low pay. An EITC wouldn’t cut taxes for people making over $95,000 a year, and it would help those who work and earn under $35,000.  And since the budget proposed doesn’t account for the full cost of this tax change, it is impossible to know what will need to be cut or where taxes will need to be raised to make up for the lost revenue to communities and the state.

In pursuing more tax cuts over investment, the House is undercutting the foundations of a strong economy. The House budget will not meet the needs of North Carolina, such as improving classroom experiences for every child, revitalizing the main streets of every community and promoting the health and well-being of families and seniors. It is time for policymakers to get serious about the unmet needs in North Carolina and pursue public investment over tax cuts that benefit the rich at the expense of everyone else.