NC Budget and Tax Center

HB3’s Rainy Day Fund provisions aren’t going to save NC from fiscal challenges

Among the various changes to the state Constitution proposed in House Bill 3 are a series of Rainy Day Fund provisions that reflect unnecessary and counterproductive limits to the ability of lawmakers to use these savings to protect North Carolina communities and families from the brunt of a natural disaster or an economic downturn.

The Rainy Day Fund is the state’s savings account that is built up in good times so that, in downturns or disasters, policymakers can meet unanticipated needs or smooth unanticipated drops in revenue.  Through aggressive action in the past few years, the state Rainy Day Fund has reached a balance of $1.1 billion, as lawmakers have stashed away approximately $150 million each year on average since 2011 despite persistent unmet needs across the state.

Under budget proposals for the upcoming fiscal year, the Rainy Day Fund balance would grow to at least $1.4 billion, or around 7 percent of the state’s General Fund appropriations.

The proposed changes to the management of the Rainy Day Fund represent another example of enshrining in the state Constitution something that can already happen while forcing the negative effects on North Carolina communities and future generations. Read more

NC Budget and Tax Center

Changes to the state Constitution headed to the Senate floor

The Senate Rules Committee gave approval Friday to a suite of constitutional changes that would undercut our state’s economy permanently by setting a low, arbitrary income tax rate and limiting access to the state’s savings in times of emergency.

It is an entirely unnecessary move that seeks to permanently limit future budget choices to the ones that our current leaders prioritize above all else.  It is not only an insult to the wisdom of the framers of our state Constitution, but also to future North Carolinians and legislators whose priorities may differ from their own.

To recap just why such a move is completely unnecessary, let’s review how policymakers have already pursued these approaches to budgeting through public policy.

First, policymakers have already set a low, arbitrary income tax rate for individuals and profitable corporations, which will drop to 5.499 percent for individuals in January 2017 and eventually to 3 percent for businesses.  These changes began in 2013 and will continue to phase in, ultimately reducing the dollars available to invest in schools, parks and public health by at least $2.5 billion each year. More than two-thirds of the tax cut from the low individual income rate has benefited the top 20 percent of taxpayers. Policymakers continue to pursue a shift to the sales tax to make up for the revenue loss, which means the tax load has shifted to middle- and low-income taxpayers. Read more

NC Budget and Tax Center

North Carolina’s unemployment insurance system is the envy of no one

Last week the Center for American Progress and National Employment Law Project released a review of unemployment insurance as a federal and state partnership and the choices in recent years that have made it less effective at reaching jobless workers.

North Carolina policymakers, of course, aggressively pursued the worst changes in unemployment insurance. The result is a system that ranks among the least effective at providing temporary wage replacement for jobless workers while they search for work and delivering a stabilizing force in local communities and the economy overall.

The challenges they outline in the report face North Carolina acutely:  too few unemployed workers have access to tools for successful re-employment, first employment and/ or training; American workers are more vulnerable than ever to involuntary unemployment, yet fewer are protected by unemployment insurance; and finally, the unemployment insurance system is unprepared for the next recession.

The report authors provide a set of policy recommendations that would address these challenges and go a long way to not just protecting workers and communities from the shock of unemployment but would actually prepare for jobs loss by investing in the re-employment, training and other measures that retain jobs and support smoother transitions to new ones.  Here are some their recommendations: Read more

NC Budget and Tax Center

WARNing: Mass layoffs threaten local economies when state pulls back

Freightliner will lay off an additional 800 jobs in June which is the latest in a series of announcements this year of significant mass layoffs at one company. More than 7,000 mass layoffs have already been announced in 2016 and will take place over the course of the year. Whether temporary or permanent, they will ripple through communities as workers seek new jobs and try to meet basic needs while looking for work.

As you can see in the map below, the communities affected by the 2016 announcements to date span the state. The losses of small towns and cities represent a greater share of their workforce, even if the total numbers are less than major metropolitan areas.

warn map
For these communities, it will be important to support jobless workers so that the broader community can stabilize and pursue new or expand existing employment opportunities. North Carolina has a history of dealing with these mass layoffs and particularly the loss of employers and entire industries: unemployment insurance has always been one of the most critical tools for communities to be able to connect jobless workers to.

Yet state policymakers have so reduced the reach and effectiveness of the unemployment insurance that many communities will struggle to ensure a mass layoff doesn’t derail a community’s local economy and social fabric.

Here are a few key ways in which unemployment insurance, as it is currently operating, won’t be as effective in the face of mass layoffs. Read more

NC Budget and Tax Center

The fallout of income tax cuts continues to ripple through North Carolina communities

There is now more news that state income tax cuts are forcing local governments to pursue bad deals as they scramble to deliver basic services. While state leaders claim to be looking out for rural North Carolina, it is ever clearer that income tax cuts put many local governments and residents in a bind.

Tax cuts have reduced available state revenue by billions of dollars, resulting in less support for many rural communities. Unfortunately, many rural communities lack the tax base and economic activity needed to make up for lost state funds, forcing them instead to consider alternatives that may ultimately cost rural governments more over the long run. Already, local government’s commitment to public schools through per-pupil spending has already increased significantly since 2008.

Instead of revisiting the choice to slash income taxes, a bill moving through the Senate would give local governments more ways to finance new school buildings at great costs to residents and while putting at risk other classroom investments.  The legislation would expedite the process under which lease-purchase agreements move forward and make available state funds for students and teachers to go to private developers. Such a deal is already on the table in Robeson County where the Treasurer’s Office estimates that the increase in debt load for Robesonians will go from $200 to $4,000. Not only could there be job losses as teachers and teaching assistants lose their jobs through consolidation of schools, the prioritization of repayment of this debt above other local government obligations and the allocation of sales tax revenue to private developers would be harmful to many other public services in communities.

And, as Terry Stoops of the John Locke Foundation notes, there is little research to suggest that new facilities will improve educational outcomes, and certainly not when they risk other investments proven to drive student achievement and teacher retention.

Why would local leaders and community members need to seek out such a bad deal for its citizens?  Because the backlog for renovating and upgrading schools is just one of the things that has fallen behind as a result of income tax cuts for the wealthy and profitable corporations. In the past, school construction received direct support through allocation of lottery funds and corporate income tax collections. Now, both of these streams have had to be used to patch other holes in the education budget as income tax cuts have sapped the availability of state revenue.

Given that income tax cuts will continue to phase-in, it is unlikely that North Carolinians will stop seeing such costly deals. The only question is when will local communities make sure their leaders make better choices and call for an end to income tax cuts that aren’t helping build stronger communities?