NC Budget and Tax Center

When putting together a budget, the debate typically entails where funding has expanded, what new initiatives have been introduced, and how much funding has been cut. However as North Carolinians are learning, when the baseline for comparison changes, spending that was once guaranteed may go away and new initiatives may only serve to undercut other important public investments that drive the state forward.

The base budget, or continuation budget, has traditionally been the starting point estimate of what North Carolina’s policymakers needed to invest to maintain current service levels. As we have written about before, recent changes to what is included in the base budget— removing enrollment growth, for example —has meant a shifting foundation upon which assessments are based. Rather than increasing transparency, this change masks just how little improvement there is in the Governor’s budget proposal.

Better information about what is in and what is now out of the base budget is needed so that the public can better understand whether so-called expansions are truly that or are just keeping up, and whether new initiatives are financed sustainably or through cuts to core programming. The Department of Public Instruction submitted a request that included a greater amount of investments than were ultimately funded as did the courts.  As an example, DPI requested $69.9 million in added investment to their base budget but got a cut of $56.3 million in their base budget. Specific details for all areas of the budget are needed to understand what is in and out of the base funding.BTC - Base Budget

In a preliminary look at the Governor’s budget, it is telling that the continuation budget (or base budget) for FY 15-16 falls $235 million below the current fiscal year budget spending. Moreover, as my colleague noted in a post yesterday, the proposed appropriation level by the Governor covers nearly exactly the enrollment growth costs forK-12 education, universities and Medicaid. In previous budgets, these enrollment growth costs would have been part of the base budget. Expansion items, such as further pay raises or increased foster care payments, are the result of shuffling the deck—moving dollars around without meaningfully reinvesting overall.

Pre-recession levels can also be used as a point of comparison in this budget debate to demonstrate the lack of reinvestment. Looking in this way, the Governors recommended appropriations remains $1.4 billion lower than the spending level at FY 07-08 despite a growing population and the state surpassing the fifth year of the economic recovery.

Changes to the base budget make clear that very little progress can be made by state policymakers as long as revenues come in under projections as a result of the costly tax plan since revenue growth is not keeping up with growth in enrollment and other program costs.

 

NC Budget and Tax Center

The “tough choices” Governor McCrory says he made in his just-released budget proposal were self-inflicted. They come from tax cuts that primarily benefit the wealthy and profitable corporations, meaning there is too little left to invest in education and other building blocks of a strong economy.

Also troubling is the Governor’s use of changes to the budgeting process to mask the state’s inability to keep up with growing needs. It’s wrong to abandon longstanding practices that have served North Carolina well just to avoid debate over failed tax policies. Budget tricks won’t hide the fact that this will make it even harder in the future to promote broad prosperity.

NC Budget and Tax Center

In a piece released on Monday, Paul Krugman reflected on the decision by Walmart to raise the minimum wage of its workers. He notes that this will likely lead to many more companies following suit. Indeed TJ Maxx-Marshalls has already signaled that it will do the same for its workers this year.

More than moving business to act, these private sector initiatives signal that the economic arguments—reduced turnover, higher productivity, improved morale– for raising the minimum wage standard through public policy make good sense. As Krugman points out:

What this means, in turn, is that engineering a significant pay raise for tens of millions of Americans would almost surely be much easier than conventional wisdom suggests. Raise minimum wages by a substantial amount; make it easier for workers to organize, increasing their bargaining power; direct monetary and fiscal policy toward full employment, as opposed to keeping the economy depressed out of fear that we’ll suddenly turn into Weimar Germany. It’s not a hard list to implement — and if we did these things we could make major strides back toward the kind of society most of us want to live in.

The bottom line is that the choice to keep the minimum wage standard low as a matter of policy no longer makes sense for workers or businesses. It’s time for policymakers to follow these leaders and raise the minimum wage.

NC Budget and Tax Center

The News & Record had an editorial this weekend on the inconsistent choices policymakers have made as it relates to tax code spending. Some tax breaks have ended while others remain and even may get expanded this session. From the piece:

Tax breaks for movie productions and historic property renovations are out. Tax breaks for more data centers are in. The North Carolina legislature is still picking “winners and losers,” but the criteria have changed.

The bottom-line is that policymakers have not established the appropriate processes to evaluate tax code spending and base their decisions on the results of such analysis. Nor do they have a set of economic development goals that reflect the realities of different regions and the needs of North Carolinians.

The result is that the pursuit of ideological purity by eliminating all tax breaks no matter their public good often falls prey to the influences of various political forces that continue to carve out special tax breaks, often inconsistently.

As we noted in a recent piece on the options available to policymakers to address the revenue shortfall, a renewed look at tax code spending is needed. So too is a criteria and process for evaluating that spending against a set of shared and relevant goals for our economy.

NC Budget and Tax Center

New analysis from the Economic Policy Institute on the performance of wages across the distribution in 2014 finds that with few exceptions inflation-adjusted wages fell or stagnated for most groups. This isn’t anything new as there has been a long-term trend of wage stagnation that has meant the majority of workers are struggling to make ends meet even as they are contributing to grow the economy.

What is new and important from this analysis is what happened for wage earners at the bottom end of the wage scale. Workers in the 10th percentile saw their wages increase on an hourly basis by 11 cents or by 1.3 percent. The authors attribute this increase to the series of state-level minimum wage increases that have occurred in states in 2014 and which have bene proven to lift wages particularly for those at the bottom of the wage distribution. It turns out that nearly half of the country’s workforce lived in states where the minimum wage was increased in 2014.

For those states that haven’t raised the minimum wage, here is some further evidence of the real benefit of doing so. As the report author notes:

The great news in this story is that policy can actually affect the labor market. And, it is imperative that we use all the policy levers at our disposal to help rejuvenate the economy to create jobs and build stronger income growth for the 99%.

To read the full report, click here.