NC Budget and Tax Center

Latest revenue forecast shows state’s economy only in line with national recovery

Even though North Carolina has collected more money than initially projected this quarter due to a moderate but steady ongoing economic recovery, it’s still far too little to pay for the investments our state needs to thrive. Tax cuts for the wealthy and powerful have reduced the money that would have otherwise been available to North Carolina to invest in our communities.

For the first quarter of the current fiscal year (July through September), General Fund revenue was $158 million, or about 3 percent, above the cautious target set by state officials. This does not suggest that all is well here in North Carolina, which becomes evident when assessing the health of state investments in local communities across the state. There is still far too little commitment to building thriving communities through investments in the classroom, community economic development, infrastructure, public health and environmental protection.

Beyond the $158 million figure, the latest quarterly revenue report released by the NCGA Fiscal Research Division highlights additional noteworthy points regarding the state’s economic and revenue landscape.

  • The early months of the fiscal year are typically the least important months as an indicator of revenue outcomes for the full fiscal year. Revenue performance during the second half of the fiscal year provides a better sense of overall revenue performance.
  • The national economy hasn’t been able to accelerate into overdrive and continues to move at a steady, moderate pace. North Carolina has yet to experience a robust expansion as a result. The revenue report also highlights that the improving economy has been insufficient to produce robust employment and consumer markets.
  • State officials see no sign of acceleration on the horizon.

The report also notes that state officials were necessarily cautious with their forecast and expect moderate, steady economic performance for the remainder of the fiscal year. In the wake of tax cuts passed by state lawmakers in recent years that largely benefit the well-off and that will reduce annual revenue by more than $2 billion once fully in place, the report supports two particular realities.

  • The costly tax cuts have not spurred economic growth and the creation of new jobs. The revenue outlook report notes that North Carolina economy mimics that nation’s steady, moderate recovery. The tax cuts have reduced resources available to invest in public schools, health services for seniors and the poor, and ensure that communities across the state can thrive.
  • For the most recent fiscal year, sales tax revenue collections were $190.4 million below expected collections. Since 2013, tax changes have resulted in a steady increase in reliance on sales tax and away from income taxes. Expanding the sales tax base with newly taxed services makes projecting revenue collection difficult. Furthermore, a greater reliance on the sales tax disproportionately impacts low-income taxpayers who spend a larger share of their income on state and local taxes compared to the state’s highest income earners who have benefited the most from income tax cuts in recent years. This tax shift also could create a tax code that does not adequately fund the investments that help build thriving communities.
NC Budget and Tax Center

Tax Foundation’s newest ranking leaves much to be told

We are once again hearing about North Carolina’s business climate moving toward top-ten status among states according to a new ranking by the Tax Foundation, a tax policy research organization that favors tax cuts. North Carolinians should be leery of jumping on the celebration band wagon, however.

As I’ve highlighted before (see here and here), this ranking provides no insight whatsoever regarding the actual fiscal and economic health of the Tar Heel State. Instead, the ranking simply continues to applaud more tax cuts that have largely benefited the highest income earners in the state and profitable corporations. The ranking tells us nothing about the negative impact of the more than $2 billion in annual revenue loss once all tax changes are in place. These tax cuts represent lost resources that could be used to boost investments in public schools, provide health services for the elderly and poor, and ensure that all communities across the state can thrive.

A smart business leader understands that simply being told how much revenue a business generates tells her nothing about whether the enterprise is profitable. Furthermore, a prudent business leader understands the importance of making adequate investments to ensure the long-term success of the business.

North Carolina’s move up the Tax Foundation ranking just means lawmakers have prioritized tax cuts over important public investments in things like public schools so they can offer every child a high quality education. This flawed priority may zip the state up the Tax Foundation ranking, but this supposed short-term gain poses a huge potential long-term cost.

Back to School Series, NC Budget and Tax Center

Back to School: Food for the stomach, food for the mind

This is the fourth of a Back to School blog series (see Part 1, Part 2, Part 3 and Part 5) that highlight various issues to be aware of as the 2016-17 school year kicks off.

Ensuring that students arrive to class with enough food in their stomach is an important ingredient for student success. Adequate nutrition reduces the negative effects of hunger on a student’s academic performance and behavior in school and promotes other positive outcomes.

Access to adequate nutrition is a vital support service that contributes to a high quality education. This is accomplished largely through school meal programs – breakfast and lunch meals – which are available to students during the school day. The state’s uneven economic recovery has left many North Carolina’s workers and their families more vulnerable, and food insecurity is a reality for many students and families across the state.

Half of North Carolina’s public school students qualify for free or reduced school meals, which highlights that a significant number of students reside in low- and moderate-income households that face persistent economic challenges. Moreover, one out of every five children in North Carolina attends a high-poverty school – defined as a school in which 75 percent or more of students are eligible for the federal subsidized school lunch program. Among students of color, that number is one in three. With more than 1.5 million students in public schools, that means that many of our schools serve a large number of economically disadvantaged students.

Recognizing the connection between adequate nutrition and student success, many North Carolina schools have taken steps to boost access to school meals. Last school year, more than 750 schools across the state participated in a nation-wide Community Eligibility initiative, which provides school meals to all students free of charge. With nearly 60 percent of eligible schools participating in this initiative, this is promising progress to build upon and expand access to nutrition to more students.

Other opportunities exists that would help ensure that students arrive to class fed and ready to learn. State lawmakers can boost state funding for child nutrition programs, which would allow for more federal dollars to flow to the state for child nutrition. As are result, these additional state and federal dollars would free up local funds that are now used to cover costs related to school meal programs – these dollars could now be directed to the classroom. Furthermore, increasing participation in school breakfast programs offers a promising return on investment. Research shows that children who eat breakfast – closer to class and test-taking time – perform better on standardized tests than those who skip breakfast or eat breakfast at home.

As we embark upon a new school year, we should consider access to adequate nutrition a core component of a quality education. Greater support at the state level can help make sure that schools have the resources needed to provide a quality education for all students, which includes access to adequate nutrition.

2017 Fiscal Year State Budget, Back to School Series, NC Budget and Tax Center

Back to school – Ensuring a high quality education for all students

This is the first of a Back to School blog series (see Part 2, Part 3, Part 4 and Part 5) that highlight various issues to be aware of as the 2016-17 school year kicks off.

It’s back to school time, and more than 1.5 million students are preparing to embark upon a new school year. Currently the 10th largest public school system in the nation, North Carolina has experienced steady growth in the number of students entering school doors in local communities across the state – enrolling more than 100,000 additional students over the past decade. This makes it more important than ever to increase investment in schools to ensure the growing number of students in North Carolina receive a high quality education.

The makeup of students in public schools has changed over time. Last school year, no single race or ethnic group represented a majority of North Carolina’s student enrollment—a reflection of the changing demographic trend in the state’s broader population. Furthermore, one of every two students in public schools qualified for free or reduced school meals, which indicates that a significant number of students reside in low- and moderate-income households and face persistent economic challenges.

One way to ensure that our schools have the resources to provide a quality education to all students, regardless of their socio-economic background, is through the state budget, which serves as an important source of education funding for our schools. For the upcoming school year, the state budget under which schools will operate is a mixed bag of incremental progress in some areas and persistent lagging support in other areas. For the 2016-17 school year, state funding per student remains 8.1 percent below 2008 pre-recession level, with more than 81,000 additional students enrolling in public schools during this time. Consequently, our schools are challenged with educating more and more students with fewer resources.

Back to School - State Budget

 

Lawmakers limited their ability to boost investment in public schools by passing costly tax cuts in recent years that largely benefit the wealthy and profitable corporations. The state’s ability to invest in public education will continue to be limited in the years ahead as the cost of the tax cuts grow larger. For the current fiscal year, these tax breaks reduce available revenue by $1.4 billion, dollars that otherwise would have been available to lawmakers to boost investments that promote student achievement. Once all tax changes are fully in place, this annual cost grows to more than $2 billion. Read more

2017 Fiscal Year State Budget, NC Budget and Tax Center

Highlights of Justice and Public Safety Budget in joint budget agreement

The joint budget for Justice and Public Safety for the upcoming fiscal year entails a 3.5 percent increase to the original JPS budget passed by state lawmakers last year. Despite unmet needs in North Carolina such as re-entry services for ex-offenders returning into local communities, little progress is made beyond funding for pay raises and one-time bonuses.

Highlights from the joint budget for Justice and Public Safety:

Public Safety Read more