2018 Fiscal Year State Budget, NC Budget and Tax Center

Governor’s budget for public schools limited by tax cuts in recent years

The Governor’s proposed budget for K-12 public schools reflects the reality of North Carolina’s constrained revenue landscape, which is a result of costly tax cuts in recent years. Beyond state funding provided for teacher pay raises, little progress is made to boost investments in other areas of the public schools budget. Overall, spending for public schools in this proposal is 6.1 percent above spending under the state budget for the current fiscal year. Excluding the additional state funding for pay raises, spending for public schools under the Governor’s budget is 2.7 percent above pre-recession spending.

Here are five notable spending priorities in the Governor’s budget.

  1. The bulk of new spending in the Governor’s public schools budget is for teacher pay raises. The average includes a new salary schedule that provides teachers an average 5 percent pay raise in each year of the biennial budget. The total annual cost of these two pay raises once fully in place is $542 million.
  1. Enrollment growth is funded. Full funding to account for enrollment growth in public schools is no longer a guarantee, as this funding is no longer included in the base budget. The Governor’s budget provides $29.3 million in state funding for enrollment growth. Enrollment growth is not fully funded with General Fund dollars, however. The Governor’s budget includes $2.5 million of revenue from the Civil Penalties and Forfeiture account to help fund enrollment growth in public schools.

Read more

NC Budget and Tax Center

Lawmakers seek to stash revenue away for a rainy day when NC needs an umbrella today

Policymakers seek to make changes to the state’s Rainy Day Fund. Two companion bills – House Bill 7 (HB 7) and Senate Bill 14 (SB 14) – have been introduced that would alter how deposits are made into the fund and that would place restrictions on the ability of policymakers to use the fund.

A new BTC brief highlights implications regarding what the proposed changes to the Rainy Day Fund means for our state in the short and long term. The Rainy Day Fund is a critical tool for ensuring the stability of public investments through economic downturns and ensuring that the state can respond adequately to unexpected disasters. However, prioritizing building up the Rainy Day Fund when many communities are in need of umbrellas today – communities ravaged by Hurricane Matthew, for example – fails to ensure that opportunity and economic prosperity is broadly shared here in the Tar Heel State.

Reforms to the Rainy Day Fund may be warranted to ensure that adequate savings are in place in the event of unexpected economic crises. However, changes should be designed to ensure that dollars can be put to use when needed, which is how the Rainy Fund is currently structured and should remain. North Carolina policymakers have prioritized savings in recent years – socking away nearly $674 million in the past two years alone – but have also neglected investments in the infrastructure and services that can help the state better weather downturns and natural disasters.

The BTC brief highlights ways to improve HB7 and SB14 so that lawmakers are able to balance the goal of stability in public investments while being responsive to addressing community needs.

NC Budget and Tax Center

Don’t let tax refund delays cost you: Three things you need to know

Many North Carolina taxpayers will have to wait a little longer this year to receive their federal tax refund than in previous years. A federal law passed in late 2015, the PATH ACT, aims to prevent tax identity fraud, one of the fastest growing types of fraud. Because of this law, the IRS will delay issuing refunds for taxpayers claiming the Earned Income Tax Credit (EITC) or the Additional Child Tax Credit (ACTC) until February 15. It should be noted, however, that the share of tax returns that incorrectly claim the EITC, the noncompliance rate, is lower than various other parts of the federal tax code.

As North Carolina taxpayers prepare to complete and file their tax return, here are some facts and resources that are available to help taxpayers keep more of their tax refund dollars in their pockets.

  • North Carolina taxpayers can have their tax returns completed and filed free of charge at Volunteer Income Tax Assistance (VITA) sites located across the state. VITA tax preparers are trained and certified, and so tax filers can be confident that their tax return is completed and filed accurately. To find a VITA location, visit the IRS site (click here) and use the VITA/TCE Locator Tool near the bottom of the webpage, or call 1-800-227-7669.
  • The IRS also has a Free File Program, which provides online tax preparation software that helps qualifying individuals with an income of $64,000 or less file their federal taxes free of charge. Taxpayers are encouraged to use these services – the Free File Program and VITA sites – to help them navigate this year’s delay and keep 100 percent of their federal refund. These free tax preparation services help consumers avoid alternative tax preparation services that offer quicker refunds but cost more as the result of high-interest payday loans or costly short-term advances.
  • Tax filers should be sure to know how much they are charged by tax preparers to complete and file their taxes, prior to performing the services. Tax preparer entities are required by law to inform customers of the charges and fees associated with their respective services – these costs should be provided prior to performing the services. If this information is not publicly available, tax filers can contact the North Carolina Department of Justice, Consumer Protection Division and report this issue.

Nearly 1 million North Carolina tax returns claimed the federal EITC and more than 715,000 claimed the ACTC, according to the most current available IRS data. Helping taxpayers reduce the risk of falling victim to tax identity fraud is important, which can be detrimental to taxpayers in the long run. Furthermore, ensuring that tax returns are filed accurately is important to upholding the integrity of our federal tax system. Using free tax preparation services such as VITA sites and the IRS Free File Program helps in meeting these goals, while allowing taxpayers to keep more of their tax return.

NC Budget and Tax Center

Disaster recovery bill a good start, but a sustained commitment is needed

State lawmakers have proposed providing $200.9 million in one-time state funds to assist with recovery and relief efforts resulting from Hurricane Matthew, wildfires in the Western part of the state, and Tropical Storms Julia and Hermine. A little over half of the relief aid comes from drawing down the state’s Savings Reserve Account, which has a current balance of nearly $1.6 billion. The other half of relief aid is unappropriated funds in the state budget for the current fiscal year.

The disaster recovery funds are allocated to eight different entities and the proposed bill specifies the intended use of funds, such as providing state matching funds for federal disaster assistance program, helping meet short-term housing needs of affected individuals, assisting affected counties with resilient redevelopment planning, grant and loan programs for affected businesses, and grants to local governments for infrastructure construction, among other permitted use of funds.

The proposed legislation represents a promising start in that it provides needed resources to assist in rebuilding more resilient communities—and is explicit in that goal for long-term transformation of the region. However, approximately 88,000 homes were damaged with a total loss of more than $967 million. That is far great than the impact of Hurricane Floyd in 1999 when a total of 56,000 homes were damaged. Moreover, entire towns were flooded to the rooftops. More than 8,000 businesses have requested assistance due to physical or economic impact loss. Wildfires in western NC have resulted in more than 62,000 total acres burned.

The scale of the damage is large and will require a sustained commitment at the state level beyond providing one-time disaster recovery funds. This will require lawmakers to ensure that adequate state resources are available for subsequent disaster recovery assistance and not at the expense of foregoing public investments in our public schools, healthcare services for the elderly and poor, access to an affordable college education. However, the disaster recovery bill could potentially mean borrowing against next year’s budget because it requires the Governor to recommend replacing the $100.9 million in Rainy Day Fund dollars committed in the current relief aid bill in his 2017-18 budget. Requiring cuts to next year’s budget to pay for hurricane assistance today would only hurt the kind of ongoing investments needed to help these communities rebuild and thrive.

Lawmakers can ensure adequate revenue is available for relief aid and public investments by stopping yet another corporate income tax cut. Halting this tax cut would create $349 million in revenue to make that commitment this year, which would help ensure all North Carolina communities can thrive.

NC Budget and Tax Center

The stakes are high, NC should reverse course regarding tax policy

The costly tax cuts Kansas lawmakers passed in recent years have had a negative economic and fiscal impact on the state that serves as caution for North Carolina. Leaders in both states have expressed a desire to ultimately eliminate their respective income tax and rely more on the sales tax to fund core public investments. This tax shift would largely benefit the already well-off and powerful corporations and threatens to make North Carolina a less attractive and competitive state.

Both states are pursuing a dangerous course towards a damaging outcome. Kansas’s sprint toward this outcome provides a grim picture of what North Carolina can likely expect should we stay on this perilous path.

The failed Kansas experiment poses damaging consequences to the long-term health of the state. The state faces a persistent state budget deficit that in recent years have resulted in Governor Brownback using public education funding, highway money, state dollars for health care services, and increased sales taxes to plug the budget gap. Despite these efforts, Kansas still faces a $345 million budget hole.

Kansas lawmakers predicted a boom in job growth and the economy as a whole thanks to their massive tax cuts, but that boom never materialized. Instead, state revenue declined by 30 percent and, as the Kansas Center for Economic Growth highlights, personal income growth for Kansas only increased 1.6 percent, compared to 2.8 percent for the region and 3.1 percent for the nation since late 2012. As for public education, the state’s Supreme Court is scheduled to determine whether Kansas will be required to spend upwards of $500 million for school upgrades across the state, including in economically depressed areas. This ruling will address a 2014 ruling by the state’s highest court that disparities in public funding of education violated the state’s constitution. The stakes are high for Kansas and its nearly 3 million residents.

The stakes are also high for North Carolina and its more than 10 million residents. And as our state continues to grow the stakes will get higher. North Carolina lawmakers passed tax cuts in recent years that will reduce annual revenue by more than $2 billion. These are resources that could be used to fund our public schools, where state support remains below pre-recession levels. They could be used to provide health care services for a growing aging population and the poor. They could be used to reduce persistent wait lists for Pre-K and childcare subsidies. They could be used to ensure that a post-secondary education at public colleges and universities remains affordable for all North Carolina students.

North Carolina should get off its current path of prioritizing tax cuts over public investments. We have an opportunity to reverse course and avoid the likely damaging outcome that lies ahead, as can be seen in Kansas. Let’s take heed and reposition our state for a prosperous future.