Four important takeaways from the Governor’s budget proposal

Last week, Gov. Cooper released his recommended budget on the use of funds in the state’s primary bank account, the General Fund. In his first comprehensive plan for the state since 2019, the Governor would plan would shift the course of North Carolina’s spending trends, increase investments modestly in state infrastructure, and implement common sense policy changes that help families secure the health and well-being that supports strong communities and economies. 

Notably, the governor’s proposed plan for the state does not include funds passed as part of the federal American Rescue Plan, which includes approximately $5.3 billion for the state to address COVID-related needs, an estimated $1.3 billion for child care, and additional dollars to address the rising costs of the pandemic and the economic downturn.

The governor’s budget makes no effort to raise revenue; however, it does provide bottom-up tax credits targeted at North Carolina families who face the greatest harm from our state’s upside-down tax code and who have been hit hard by the pandemic’s employment and income impacts.

Here are four key takeaways:

1. The plan proposes a modest increase in spending across the state budget.

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The American Rescue Plan is the relief North Carolinians need

One Hundred Dollar money bill. Benjamin Franklin with face medical mask. COVID-19 coronavirus USA, Economy world crisis.Yesterday, the American Rescue Plan was passed by the U.S. House of Representatives and President Biden is expected to sign it into law shortly. The scale of relief included in the bill — totaling $1.9 trillion — is just what is needed to meet this unprecedented public health and economic crisis and will support millions of North Carolinians to ensure that they can keep a roof over their heads and food on the table.

Key elements of the COVID-19 relief package that will help families stay afloat in North Carolina include:

  • Increased housing assistance and an extension of increased SNAP food benefits to help people families keep their homes and afford food,
  • Extended pandemic unemployment assistance through September 6,
  • Financial assistance to help people meet urgent expenses, such as rent, groceries, utility bills, and car payments, delivered through expanded tax credits and stimulus payments,
  • Improved access to affordable health coverage through enhanced premium tax credits for people with low incomes and middle-class families, and
  • New incentive for holdout states like North Carolina to expand Medicaid.

The package also includes much-needed state and local government fiscal relief to keep our communities going. These funds will help North Carolina and localities restore and maintain critical public employees, prevent further layoffs and cuts to core services like education and health care, and provide assistance to people who have been hit hardest by the pandemic and recession. In addition, there are dedicated funds to support schools that can be used to pay for the cost of distance learning, safe in-person instruction, caring for the physical and mental health of returning students, and most importantly, aid with learning loss that students have suffered.

Overall, the American Rescue Plan provides much-needed but temporary relief. As we are at the one-year mark of the COVID-19 public health and economic crisis, it has become increasingly clear that economic recovery isn’t going to happen overnight, particularly for people of color, who have waited longest in past recessions to see the gains from a rebounding job market.

We have more work to do to build a more equitable economy that works for everyone, including the enactment of permanent policies that will reduce the longstanding inequities that were exacerbated by the COVID-19 public health and economic crisis.

Suzy Khachaturyan is a Policy Analyst at the NC Budget & Tax Center, a project of the North Carolina Justice Center.

The NCGA can and should do more to address the harms of COVID-19 

This week, the General Assembly quickly introduced and passed additional COVID relief legislation, but in a process that lacked transparency in ensuring equitable deployment of public dollars. 

House Bill (HB) 196 appropriated the remaining $1.7 billion in federal money that was allocated to North Carolina in the Congressional relief package passed in December. While the bill took necessary action to ensure that state agencies can deploy federal funds, it did not go far enough, as the bill did little to allocate the additional dollars still available to address needs across the state during this ongoing crisis.  

Filed on the same day as the legislation that was passedHB 192 proposes allocating more than $700 million from the state’s General Fund, which has an unreserved cash balance of $5.3 billion, according to the latest report by the N.C. Office of State Controller.

These dollars result from a combination of the state’s historically low spending, higher than projected tax revenue collections during the pandemic, and stock market performance that reflects the deep inequalities that exists in our state and nation. 

Quickly deploying dollars to communities facing ongoing challenges – both those challenges existing before the pandemic and from the damage due to COVID-19 – is critical for ensuring that North Carolinians can make ends meet. 

 Suzy Khachaturyan is a Policy Analyst with the Budget & Tax Center, a project of the NC Justice Center. 

U.S. House COVID relief bill is the response North Carolinians need

Today’s passage in the U.S. House of Representatives of a comprehensive COVID relief bill is an important step forward. A recovery is still far off, and the greatest risk now is that Congress will do too little, rather than too much. The pandemic has caused widespread financial pain, with people of color often hit the hardest.

Nearly a year into the COVID-19 public health and economic crisis, millions of North Carolinians are struggling to put food on the table, make rent or cover basic expenses. Nationally, at least 10 million children have a family member who is unemployed or who lacks paid work because of the pandemic.

Congress has provided some relief, but it is not enough. While the COVID relief package signed into law in December provided an urgently needed down payment, it left critical needs unmet and allowed some unemployment benefits to expire in mid-March, long before the crisis will end. The greatest risk right now is doing too little, not too much, to address the COVID-19 public health and economic crisis, which has left millions out of work and struggling to cover basic expenses, such as food, rent or mortgage, car payments, and medical costs.

North Carolinians need Congress to pass the House relief bill:

Policymakers must move quickly to help families stay afloat and get our nation on track for an economic recovery. Key elements of the House-passed bill that will help struggling people in North Carolina include:

  • Temporarily extending increased SNAP food assistance benefits and the federal eviction moratorium so that people continue to get help putting food on the table and keeping a roof overhead while the economy remains weak
  • Temporarily extending federal pandemic unemployment assistance to better protect unemployed workers
  • Providing housing assistance to help renters keep their homes and emergency assistance to people experiencing or at risk of homelessness.
  • Financial assistance to help meet urgent household expenses such as utility bills and car payments, delivered through an expanded Earned Income Tax Credit for low-paid working adults, temporarily enlarging the Child Tax Credit, and making stimulus payments to individuals and families regardless of their immigration status and including adult dependents
  • Improved access to affordable health coverage through enhanced premium tax credits and a new incentive for holdout states like North Carolina to expand Medicaid
  • Much-needed state and local government fiscal relief, including funds to restore jobs for teachers, firefighters and other critical public employees and prevent further layoffs and cuts to core services like education and health care

The Senate should embrace this plan to provide relief to families and state and local governments and make it even stronger by extending unemployment assistance through September to avoid putting North Carolinians at risk for a lapse in benefits.

We know what works to help our neighbors and communities in North Carolina make it through this pandemic. In the coming weeks, the U.S. Senate must swiftly pass the House COVID relief bill to support the still-weak economy and millions struggling to get through this crisis.

Suzy Khachaturyan is a Policy Analyst at the Budget & Tax Center, a project of the North Carolina Justice Center.

NC General Assembly can afford to go all-in to address COVID-19 harm

Leila Pedersen and Suzy Khachaturyan contributed to this post.

As legislators return to Raleigh this week, the state’s latest Cash Watch data for the week of Jan. 11, 2021, shows that North Carolina has $4.4 billion in unreserved funds —  leftover after meeting current appropriations and available to meet current needs.

State lawmakers should appropriate these dollars immediately to meet the rising hardships facing families, the challenges in containment of the coronavirus and roll-out of the vaccine, and the financial pressures on local governments and public institutions that need to expand services to protect the common good.

North Carolina can afford to put people first and respond robustly to COVID-19 while putting communities on sounder footing for the future.  These dollars show that North Carolina need not solely rely on the restrictive and time-limited aid, like what the federal government delivered at the end of December.

North Carolina’s state leaders can invest in a plan for the long-term that strengthens our collective well-being. As one economist recently suggested, failing to do so would be like “pouring fuel on a raging dumpster fire.”

The irony of course, is that the state has these dollars, in part because of years of chronic under-investment fueled by an ideology that privileges the few at the expense of us all. The very institutions that are now charged with the frontline response — the Division of Employment Security, the state’s local public health offices, school districts, and the early childhood system to name a few — are hampered by the resulting loss of staff and resources that diminishes the ability to adapt to the changing conditions.

  • For the past decade, North Carolina General Fund spending has remained below the 45-year average of 6% of total state personal income (the total amount of income received by people within the state in a given year).
  • In fiscal year 2019, the state spent just 4.9%of state personal income in state appropriations.
  • North Carolina would have needed to spend an additional $5.3 billion last fiscal year to get back to the 45-year average of spending as a percentage of state personal income.

Unreserved funds are partially a reflection of the General Assembly’s failure to pass a comprehensive budget for the past two years and a longer-term refusal to meet the demands of families and communities struggling to make ends meet. Investing these funds in our public institutions today could set a different trajectory for our state — one that improves health care access, keeps people in their homes, expands educational opportunities, and fuels our economy.

The other factors driving the unreserved balance — an economy that is consolidating benefits for the wealthy and profitable corporations —  underline the need for such a robust public response and supports that will push against these economic trends that threaten to deliver an unequal and uneven recovery.

A deeper look at the November 2020 Monthly Report on the General Fund shows that tax collections are running ahead of where they were in the prior year despite the pandemic. Total tax collections are up 17%, or about $1.6 billion, from this time last year. This is largely due to the combined impacts of stabilization from federal and state relief policies and the economy continuing to deliver record profits and income growth to the privileged few.

The federal stimulus in 2020, which included taxable Unemployment Insurance payments to hundreds of thousands in North Carolina who lost their job, stabilized income collections, and the Payroll Protection Program kept many workers employed. The now well-documented quick recovery for the wealthiest in our country and state also meant income losses weren’t as deep in the aggregate, even as many workers earning low wages continue to struggle to return to pre-pandemic income levels.

As the graph below shows, high-wage earnings in North Carolina as of Oct. 15, 2020, increased by 4.2% while employment for low wage work is still 20% below pre-pandemic levels.

Finally, corporate profits are notably up in the state. Seventeen of the top 25 most profitable corporations nationally were expected to rake in $85 billion more in profits during 2020 than what they averaged in the four years before the pandemic.  That means that even as the income tax rate remains the lowest in the country at 2.5%, corporate income tax collections are higher than the prior year. If North Carolina’s corporate income tax rate were 6%, the Institute on Taxation and Economic Policy estimates that the state would collect about a billion more dollars a year.

North Carolina’s legislative leaders have an opportunity to go all-in now on COVID-19 relief and make clear their long-term commitment to a just recovery. The stability of the state’s public response is likely to hasten the recovery and, if designed with people’s well-being at the center, can ensure that it is a just recovery  that puts us all on sounder ground for the future.

Alexandra Sirota is the Director of the Budget & Tax Center, a project of the NC Justice Center. Leila Pedersen and Suzy Khachaturyan are policy analysts with the Budget & Tax Center.