NC Budget and Tax Center

Last week, Governor McCrory unveiled his two-year budget proposal for July 2015 through June 2017. He has since touted how his plan reinvests in the public services and programs that are essential for economic opportunity and quality of life. However, a close look at his 2016 fiscal year (FY2016) spending plan reveals that he fails to reinvest in a meaningful way in the critical public structures that benefit us all. Genuine progress will continue to be hampered until state lawmakers build a tax system that can adequately match the needs of a growing economy.

Governor McCrory’s proposed budget for FY2016 increases year-to-year spending by nearly $439.8 million, or 2 percent. This is in sharp contrast to past recoveries when state investments were far quicker to return to, and advance beyond, pre-recession levels. Enrollment growth in public schools, the UNC system, and the Medicaid/Health Choice programs is estimated to exceed the year-to-year increase in spending in the governor’s proposal, totaling nearly $442.6 million in FY2016. That means every new dollar increase, on net, is dedicated to funding enrollment growth (see chart below).

It also means that non-enrollment expansion items in the proposal are made possible by cutting or allowing spending to expire for other vital programs that are already stripped bare from previous underinvestment. That’s like rearranging the deck chairs on a sinking ship. Read More

NC Budget and Tax Center

This morning, Governor McCrory released his two-year plan to invest in education, health care, public safety and other priorities that are essential for economic opportunity and quality of life. He spoke of a “new paradigm” for state budgeting. A new paradigm indeed, one that abandons many of the practices that served North Carolina well in the past—like ensuring funding to maintain current service levels year-over-year or reinvesting in the recovery rather than locking in low levels of revenues by keeping the 2013 tax plan on the books.

A preliminary review of his budget plan shows that too many vital public services are at diminished levels, threatening their effectiveness, reach, and efficiency. No amount of “budget spin” will cover up how the budget baseline has been eroded from years of cuts or how the current tax system cannot sufficiently keep up with growing needs.

Below is a quick summary of how the Governor’s budget compares to pre-recession levels and also how the Governor chose to pay for his budget. Read More

NC Budget and Tax Center

Some legislators want to severely limit the resources the state can invest in schools and other needs and are considering arbitrary formulas to guide those decisions, even though we are already doing less with less. State investments as a share of the economy would be $3.2 billion higher if North Carolina caught up to 2008 levels. That means the Governor and legislative state budget writers have a lot of catching up to do to replace what was lost while also keeping up with the growing needs of a growing state. Tying our hands with artificial limits on how much we can invest is a road to ruin.

The goal of these arbitrary formulas is to radically restrict state spending and shrink the reach and effectiveness of critical public services, regardless of need or cost. One example is a formula that would limit year-to-year growth in total state spending to the rate of inflation plus population growth. Automatic spending limits—as well as caps on year-to-year revenue growth—are sold as common-sense measures, but in reality they are not a responsible way to measure the cost of providing basic government services. Instead, such limits merely ensure perpetually insufficient funding and never allow policymakers to replace the cuts enacted in the aftermath of downturns.

Case in point: inflation, as measured by the Consumer Price Index, doesn’t accurately reflect the cost of providing public services overtime. That’s because the CPI measures changes in the cost of goods and services that urban households purchase—not changes in the cost of public goods that benefit all of us. Read More

NC Budget and Tax Center

North Carolina must reform the way it raises revenue for transportation. The existing funding structures are inadequate for addressing current and future transportation needs across the state. The Governor proposed bonding against future tax revenue to meet these needs while the Senate appears poised to push through changes to the gas tax. The bottom line is that policymakers must ensure adequate dollars are available to have a safe, modern transportation infrastructure that can support workers getting to jobs and business getting goods.

The gas tax is a major revenue source for transportation projects such as repairing bridges, repaving roadways, and building highways. The failure of the current gas tax (and other transportation funding sources) to support these important public services means that backlogs for both maintenance and repairs projects persist. The state Department of Transportation estimates that North Carolina faces a $60 billion shortfall for transportation improvements through 2040, and that the state needs to come up with $32 billion just to keep the status quo.

To address a small part of the gap between transportation needs and resource availability in the long term, Senate leadership pushed a bill through the Senate Finance and Appropriations committees yesterday that would change the structure of the gas tax beginning next month. This proposal is tucked into a larger bill that makes various conformity changes to federal tax law. Read More

NC Budget and Tax Center

State revenue collections are coming in $199.2 million below projections half way through the fiscal year, according to the legislature’s non-partisan Fiscal Research Division’s new revenue outlook report. This report provides an assessment of revenue collection performance for the state on a quarterly basis. The main culprit behind the mid-year shortfall is the 2013 tax plan that reduces revenue availability while primarily benefitting wealthy taxpayers and profitable corporations. The plan’s personal income tax cuts are costing more than previously expected.

The growing cost of the 2013 tax plan further challenges state lawmakers’ ability to rebuild what was lost in the aftermath of the Great Recession and reposition itself to compete nationally and globally. North Carolinians are already dealing with the fallout of the current state budget that falls short of what’s needed for children, families, and communities to thrive. The inadequacy of the budget has been chronicled in the news, with many stories focusing on how there are too few textbooks (even toilet paper) as well as the local challenges that state budget and tax decisions are creating.

It is important to view this mid-year revenue shortfall in the context of the dollars that lawmakers already lost due to the tax plan. For the 2015 fiscal year, Fiscal Research Division originally estimated that the plan would cost $512.8 million but soon revised its revenue outlook to account for an additional loss of $191 million. This latest report of $199.2 million in under-collections comes on top of these already-accounted-for losses.  By the end of the fiscal year, the total cost of the tax plan could reach as high as $1.1 billion, according to the Institute on Taxation and Economic Policy’s estimates. That’s roughly equivalent to the state dollars that support the entire Community College System.

Highlights of the Revenue Outlook Report Read More