Last evening, the Senate leadership released their $21.16 billion 2015 fiscal year budget for the period that runs from July 2014 to June 2015. Similar to the Governor’s budget proposal, the Senate proposal fails to take prudent steps that would put North Carolina’s budget on a more sustainable path. Likewise, it follows suit by leaving too many vital public services at diminished levels—failing to catch up with the needs of kids, working families, and communities five years into the official economic recovery.
At this point, budget proposals that put the train on the wrong tracks should come as no surprise. Due to tax changes enacted last year, budget writers are constrained in major ways. We’ll call this a self-imposed budget challenge.
State lawmakers created a structural deficit in which revenues are falling short of what is needed to meet critical needs across budget areas. The state is facing a revenue shortfall of $191 million in the 2015 fiscal year (not to be confused with the nearly half-a-billion shortfall for the current 2014 fiscal year that ends in June). The driver of these revenue shortfalls—despite an economic recovery—is the series of tax cuts that lawmakers approved and Governor McCrory signed into law last year that will drain available revenues to the tune of $437.8 million in the 2015 fiscal year. As we reported earlier this month, estimates suggest that the revenue losses from the tax plan, particularly stemming from the personal income tax changes, could reach $600 million in next fiscal year.
Yet, rather than prudently recommending the halting of future tax cuts that are scheduled to go into effect in January 2015, the Senate—following in the Governor’s footsteps—chose to keep this next round of tax cuts in place despite the diminished revenue picture. We’ve said it once and we will say it again: North Carolina cannot afford to pay for tax cuts for the top at the expense of teacher layoffs, growing waiting lists for critical public services, and fewer dollars to support economic recovery across the state.