NC Budget and Tax Center

Report: NC relies too much on fines and fees to finance government and the problem is getting worse

Over the past decade, growth in N.C. agency fee revenue outpaced growth in corporate and personal income tax revenue, according to a new report released today by the N.C. Budget & Tax Center. This increasing reliance on fines and fees is posing challenges for state agencies that are trying to provide relief to North Carolinians during the COVID-19 crisis while coping the uncertainty of lost or delayed fee revenue. These agencies include the Judicial Branch, the Department of Transportation, and the UNC System.

“The COVID-19 pandemic has made clear that increasingly relying on fees to fund public services is hurting our ability to provide for North Carolinians,” said Alexandra Sirota, Director of the N.C. Budget & Tax Center, a project of the NC Justice Center. “In order for North Carolina to better respond to things like COVID-19, we need to rebalance our tax code away from regressive revenue streams like fines and fees and toward more equitable and adequate revenue. We should start by looking at corporate tax rates, which are the lowest in the region.”

The report, “Pandemic lays bare North Carolina’s reliance on fines and fees,” provides an analysis of changes in state revenue collections by source from 2011 to 2018, showing that state revenue from sales tax and fines and fees increased the most during this time, followed by personal income tax revenue.  The analysis also shows that revenue from the corporate income tax decreased dramatically following changes enacted by the General Assembly that went into effect in 2014.

The report argues that, taken together, these changes demonstrate an increasing reliance on regressive sources of revenue in the state, with the burden falling disproportionately on low-income North Carolinians and people of color.

“The current crisis is exposing not only the inequities inherent to North Carolina’s regressive revenue system, but the system’s inability to meet the state’s public investment needs,” said Sally Hodges-Copple, primary author of the report. “North Carolina’s policymakers have repeatedly and steadily shifted the burden for public investment onto those least able to pay, raising fees everywhere from the court system to the DMV to our college campuses, while at the same time asking less from the wealthiest individuals and most profitable corporations.”

The analysis also highlights the impact of regressive revenue changes on higher education in North Carolina, demonstrating how dramatic declines in corporate income tax revenue coincided with decreasing state appropriations to the UNC System and increasing tuition revenue.

Click here to explore the report.

COVID-19, NC Budget and Tax Center

Four charts that explain the urgency to extend unemployment insurance

Last week, the U.S Department of Labor released the latest weekly data on unemployment insurance claims, showing persistent job losses for working people across the country. In North Carolina, the Division of Employment Security reports that more than 1.3 million people have made claims for unemployment insurance since March 15.

These numbers leave little doubt that the country is in a deep recession and that boosting the income of jobless workers is essential to securing a path to a strong and inclusive recovery.

Yet Congress has not acted to extend critical federal unemployment insurance provisions that will expire the week ending July 25. The loss of the $600-a-week boost to jobless workers’ income, especially when searching for or going back to work is tremendously difficult, will be devastating to families and communities across the state also facing a not-yet contained pandemic.

As the Economic Policy Institute writes, failing to extend federal unemployment insurance programs now is not just “cruel but bad economics.”

Workers without wage replacement through unemployment insurance will be forced to cut back on spending which is what keeps the broader economy afloat. Workers will also face greater hardship as meeting basic needs, paying bills and rent or mortgages becomes increasingly impossible.

Here are four charts that explain the urgency to extend the federal programs. Read more

COVID-19, NC Budget and Tax Center

N.C. child care industry continues to experience widespread closures, enrollment decline

Survey data from the end of June reveals that more than 1 in 4 child care programs remain closed in North Carolina, three months after the state locked down to prevent the spread of the novel coronavirus and almost two months after a phased re-opening process began.

While the statewide closure rate has declined slightly since the end of May, when 1 in 3 programs were closed, persistently elevated closures raise concerns about the industry’s immediate well-being and long-term financial viability.

Even after taking into account the seasonal fluctuations in the opening of centers and the sometimes strong connection of child care providers to public school facilities, the rate of closures statewide should remain a concern for the prospects of reopening with the support of quality early childhood opportunities for every child. Among child care programs that reported being closed at the end of June, fewer than 1 in 4 exclusively serve school-age children.

Moreover, providers that are currently open report dramatic declines in enrollment compared with pre-COVID-19 numbers. On average, open child care centers are serving 44 percent fewer students than when the pandemic began, and they are likely facing higher costs of keeping children and staff safe while receiving reduced revenue.

Read more

Commentary, NC Budget and Tax Center

As the General Assembly adjourns, it leaves money on the table while needs go unmet

Now that the General Assembly is on the brink of adjournment, we have a clearer picture of which federal funds have been appropriated and how many dollars remain.

Prior to the June session, legislators appropriated $1.6 billion, or 44%, of the state’s Coronavirus Relief Fund (CRF), the largest pot of money the state received from the federal government through the CARES Act.

The legislature is scheduled to adjourn this Saturday, July 11, having now appropriated additional CRF dollars.

On closer examination of the bills passed by the General Assembly — some enacted in the early morning hours of June 26 — many of the appropriations are not allowable under the U.S. Treasury guidance to date. Specifically disallowed is the use of CRF dollars to meet revenue shortfalls, such as in the Department of Transportation, which heavily relies on gas tax revenues.

The funds set aside for non-allowable uses totals a whopping $500 million. Rather than set aside dollars in the hopes that the federal government will permit their proposed uses, North Carolina’s elected leaders can and should direct the funds to areas that are both allowable and desperately needed to lessen the harm caused by the COVID-19 crisis. They should then also make sure the federal government sends more aid to state and local governments to address ongoing needs and revenue shortfalls.

COVID-19 continues to exacerbate existing racial and economic inequities, so equitable investments in areas that will reduce hardship caused by the public health and economic crises will support North Carolina’s recovery. Among the key areas needing additional investment, and where CRF dollars could be spent, include: Read more

Commentary, COVID-19, NC Budget and Tax Center

Federal funding is essential to saving North Carolina’s public services

[Click here to download a PDF version of this post.]

The COVID-19 pandemic and resulting recession are wreaking havoc on North Carolina. The state is facing a massive revenue shortfall that will significantly affect its budget and its ability to provide crucial services.

Federal funding is needed to help North Carolina, along with the local governments within it, in ensuring that health care, education, transportation, first responders and other services continue uninterrupted.

The picture is already bleak; since the pandemic started, the state has lost 61,500 public sector jobs. The economic gravity of the shortfall cannot be stressed enough; without further federal aid to state and local governments, North Carolina is projected to lose 156,500 private and public jobs by the end of 2021. The recent resurgence of the virus only compounds the urgency and should dispel all complacency.

The coronavirus pandemic has greatly harmed North Carolina’s economy:

  • In May, North Carolina had an unemployment rate of 9%, one of the highest rates ever recorded, with roughly 440,000 more state residents out of work compared to February.
  • As of early July, approximately 1,200,000 North Carolinians, representing 5 percent of the state’s February labor force, have filed unemployment insurance claims since the beginning of March. Some estimates are projecting a double-digit unemployment rate well into 2021.

North Carolina’s tax revenues are plummeting — creating a severe funding crisis for schools, health care, and other critical services. The North Carolina state government has projected a budget shortfall of $1.6 billion in FY 2020 and $2.6 billion in FY 2021, representing declines of 7% and 10% respectively.

Cities in North Carolina are facing serious revenue shortfalls as well. Charlotte alone has recently projected a budget shortfall of $22 million, according to local sources. The National League of Cities estimates that cities will experience $360 billion in revenue loss through fiscal year 2022, which will force them to significantly cut spending on crucial services or raise taxes on already recession-battered residents. Studies on the Great Recession have found that forcing states to deal with severe budget constraints through austerity dampens long-term gross domestic product (GDP), prolongs spells of high unemployment, and extends recessions.

Between February and May, 61,500 public sector workers were laid off in North Carolina.

  • The National Education Association has estimated that North Carolina could lose roughly 79,600 education jobs by the end of FY 2022 as a result of the decline in the state general revenues that fund education.

Absent federal action, these job losses could get much worse. A recent analysis conducted by the Economic Policy Institute estimates that without it, North Carolina will lose a combined total of 156,500 public and private jobs by the end of 2021.

Health care in North Carolina is also in jeopardy. The Urban Institute has projected that Medicaid caseloads could increase by as much as 363,000, or 25%, through FY 2021 — a massive and unprecedented spike. North Carolina desperately needs help to cover those who are newly unemployed and expected to enroll in Medicaid and offset extra Medicaid costs related to coronavirus. Without proper funding, the state will be unable to treat at-risk patients, keep families healthy, or provide lifesaving care. Funding Medicaid is critical to ensuring that North Carolina can respond effectively to the coronavirus public health crisis and the current economic recession.

The Health and Economic Recovery Omnibus Emergency Solutions (HEROES) Act, which passed the House of Representatives on May 15 with bipartisan support, includes provisions that would help North Carolina avoid additional layoffs and devastating cuts to services. Specifically, it would: Read more