NC Budget and Tax Center

Kansas’ Republican-controlled legislature votes to raise revenue, responsibly address Brownback’s failed tax cut experiment

Here is a little hope on Saturday morning for North Carolina as we enter a budget debate that should have learned the lessons of failed tax cut experiments by now.

Yesterday, the Kansas legislature voted to raise revenue to address another year of budget shortfalls.  Since the failed tax experiment began in 2012, Kansas has seen significant cuts to public schools, health services and community corrections programs to name just a few of the areas hit hard by the lack of revenue.

After two years of addressing the budget shortfalls through more spending cuts and tax increases that hit low-income taxpayers hard,  Kansas leaders finally pursued a more permanent solution to their failure to responsibly budget for the state.

Here is more context from the Washington Post/ AP article:

Kansas’ Republican-led Legislature voted Friday to roll back a deep tax cut championed by Republican Gov. Sam Brownback, conceding it helped put the state in dire financial straits and setting up a possible showdown with him…

The state faces projected budget shortfalls totaling nearly $1.1 billion through June 2019. Even with a big tax increase, lawmakers still would have to approve some stop-gap measures such as internal government borrowing to pay bills through June, until new revenue started flowing in.

Brownback and his allies continue to argue that the personal income tax cuts he championed in 2012 and 2013 are creating economic growth and the state’s problems were largely caused by slumps in agriculture and oil production. Voters rendered a different verdict last year, ousting two-dozen Brownback allies from the Legislature and giving Democrats and GOP moderates more power.

 

NC Budget and Tax Center

Is North Carolina going to break its promise to retired state employees?

Unless you’re a fiscal policy wonk (don’t be ashamed if you are), you may not know that North Carolina needs to figure out how to keep a more than $25 billion promise.

House Bill 24 and Senate Bill 22 would create a committee to study options for covering the future cost of paying for the future health care costs of retired state workers. There is no easy fix, but here are a few things to keep in mind as this debate unfolds.

We’re not in crisis yet, but this is a serious concern. Like most states, North Carolina currently relies on a pay-as-you-go model for covering the health care costs of retired state employees, meaning that we are paying now for the health costs of retired state workers, essentially paying for service to the state that has already been rendered. This also means that we have not set aside funds for future retiree health care costs, which is commonly referred to as an “unfunded liability.” North Carolina’s unfunded obligation to state workers has increased over the last few years and it is projected to continue growing. Unfunded retiree health benefits are not broadly seen as a crisis yet, but the current trajectory is toward needing larger and larger yearly appropriations to pay for retired state workers’ healthcare.

We should not balance our books on the backs of people who have served our state. HB 24 and SB 22 identify several possible options for reducing the size of North Carolina’s unfunded obligation to retired state workers (all of which were previously studied by the Program Evaluation Division of the General Assembly in a 2015 report). Unfortunately, several of the specified alternatives would impose the costs on current and retired state workers, the people who teach our children, pick up our mess, safeguard our communities, and do myriad other jobs that make North Carolina a great place to live. In the future, these moves could dramatically undermine our ability to recruit dedicated and talented people into public service. Many state employees have not seen a meaningful raise in years, which is already making it hard to recruit workers, and that challenge would only compound if we start walking back promises we have made to secure the retirement of state workers. 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

Grover Norquist trying to sell more bad ideas to North Carolina lawmakers

Right-wing anti-government crusader Grover Norquist issued a template opinion piece the other day to North Carolina leaders and voters in support of the tax cut that will be delivered to the wealthiest taxpayers when the Affordable Care Act is repealed.

Norquist was a key proponent of our state’s tax cuts in 2013, arriving on the scene from D.C. to push our local legislators to adopt a proposal that has made it difficult to respond to the needs in our communities and to develop an economic development strategy that recognizes the uniqueness of our state.

The data is quite clear on what the repeal of the Affordable Care Act will mean: a significant tax cut for the country’s wealthiest taxpayers and growth in the country’s budget deficits.

The tax components of the Affordable Care Act have made health care affordable to more Americans and North Carolinians and, in so doing, addressed many health care issues. Its effectiveness has led many conservative leaders to embrace the law to serve their citizens and in turn achieve a fiscally responsible approach to supporting healthier communities.

NC Budget and Tax Center

NC’s revenue challenge persists despite latest revenue forecast

The ongoing economic recovery has bypassed many North Carolinians and communities across the state. This isn’t surprising news, but it is the reality that we should keep in mind when thinking about how to use $552.5 million in public revenues that are expected to be collected above state’s official’s initial projection.

This revenue forecast is certainly good news for North Carolina, particularly given how much revenue is needed to ensure that all communities thrive and that economic prosperity is broadly shared. Unfortunately, even with the anticipated over-collection, we still don’t have adequate resources to address all of the state’s economic needs.

North Carolina faced a similar reality in recent years amid a modest, yet steady economic recovery. For the 2015 fiscal year, revenue collections were $400 million above original projections. This positive news on the revenue front didn’t erase the tradeoffs lawmakers faced regarding state budget decisions last year, however. Sufficient revenue was simply not available to address the various stated priorities among lawmakers. Meaningful pay raises for teachers and state employees, reducing class size for K-12 classrooms, investing in economic development initiatives, boosting funding for early learning opportunities, among others, were all worthy public investments. However, there just wasn’t enough available revenue for all of these priorities.

Lawmakers will face the same conundrum this year. Choices will have to be made regarding providing additional relief funding to communities devastated by Hurricane Matthews, boosting teacher pay, expanding early learning opportunities, infrastructure investments, and access to an affordable higher education, among other public investments.

The hope now is that state lawmakers patch as many holes as they can with $550 million in additional revenue, and think about how to address the many pressing needs that will still be left unaddressed.