2018 Fiscal Year State Budget, NC Budget and Tax Center

New budget a roadmap full of potholes and an unclear destination

A new BTC report highlights how the new two-year budget passed by state lawmakers continues to choose austerity and failed trickle-down economics over broadly shared prosperity. House and Senate leadership garnered the needed votes to override Gov. Cooper’s veto of the budget, resulting in approval of the budget. Under the budget, total state spending for the 2018 fiscal year (FY18) will remain below 2008 pre-recession spending. This marks nine consecutive years that state spending as a share of the state’s economy has declined.

Under the budget, overall spending for FY18 – which will run from July 2017 through June 2018 – is a 3.1 percent increase over the prior fiscal year. Beyond additional state funding provided for state employee pay increases, year-over-year net new spending for FY18 is a modest 1.4 percent above spending for the prior fiscal year. Consequently, nearly all core areas of the state budget remain below or near pre-recession spending levels when adjusted for inflation.

 

 

Tax cuts included in the budget will reduce available annual revenue by a total by $900 million; however, the budget only shows an annual cost of $521 million in the budget. This is because the tax cuts kick in starting January 2019 and thus will only apply to the second half of fiscal year 2019 (which runs from July 2018 through June of 2019). These tax cuts build onto those passed since 2013, which have greatly reduced the level of revenue available for public investments. This self-inflicted revenue challenge has allowed lawmakers to lower their expectations in regards to what is possible for the state and has created a budgetary landscape based on false choices where some public investments are funded at the expense of others. Furthermore, according to a News & Observer article yesterday, North Carolina is looking at serious future revenue shortfalls:

“State expenses are expected to grow faster than revenue starting in 2019, according to a five-year budget forecast.

“The report by nonpartisan legislative staff offers a half-dozen suggestions for dealing with future shortfalls, including not paying for inflationary increases in spending items such as state salaries; using money unspent from previous years; calling off planned income tax cuts; or increasing the sales tax rate from 4.75 percent to 5 percent.

“The budget projections prepared by the legislature’s Fiscal Research Division show shortfalls of $1.2 billion to $1.4 billion in years 2019-2020 to 2021-2022.”

From ensuring a high quality education for all students, to promoting healthy and safe communities, to pursuing economic development initiatives that target rural and distressed communities, the budget falls short of ensuring broadly shared opportunity and prosperity. The new BTC report highlights missed opportunities to make adequate public investments so that all communities across the state can thrive.

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

2018 Fiscal Year State Budget, NC Budget and Tax Center

State lawmakers take positive step in Hurricane Matthew recovery

Today, the NC General Assembly passed The Disaster Recovery Act of 2017 (SB 338). The bill allocates $100 million to help Eastern North Carolina recover and rebuild from the devastating effects of Hurricane Matthew. Causing massive flooding and damage in 50 counties in the Eastern part of the state, the storm displaced thousands of families and impacted hundreds of thousands of homes and business. Ultimately, there was an estimated $2.8 billion in damages and another $2 billion cost in lost economic activity.

This is the second round of disaster recovery funding the state has pursued. In a December special session, the General Assembly passed the Disaster Recovery Act of 2016, allocating $200.9 million. Since then, Governor Cooper, as well as North Carolina’s Congressional delegation, worked hard to secure a federal commitment to fulfill the state’s unmet need. In May, the Trump Administration announced that they would only allocate $6.1 million of the $930 million North Carolina had requested.

The Disaster Recovery Act of 2017 is a key step in attempting to close the gap left wide open by the federal government. In this round of funding, $20 million will be allocated to addressing housing needs, including the repair of homes for low-income homeowners and renters. Another $20 million will go to the Department of Agriculture for dam, soil, and water systems repairs, and $30 million will go to infrastructure projects managed by local governments and non-profits. $2.7 million will help the Community College System deal with enrollment declines resulting from the storm, and, finally, $22.3 million will be allocated as a match for federal disaster grants.

Although this round of funding is not enough to address the unmet need or the total costs of damages incurred in Eastern North Carolina, it is an important step. If we are to help Eastern NC not only recover, but to become resilient, state lawmakers will have to continue to make these types of investments in the years to come.

Brian Kennedy II is a Public Policy Fellow with the Budget & Tax Center, a project of the North Carolina Justice Center.

2018 Fiscal Year State Budget, NC Budget and Tax Center

How to make a program irrelevant: The N.C. Office for Historically Underutilized Businesses

If you want a program which “advocate(s) actions which increase opportunities for historically underutilized businesses and promotes diversity and inclusion in state government procurement and contracting” to not do its job, you do it quietly.

The Historically Underutilized Business (HUB) Office was established by Executive Order 150 in an effort to remedy past and ongoing discrimination in the procurement and contracting markets in North Carolina. After being codified in 2001, the initiative aimed to 1) increase the amount of goods and services acquired by state agencies from HUB firms, 2) make progress towards eliminating barriers that reduce participation of HUB firms, 3) encourage purchasing officers and relevant personnel to identify and utilize HUB vendors and contractors, 4) educate HUB firms on doing business with the State of North Carolina and 5) provide resources for HUB firms.

Since its inception, the program has experienced very modest success but has been plagued with persistent inequity. A study commissioned by NCDOT in 2014 found ample evidence that race and gender remain barriers to the full and fair opportunity to participate in NCDOT’s contracts. NCDOT’s study employed a ratio measure to determine how HUB enterprises were utilized relative to white-male owned enterprises, where ratios below 80 percent indicate a disparity. For every 100 contracts awarded to white-male owned businesses, white women got 79.87 contracts, Black-owned businesses received 49.94 contracts, and Hispanic-owned businesses got 18.25 contracts. Read more

2018 Fiscal Year State Budget, NC Budget and Tax Center

Price tag for tax cuts in final budget tells half the story

The Locke Foundation was having fun with math yesterday in an effort to defend a fiscally irresponsible package of tax cuts in the final budget lawmakers are close to approving. Why? because—wait for it—they would like you to think they haven’t just given another green light to tax cuts that further pump up the gains for wealthy taxpayers while making virtually no progress in addressing the tax load carried by middle- and low-income taxpayers.

Amidst their convoluted and selective use of the numbers, they try to confuse their readers about three primary facts regarding the state’s tax code after the passage of this budget:

  1. The average tax cut received by the taxpayer in the top 1 percent (whose average income is $1 million) compared to the pre-2013 tax code is nearly $22,000, which is more like 96 times the tax cut that the middle-income taxpayer in North Carolina will receive each year as a result of tax changes since 2013. The average tax cut for middle-income taxpayers is $225.
  2. Once the final budget passes, one in three of net tax cut dollars goes to the top 1 percent of taxpayers, whose average income is a million dollars. Under the final budget, nearly 80 percent of net tax cuts since 2013 will flow to the top 20 percent of taxpayers once all the latest tax code changes are fully implemented.
  3. When we look in isolation at this year’s tax plan, policymakers may have paid attention to their egregious track record when it comes to addressing the tax load for most North Carolinians but they have fallen short of setting our tax code right. Their final tax plan still gives the wealthiest taxpayers the majority share of the net tax cut compared to current law. And their full track record shows their failure to put middle- and low-income taxpayers front and center as they make their tax policy decisions. Budget writers and supporters don’t want to talk about all the changes that have happened since 2013, the loss of the personal exemption and other credits and deductions that benefited working families, including the Earned Income Tax Credit and the Child and Dependent Care Tax Credit, as well as the broadening of the sales tax.

Still worse, with this final budget they continue to push us further towards a single revenue option in addressing future downturns—raising the sales tax, which will inevitably mean asking more from low- and middle-income taxpayers again.

Rather than try to present and sell tax cuts that largely benefit the wealthy and profitable corporations as the everyman approach to growing the economy, which it isn’t, a more urgent math problem needs to be worked out, sooner rather than later. Read more

2018 Fiscal Year State Budget, NC Budget and Tax Center

Standards and accountability lose as earmarks proliferate in budget deal

By a conservative count, there are over $32 million in earmarked special projects funded in the conference budget being debated this week. After years of railing against patronage and backroom deals, House and Senate leadership have suddenly become big fans of earmarking funds for legislator’s pet projects back home.

This list of projects is just the tip of the local need iceberg. After years of tax cuts and hemming in local governments’ ability to raise funds, there is a deep backlog of important local projects that deserve state support. While many of the earmarks address local priorities that have gone unfulfilled in recent years, this budget does little to address the structural deficit in our investment in local communities.

Earmarking funds for pet projects is no the way to do good policy. There was no public process that determined which projects address the more striking needs, which projects will have the largest social and economic impacts, and which projects have the broadest community support.

These earmarks also lack accountability. In well-administered programs, recipients of public funds are obligated to document that funds were used appropriately and actually achieved the intended goal. These types of accountability standards often help to refine programs over time, make it more likely that good stewards of public funds receive support in subsequent years, and provide an empirical basis for evaluating the effectiveness of the program. Unfortunately, many of the earmarks in this year’s budget lack even these most basic features of good governance.

— Budget & Tax Center Staff Report