Falling Behind in NC

This afternoon, Governor McCrory released his $20.99 billion 2015 fiscal year budget for the period that runs from July 2014 to June 2015. His proposal creates more problems than it solves, failing to take prudent steps that would put North Carolina’s budget on a more sustainable path. Similar to his budget proposal last year, his new spending proposal follows suit and fails to catch up—let alone keep up—with the needs of kids, working families and communities in many areas of the budget.

The Governor’s budget was constrained in major ways—which were self-imposed by state lawmakers last year when they decided to cut taxes. 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 Governor McCrory signed into law last year that was already estimated to drain available revenues to the tune of $437.8 million in the 2015 fiscal year.

As we reported last week, estimates suggest that the revenue losses from the tax plan, particularly stemming from the personal income tax changes, could reach $600 million 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 Governor chose to keep this next round of tax cuts in place despite the diminished revenue picture. As we warned last year, North Carolina cannot afford to pay for tax cuts that primarily benefit the wealthy and profitable corporations at the expense of teacher layoffs, growing waiting lists for critical public services, and higher tuition rates.

State spending under the Governor’s proposal would continue to remain well below pre-recession levels, as illustrated in the chart below, even though spending over the base budget would slightly increase. All areas of education funding fall short of what was called for in the continuation budget. Tax cuts are making it harder to regain lost ground. Read More

Today is EITC Awareness Day – also referred to as the Earned Income Tax Credit (EITC). The EITC is a federal tax credit that encourages work by boosting the income of low- and moderate- income working people and offsets federal payroll and income taxes. The EITC has proven to be a powerful tool in helping lift families out of poverty and improving the well-being of young children.

In 2007, a state EITC was established to help further boost the wages of low- and moderate-income workers in North Carolina and offset the higher share of state and local taxes they pay as a percent of their income compared to high-income workers. More than 900,000 North Carolinians claimed this tax credit in 2011, according to the most current tax information provided by the NC Department of Revenue. The impact of the EITC spans across the state, with taxpayers in each of the state’s 100 counties claiming the tax credit (see this interactive map).

Unfortunately, this tax filing season will mark the last year that low- and moderate-income North Carolina workers will benefit from the state EITC. State leaders allowed the state EITC to expire at the end of last year and chose not to extend the tax credit as part of the tax plan passed last year. As a result, the expiration of the state EITC represents a tax increase for more than 900,000 hardworking low- and moderate-income North Carolina taxpayers, for which every dollar counts in their efforts to make ends meet.

Low-income children now represent a majority of students enrolled in public schools in the South, a new report by the Southern Education Foundation (SEF) finds. The 2009-10 school year marked the first time in modern history that a majority of students in public schools in the South were low-income students, defined as the number of students participating in the federal free- and reduced-lunch program. As public schools in North Carolina and other southern states are challenged with educating more low-income students – who typically need extra learning support and resources to succeed – education spending has failed to reflect this growing need and challenge. Read More

The NC Budget and Tax Center released a new report today showing that the two-year budget approved by state legislators and signed by Governor McCrory falls far short of what is required to meet the needs of children, working families and communities. Although the 2014 budget exceeds last year’s in overall dollars, spending falls short of what is needed in 4 of the 6 major budget areas—including public education (see the chart below). And, spending as a share of the economy is still below the 40-year average.

Instead of investing adequate resources in schools and the other building blocks of a strong and enduring economy, state lawmakers chose to make room for tax cuts for the wealthy and profitable businesses that will cost more than $2 billion over the next five years. State lawmakers could have made better choices by pursuing true tax reform that would have strengthened revenues and allowed the tax system to grow with the economy.  That would have put North Carolina on a stronger path to recovery.  Instead, they chose to go in the opposite direction. Read More

It is true that the final budget reinvests in some programs and services to achieve an overall slight increase in General Fund appropriations. This reinvestment was made possible by using unspent dollars from last year’s budget, budget gimmicks, the reliance on tuition increases and fees, as well as reductions in other areas of the budget. However, state investments in most areas of the budget—including education—are failing to keep up after years of budget cuts.

There are two primary vantage points for analyzing the final budget and making comparisons over time.  One method is to measure the final budget against the actual dollars that were appropriated last year in the 2013 budget.  The other method measures the final budget against the continuation—or base—budget, which reflects the dollars needed in the next year to maintain current service levels.  The Governor’s Office of State Budget and Management, which is headed by Art Pope, collaborates with the various departments and agencies to determine the continuation requirements.

So, which vantage point makes for the best comparison? Read More