NC Budget and Tax Center

What we know—and don’t know—about how the Governor’s budget proposal would address pressing needs facing North Carolinians

It’s been a month of Sundays since North Carolinians have seen a decent state budget that makes smart, targeted investments in the programs that reduce poverty and build a more inclusive economy. Since 2008, the norm has been budget cuts and underinvestment due to the recession, very slow economic recovery, and lawmakers’ choice to enact three years of deep tax cuts.

That norm isn’t poised to change all that much based on the snippets of the Governor’s 2017 fiscal year budget proposal that he released last Friday. It appears that the Governor will in large part stay-the-course and propose a modest level of reinvestment in the state budget for education, public and mental health, safety, and a mix of bonuses and salary raises for teachers and state employees. His $22.3 billion proposal is about a 2.8 percent—or $608 million—increase over the current 2016 fiscal year budget.

At a time when huge unmet needs persist, staying the course means that many North Carolinians and communities could go another year without adequate public investments that help boost economic mobility and improve overall well-being. To what extent the Governor’s budget would address or ignore unmet needs remains unknown until he releases his entire budget plan later this week.  Here is what we do know.    Read more

NC Budget and Tax Center

A disconnect between Governor’s guiding principles and policy decisions

Helping those who can’t help themselves and preparing North Carolina for continued growth: These are two of the guiding principles that Gov. McCrory said were behind his proposed budget for the fiscal year that begins in July and that will be released this week. However, these two stated principles in particular, on a list of many, highlight a disconnect between rhetoric and actual policy decisions enacted in recent years.

The Governor made a case for how his proposed budget meets these two particular principles by highlighting the $2 billion infrastructure bond that North Carolina voters passed earlier this year in March. The Governor’s proposal also includes about $36.3 million additional dollars for mental health and substance abuse treatment, health services for individuals with Alzheimer’s, and developmental disabilities services. These proposed public investments are positive steps, yet fall far short of meeting the needs of a growing state.

Here are just a few examples of decisions made by the Governor and state leaders in recent years that do not align with the Governor’s “guiding principles.” Read more

NC Budget and Tax Center

Governor should not celebrate economic mediocrity

In touting the number of jobs created since he took office, the governor said “that’s something we need to celebrate, and that’s a goal we continue to have.” These comments prefaced the release of McCrory’s key budget proposals, which themselves reflect a Governor who is largely satisfied with the status quo.

Thing is, North Carolina’s economic track record over the last few years is not exactly sterling:

  • Mediocre employment record: Since the beginning of 2013 (the comparison point that the Governor used in his remarks), North Carolina has increased employment by 7%, just ahead of the national average of 6.3%. That’s not terrible, but its not exactly world-beating either. In fact, 15 states outclassed North Carolina in job creation over the last three years. Those states include regional neighbors (South Carolina and Georgia) and states like California, Oregon, and Washington that have pursued decidedly more progressive approaches to growing the economy. As we reported earlier this week, North Carolina continued this record of middling performance over the last year, so we’re not making meaningful progress toward the top of the heap.
  • Not creating enough jobs for everyone that wants to work. North Carolina is still a long way from recovering to the level of employment that existed before the Great Recession. While we have added jobs over the last several years, North Carolina’s population has also swelled, leaving us well below the level of employment that was the norm before the recession. To make up the jobs deficit, North Carolina would need roughly 400,000 more jobs that exist today. Preparing for future growth and ensuring everyone can get connected to work will require far more robust job creation over the next few years.
  • Wages for the median worker continue to fall.  Since 2009 when the national economic expansion officially began, wages for the worker in the middle of the earnings distribution have fallen by 4 percent.  As SEANC has pointed out, state employees pay overall has fallen behind the cost of living by almost 9 percent since 2010.   And while the Governor’s desire to push average teachers pay to $50,000 is good, it could still leave many teachers working a second job to cover the basic costs of living.

This middling economic record becomes particularly alarming given that the Governor is essentially promising more of the same. Three years of economic data say that the Governor’s economic policies have not produced economic leadership.  Let’s hope we get more of a commitment to build an economy that works for everyone from the General Assembly.

 

NC Budget and Tax Center

Statement on Governor’s Budget Announcement from Alexandra Sirota, Director of the Budget & Tax Center

If the Governor follows through with the modest additional investments in his budget announcement today, it will represent a pragmatic, yet still constrained, approach to the state’s need for public investments.  With the unanticipated revenues that are available due to a recovering national economy, the Governor is seeking to make smart investments in key areas to promote child well-being and support improved educational outcomes.  But this additional investment represents a small fraction of what is needed to realize his principles of preparing for future growth and helping those who are struggling in today’s economy.

Without the budget proposal fully available for analysis, it is difficult to say whether these new investments highlighted come at the cost of other critical areas. Certainly, it is unclear how the Governor will seek to sustain any new public investments with the already scheduled phase-in of additional cuts to the personal and corporate income tax and the needed servicing of the Connect NC bond.

Even without the full budget proposal, we know that the Governor is limited by the costly income tax cuts implemented since 2013 that primarily benefit wealthy and profitable corporations. These cuts result in at least $1 billion less in revenue each year than what would otherwise have been available to build a solid foundation for a North Carolina economy that works for everyone.

We therefore question whether the state will be able to realize the full benefits of these public investments while policymakers allow tax cuts to continue that primarily benefit the wealthy and profitable corporations.

It also remains to be seen whether the Governor can deliver on even the few small promises made in today’s announcement.  We hope that the General Assembly will choose reinvestment over harmful tax cuts or arbitrary spending formulas and commit to building an economy that works for everyone.

NC Budget and Tax Center, Raising the Bar 2016

Sound fiscal policy choices needed to build a stronger, more inclusive NC economy

This post concludes a series on the state budget featuring the voices of North Carolina experts on what our state needs to progress so that all North Carolinians have a fair shot to get ahead.

State lawmakers will return to Raleigh next week to convene this year’s short legislative session. One primary task for lawmakers is to revisit the state budget for the upcoming fiscal year that begins in July and make needed and desired revisions. More tax changes may also be pursued, which would have implications on what the final state budget looks like and whether spending priorities to meet growing needs can be met.

raise the bar

The desire for more income tax cuts by state leaders would build onto tax changes passed in recent years that have largely benefited the wealthiest in the state and that have significantly reduced revenue available for public investments.

A recently released BTC report highlights the tax swap that has resulted from recent tax changes. Costly income tax cuts have given tax breaks to the wealthiest and profitable corporations. Meanwhile, the sales tax has been expanded to include more goods and services, which particularly harms families and individuals that struggle to make ends meet. Consequently, this tax swap – a greater reliance on sales tax and less on income taxes – has shifted the tax responsibility to low- and middle income taxpayers and away from the well-off. Since 2013, the tax burden on low income taxpayers has increased by $30 on average while it has decreased by around $15,000 on average for millionaires.

The significant revenue loss from the tax cuts cannot be overlooked. The annual revenue loss once all tax changes are fully in place is at least $2 billion. These are dollars that otherwise would be available for the economy-boosting public investments that have been lifted up in the Raise the Bar blog series this week – investments such as reducing persistent Pre-K waiting lists, ensuring that public schools have adequate resources, making higher education more affordable, ensuring healthcare services for the elderly and poor, and helping ensure that economic growth extends to rural and distressed communities across the state.

The results are clear: Even as the tax swap delivers big tax breaks to the wealthy, it reduces resources available for public investments that build a strong economy. North Carolinians should be alarmed by state leaders’ short-sighted focus on tax cuts and their desire to continue North Carolina down this path. Sound fiscal policy choices are needed to build a stronger, more inclusive economy and a brighter future that all Tar Heels want and deserve. It is this vision of building an economy that works for everyone that should guide lawmakers’ decisions during the upcoming legislative session.