2017 Fiscal Year State Budget, NC Budget and Tax Center

House releases pieces of FY2017: Overview of the Transportation Budget proposal

House budget leaders are beginning to release pieces of their budget proposal for the 2017 fiscal year that begins July 1st. Budget subcommittees are meeting today to go over their respective proposals, with the opportunity for subcommittee members to put forward amendments. House leadership is not expected to release their full budget and tax package until next week.

But we know that the House and Senate leadership already set a General Fund budget target at a little over $22 billion—which is less than the governor’s. They used a flawed formula to set this budget target without basis in economic realities or the needs of our communities.

Summary of the House Transportation Budget proposal

The state’s transportation system helps form vital social and economic structures by connecting people to services, businesses, and other opportunities across North Carolina—especially those who are transit-dependent and living in rural areas where there has been little job growth since the economic downturn.

The transportation budget is not supported by the General Fund. Rather it is supported by revenue from the Highway Fund and Highway Trust Fund, which are fed by the state’s gas tax, highway use tax, and Division of Motor Vehicle fees.

Here are key items in the House Transportation Budget:

• Repeals the “Light Rail Funding Cap” that lawmakers enacted last year. The cap limits state spending on light rail projects at $500,000, the Strategic Transportation Investments (STI) law that awards funding based on a data-driven process (which already favors roads over transit expansion). This cap affects planned projects in the state’s major cities.

• Provides an additional $32 million to the STI program.

• Keeps in place late fees for car owners who allow their DMV registration to expire—those fees range from $15 if registration has been expired for less than one month up to $25 if the period extends beyond two months. Under current law, those late fees would sunset in December 2017.

• Provides an additional $2 million for the state’s rural transit system and another $2 million for the state’s urban transit system.

• Provides $13.4 million to update and modernize the state’s ferry system. Now the ferry system would not compete under STI but would instead get a direct appropriation.

• Provides a one-time $1 million appropriation for an advertising and public outreach campaign to lift up DMV modernization initiatives.

• Provides $2.9 million to expand contracted staff that review driver licenses at the DMV.

• Provides $1.7 million in recurring funding and $151,900 in nonrecurring funding to hire additional employees who would be tasked with implementing reform initiatives at the DMV Medical Review Program. This program is responsible for gathering and evaluating medical information of drivers who have medical conditions that could affect safety on the state’s roads.

• Provides $17.9 million to support the general maintenance of roads and another $17.9 million to support the maintenance of secondary roads.

• Provides $9 million to support inmate litter collection and road cleanup efforts.

NC Budget and Tax Center

HB 2 threatens over 20,000 jobs if federal funds for higher education are lost

In refusing to reconsider HB 2, state leaders have endangered billions of dollars in federal funds that pay for services like education, transportation, public safety here in North Carolina. Based on figures currently available, roughly $1.4 billion dollars appears to be at risk for just the UNC andHB2 community college systems. While it is too early to know exactly how the loss of federal funds would be absorbed, it is safe to say that the economic toll would be enormous.

Preliminary analysis shows that losing federal funds for higher education could cost the state upwards of 20,000 jobs. To put that in context, that’s almost half of all the jobs created across the whole state in 2014, and more people than are employed in 45 of North Carolina’s 100 counties.

These losses would not just impact staff and students. Companies that provide goods and services to state colleges and universities could lose thousands of jobs, as could retail and other consumer-driven industries.

Unfortunately, the real economic consequences of HB 2 are sure to be much larger. In addition to the other federal funding that may be lost and the private companies that have already decided (and will continue to decide) to take their business elsewhere, HB 2 is undermining North Carolina’s reputation around the world. So long as this law is on the books, the camera will continue to catch pictures of the state’s bad side instead of the friendly, industrious, and inventive image that has done the state so much good over the past few decades.

For a governor who claims that job creation is his first priority, and who still professes confusion over why HB 2 has caused such an outcry, that’s a pretty high price to pay just to make sure that college students and staff cannot use the bathroom that fits their lived gender identity.

(Stay tuned: On Monday, we will release an analysis of the economic impact associated with all federal funds that are endangered by HB2)

NC Budget and Tax Center

Federal spending matters to North Carolina’s bottom line

Governor McCrory and legislative leaders have failed to acknowledge the critical role that federal investments play in North Carolina, as shown in their shortsighted response to the letter from the U.S. Department of Justice that notified the state that repeal of House Bill 2 was required to keep the state in compliance with the U.S. Civil Rights Act.

For years, policymakers in North Carolina have refused to acknowledge the role that federal dollars play in building a stronger economy for our state, whether it be in the demonstrated stabilization delivered by the Recovery Act or the support that could have been received from Medicaid expansion to rural communities and health care providers.

The willingness to defy the federal government so that the state can continue to discriminate puts at risk billions of dollars.

A recent analysis from the Williams Institute suggests that number would top $5 billion. Those are dollars that help to ensure hungry children have access to nutritious food, that children can receive a good education regardless of the wealth of their community, that housing can be kept to code and accessible to seniors and people with disabilities, and that higher education can be accessible to more North Carolinians.

By jeopardizing federal funding, North Carolina policymakers are once again creating their own self-made fiscal crisis. A few facts on federal funding to North Carolina from Pew Charitable Trust’s Fiscal Federalism Initiative:

• In 2014, the last year for which data is available, North Carolina received $16.6 billion in federal grants ranging from funding that went to transportation, health care, housing and education.

PEW_Funding_from_Federal_Grants_Varies_as_a_Share_of_State_Budgets_v1 ffi-1

• These federal grant dollars alone represented 3.5 percent of the state’s GDP, with total federal dollars flowing to North Carolina representing one-fifth of the state’s GDP in 2014.

PEW_Funding_from_Federal_Grants_Varies_as_a_Share_of_State_Budgets_v1 ffi-2

North Carolina has already experienced the loss of federal funding through sequestration—a decision made by Congress—that has resulted in cuts to child care subsidies and housing investments. A self-imposed reduction to federal investments is fiscally irresponsible in light of the already long list of unmet needs in the state and the very poor fiscal responsibility adopted by our leaders with their commitment to tax cuts for the wealthy and profitable companies.

Perhaps this is a good time to remind policymakers in Raleigh that North Carolina benefits tremendously from the investments that the federal government makes in our state’s communities and the well-being of our residents from infants to seniors. To put at risk those dollars so that the state can discriminate will only drive up the costs for us all in the immediate and long-term.

2017 Fiscal Year State Budget, NC Budget and Tax Center

A stroll down memory lane of recent budgets, tax cuts are the guide rails

Tax changes passed since 2013 have not only significantly reduced revenue available for public investments, but also shifted the tax load to low- and middle- income taxpayers and away from the wealthy and profitable corporations. The tax burden on low income taxpayers increases on average by $30 while it decreases by around $15,000 on average for millionaires once all tax changes are fully in place.

These tax changes mean the amount of revenue raised through the state’s three main tax revenue sources – the personal income tax, the corporate income tax and the sales tax – was reduced by billions of dollars. Simply put, state leaders lowered the bar of possibilities for North Carolina. Thus, better-than-projected revenue of $330 million above projections still means we have less than we would have had and less than we need to build a solid foundation for prosperity for North Carolina.

This reality is reflected in the low spending target agreed to by leaders in the House and Senate – which is below the Governor’s modest budget proposal. There simply aren’t enough dollars to go around to fulfill even the modest stated priorities in an election year. It’s wishful thinking that NC will have enough funds to be able to boost its economy by making smart public investments that prepare every child for success, support every family’s health and well-being and deliver on a vision where every community in the state can thrive.

Here’s a recap of the sequence of tax policies passed in recent years. It is worth repeating that under these changes taxes, once they are fully in place, annual revenue loss will total at least $2 billion – much needed dollars given the growing needs of the state.

In 2013, state leaders included a package of tax changes in their approved state budget that made significant changes to the state’s tax system. These consequential tax changes included:  Read more

2017 Fiscal Year State Budget, NC Budget and Tax Center

North Carolina deserves better

Just two weeks into the legislative session, North Carolinians already are seeing how limited policymakers’ aspirations are for the future of communities and families.

First, the Governor proposed a state budget that fell far short of what North Carolina needs to have thriving communities and broad prosperity.

Then, yesterday, leaders of the House and Senate agreed on setting their sights even lower.

As if the limitations forced by tax cuts that mostly benefit the wealthy weren’t enough, legislative leaders went a step farther in the wrong direction by tying their spending targets to a flawed formula that replaces judgment with rigid numbers.

In deciding that what the state spends in a year can’t increase by more than the percentage growth in population and inflation, legislative leaders set a target at a little over $22 billion – less than the governor’s.

Such a formula is similar to one that has been severely reducing the quality of life in Colorado. A report from Colorado just this weekend found this inflexible policy is seriously diminishing educational opportunity. Students are trying to learn with outdated technology, and schools are having a hard time attracting or keeping the best teachers. The state’s ability to compete in the global economy can only suffer as a result. Read more