NC Budget and Tax Center

NC Budget and Tax Center

State lawmakers would like to amend North Carolina’s state constitution in ways that would undermine our ability to adequately meet the needs of a growing and changing state and impede our ability to build today for a strong economy for the future. These amendments would reduce annual state revenue by nearly $2 billion if implemented in 2015, meaning state funding cuts to important public investments that drive the state forward – our public schools, affordable higher education, safe and healthy communities, and modern infrastructure.

Colorado, which enacted TABOR in 1992, serves as a cautionary tale regarding the perils of taking such a path. The state suspended the law for five years in 2005 in response to a sharp decline in public services. As a result of TABOR, Colorado went from the middle of the pack to the bottom among states in regards to state support for public education and initiatives that serve children. Regarding Colorado, an updated 2015 report by the Center on Budget and Policy Priorities highlights:

  • Colorado fell from 35th to 49th in the nation in K-12 spending as a percentage of personal income.
  • College and university funding as a share of personal income declined from 35th in the nation to 48th.
  • Colorado fell to near the bottom of national rankings in providing children with full, on-time vaccinations.
  • The share of low-income children in the state who lacked health insurance doubled, making Colorado the worst in the nation by this measure

North Carolina has ALREADY experienced erosion in state support for public schools, higher education and early childhood programs in recent years and currently ranks near the bottom among states in many areas. The implementation of these constitutional amendments would all but guarantee a last place finish in every race, every year.

  • North Carolina already ranks 43rd in average pay for our teachers.
  • North Carolina had the largest decline among states in average teacher salaries from 2003-04 to 2013-14.
  • North Carolina ranks 41st in change in state spending per student at 4-yr public universities since 2008

TABOR would make sure that we are unable to boost investments in early childhood initiatives, public schools, and public colleges and universities at a time when doing so is important to North Carolina becoming a more competitive and attractive state.

Contrary to the saying that if you’re at the bottom the only way to go is up, if TABOR comes to North Carolina, the only fate for the Tar Heel State is a permanent place at the bottom in regards to our commitment to public education.

NC Budget and Tax Center

As North Carolina students embark upon a new school year, lots of media coverage has focused on waning state-level support for public schools. This waning support extends beyond public schools to both ends of the education pipeline – early childhood and higher education. Whereas North Carolina should be boosting investments in its entire education pipeline in order to become a more competitive and attractive state, we have taken a different path.

Early childhood programs, like NC Pre-K and the Child Care Subsidy Program, are crucial to promoting the healthy development of North Carolina children. Although child poverty has worsened since the Great Recession, state investments in early childhood programs remain woefully inadequate while waiting lists persist. Today, the NC Pre-K program serves approximately 8,000 fewer four-year olds compared to 2009 peak levels during the recession (see chart below).

Chart 1

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NC Budget and Tax Center

The new state labor market data will come out tomorrow.  Ahead of that and in light of the current discussion of unemployment insurance in the General Assembly, it seemed a good time to revisit the state of the labor market for jobless workers and the effectiveness of unemployment insurance in providing workers with the support they need while looking for work and in buttressing the economy.

Prosperity Watch this week looked at data available from the North Carolina Department of Commerce that shows at the county level the ratio of jobless workers to job openings. More than two-thirds of the state’s counties still have more jobless workers than job openings.  Even if all the job openings in those 83 counties were filled, there would still be workers looking for work.

Even while North Carolina has cut the number of weeks that workers can claim unemployment insurance, a lack of job openings means that a lot of people are spending prolonged periods out of work..  Despite the official recovery, one out of three jobless workers has been out of work for 26 weeks or more.  The long-term unemployed face a host of additional barriers to employment including discrimination in the application process, lapse in skills for the work place and mounting debt that may make transportation or housing difficult to sustain.

Unemployment insurance was designed to prevent just this kind of vicious cycle.  The system is meant to ensure that workers who lost their jobs through no fault of their own—like because of a business downturn—can meet their basic needs while they look for work and thus not withdraw completely from participating in economic life as consumers, renters or homeowners.  Today however, the system is not meeting that goal:

  • The state has a 15% recipiency rate, measuring the number of jobless workers who receive unemployment insurance, for the first quarter of 2015 which ranks us 47th in the country.
  • The state has an average weekly benefit amount of $231.30 which ranks us 47th in the country.
  • The average duration that a jobless worker receives unemployment insurance is 12.9 weeks which ranks us 45th in the country.

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NC Budget and Tax Center

After enacting huge, costly income tax cuts in recent years that largely benefited the state’s wealthiest people and biggest, most profitable corporations, pursuing more tax cuts would threaten North Carolina’s economy – and yet it appears state lawmakers are doing just that.

Questions remain about what will or won’t be in the budget the Legislature passes. What is known, though, is that the spending target agreed upon by the House and Senate is $230 million less than what the state is projected to take in over the year from tax revenue.

If that turns out to mean a tax-cut proposal, it will come in the face of strong evidence that such a strategy doesn’t deliver widespread economic benefits.  North Carolina is experiencing a very uneven economic recovery. Many people still can’t find jobs and many who are working are being paid less than what it takes to make ends meet. Tax cuts aren’t going to create the jobs North Carolina needs and they take resources away from what the state should invest in to promote real growth – quality public schools, affordable higher education, modern infrastructure, and safe and healthy communities, for example.

A continued pursuit of failed trickle-down economics policies would occur as investments in those public services and others are still below pre-recession levels and insufficient to meet growing needs.

State lawmakers are pursuing two paths to usher in more income tax cuts.

One path builds more tax cuts into the state budget. Budgets passed by both the House and the Senate lower the corporate income tax rate to 3 percent from 5 percent over the next two years. These tax cuts will result in more than $450 million less available to the state for public services over the next two years. As we’ve highlighted previously, cutting corporate income taxes won’t boost North Carolina’s economy; taxes are but a fraction of a business’s costs. Furthermore, the Senate’s budget changes how corporations apportion their income for state income tax purposes and reduces the corporate franchise tax rate. In total, tax changes included in the Senate’s budget would result in nearly $1 billion in less state revenue over the next two years.

The second path, Senate Bill 607, would amend the state constitution to arbitrarily cap the state income tax rate at 5 percent. This would reduce annual state revenue for public investments by around $1.5 billion. The result would mean more erosion of vital services and probably other tax increases – most likely the state sales tax. In combination with other proposed changes to the state constitution, this path would hamstring state lawmakers in the years ahead from meeting the priorities of North Carolinians by restricting the overall level of investment in our public schools, public colleges and universities, and other important areas.

These two paths that state lawmakers are pursuing are troublesome, particularly at a time when investing in North Carolina’s future is important to the state’s economic prospects. Consequently, the continued pursuit of trickle-down economics fails to promote broadly shared prosperity and prevents the entire state from moving forward together.

NC Budget and Tax Center

Amid major differences between the House and Senate respective budgets, public schools across the state wait to see what level of state support will be provided for public education. The final decision doesn’t just matter for the education of our children but the attractiveness of our communities and the long-term potential of our economy to grow together.

Funding may not solve every challenge in public education, but it certainly can make a difference in ensuring that a quality education for every child can be provided. As I’ve previously highlighted, smart allocation of public dollars can ensure that regardless of where they live in the state, every child receives a quality education, and in so doing an opportunity for them and in turn the economy to do well in the future.

Here are six trends that highlight the impact of state-level budget decisions on public education in North Carolina.

  1. Total state funding for public schools remains below pre-recession level

State funding for public schools has not yet reached its peak level for FY 2008 prior to the Great Recession. For FY 2015, total state funding for public education was $8.04 billion compared to $8.6 billion for FY 2008 when adjusted for inflation. This decline in state funding equates to $578 million in less funding for public schools.

Total Pub Ed Spending

Note: For this blog post, state funding for teacher pay increases are included in total spending for public education. BTC normally backs this particular funding out of the public education budget, as it has historically been included in the Reserves section of the state budget. Accordingly, figures in this blog post may differ from BTC’s other analyses of the state budget.

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