2017 Fiscal Year State Budget, NC Budget and Tax Center

North Carolina does not have a $1.2 billion revenue surplus

North Carolina continues to struggle with too few dollars coming in to serve a growing state that needs good, quality schools, healthy environments, safe neighborhoods and supports for workforce training and economic development. In the final days as policymakers negotiate the differences in their original proposals to arrive at a final budget, relying on bad numbers to try and meet these real needs in an unsustainable manner would be a mistake.

One number that talking heads and others have suggested shows the strength of our current tax code (and to some could be used to meet unmet needs) is the $1.2 billion in excess dollars over appropriated expenditures noted in the May 2016 current monthly financial report from the state Controller. This number does not mean that revenue collections for the current fiscal year came in $1.2 billion over state officials’ initial projections. The consensus revenue estimates have that figure at about $330 million.

What that $1.2 billion figure reflects is revenue over-collections plus unspent revenue from the prior fiscal year in the current year budget and reverting state funds that were appropriated to state agencies back to the General Fund – all of which has resulted in not spending available revenue for the current fiscal year despite ongoing needs in many areas of the budget and communities across the state.

Not only are the majority of these dollars not sustainable sources to meet unmet and important recurring needs, they aren’t all that different from figures we’ve experienced in the past following a downturn. Before the Great Recession, when North Carolina was still in fiscal recovery from the 2001 recession, such excess revenue over appropriations was over $900 million when adjusted for inflation (see chart).

 

NC does not have a $1.2 billion revenue surplus (updated)

The reality is that these dollars fall far short of what is needed to ensure that all North Carolina communities can thrive. Given the potential one-time nature of these dollars, they shouldn’t be used to provide all teachers and state employees a raise, provide retirees with cost of living adjustments and ensure healthcare services for the elderly and poor.

Instead, North Carolina needs to re-examine the income tax cuts that lawmakers have already passed and make sure that further flexibility is available to make sure communities can thrive and aren’t hampered by unnecessary and arbitrarily low tax caps in the state Constitution. The $1.5 billion that already has been foregone with the low income tax rates could have been used to get teacher pay to the national average, reduce waitlists for early childhood programs, make a college education more affordable and help ensure safe and healthy communities.

No, North Carolina does not have a $1.2 billion revenue surplus. And no, this excess revenue does not mean we have enough resources to ensure that all communities can thrive. It is time to realize that the math won’t work under a tax-cutting regime when we aspire to grow and thrive.

NC Budget and Tax Center

Legislation disguises tax giveaway to wealthy investors as aid for struggling communities

Money Exchange

Special interests often use the dog days of the legislative session to see if one of their old hounds can still hunt. As has become an almost yearly ritual, out of state companies appear once again to be trying to secure a huge tax give-away for their clients.

Under the guise of supposedly helping low-income communities, language inserted into HB 994 last week in the House Finance Committee would open a new tax loophole for wealthy investors and insurance companies. The provision would establish a state tax credit that would layer on top of the Federal New Markets Tax Credit. As drafted, there’s no guarantee that we would attract any projects that were not going to happen anyway while potentially costing the state millions of dollars over the next five years.

Created in 2000, the Federal New Markets Tax Credit incents investment in low-income communities by giving investors a tax discount based on how much they invest. Investment funds are channeled through banks or non-profit organizations certified as Community Development Entities (CDEs) that provide loans or equity investments in companies that operate within designated low-income communities. Tax credits generated under the federal program are then passed from CDEs to the companies or individuals who provided the investment capital.

The proposed North Carolina program would create an additional tax credit that investors can use to reduce their payment of state taxes. While the federal program has successfully spurred development in under-served communities and the goal of a state New Markets Tax Credit may be a worthy one, the current state proposal has some major flaws that make it more boondoggle than a boon.

Creates a special tax loophole for profitable insurance companies.

The current proposal creates a tax loophole that can only be used by profitable insurance companies. The bill would only allow credits to be taken against the state premium tax, a backdoor way of ensuring that most North Carolinians could not participate in the program and privileging certain business models. Only insurance companies pay the premium tax, so the bill effectively makes the provision unusable for the vast majority of potential investors in the state.

Pushed by out-of-state special interests.

There is no groundswell of support for this proposal from companies and investors that actually reside in North Carolina. Instead, the bill’s supporters are essentially out-of-state companies that specialize in NMTC investments. When the House Finance Committee discussed the proposal last week, the only company to speak in favor was Advantage Capital, a firm headquartered in St Louis which boasts of helping to distribute “$1.5 billion in state tax credits over its 20 year history.” You read that right, this proposal is avidly supported by a company whose business model relies on helping rich companies and individuals avoid paying state taxes. If this proposal was carefully designed to actually benefit struggling North Carolina communities, lots of instate companies and organizations would be lining up to support it.  But that’s not what’s happening.

Broad agreement on the dangers of this proposal.

Concern over state New Markets Tax Credit proposals knows no partisan or ideological boundary. Many of the problems identified here were also highlighted last week in a column by Becky Gray of the John Locke Foundation. Read more

NC Budget and Tax Center

North Carolina’s unemployment insurance system is the envy of no one

Last week the Center for American Progress and National Employment Law Project released a review of unemployment insurance as a federal and state partnership and the choices in recent years that have made it less effective at reaching jobless workers.

North Carolina policymakers, of course, aggressively pursued the worst changes in unemployment insurance. The result is a system that ranks among the least effective at providing temporary wage replacement for jobless workers while they search for work and delivering a stabilizing force in local communities and the economy overall.

The challenges they outline in the report face North Carolina acutely:  too few unemployed workers have access to tools for successful re-employment, first employment and/ or training; American workers are more vulnerable than ever to involuntary unemployment, yet fewer are protected by unemployment insurance; and finally, the unemployment insurance system is unprepared for the next recession.

The report authors provide a set of policy recommendations that would address these challenges and go a long way to not just protecting workers and communities from the shock of unemployment but would actually prepare for jobs loss by investing in the re-employment, training and other measures that retain jobs and support smoother transitions to new ones.  Here are some their recommendations: Read more

NC Budget and Tax Center

Summer months mean going without healthy foods for many NC kids, study finds

Making sure that kids in low-income households have access to nutritious foods over the summer helps improve their overall health, the U.S. Department of Agriculture (USDA) found in a recently completed five-year study.

For hundreds of thousands of children in low-income households across the state, the summer months often mean fewer healthy food options because of the loss of access to school breakfast and lunch programs. These kids are coming from the estimated 16.7 percent of North Carolina households that face challenges putting food on the table.

The USDA conducted a five-year pilot study of how to reduce food insecurity through additional measures and improve health outcomes for these kids. They found that an extra $60 each month on families’ Electronic Benefit Transfer cards during the summer increased children’s fruit and vegetable consumption and improved nutrition outcomes.

The research also identified three main reasons why not all eligible children participate in summer nutrition programs that are available when school is not in session.  These reasons include:

  • Lack of Transportation
  • Limited operating hours
  • Lack of publicity

Year-round commitments are clearly needed to address poverty and spark community dialogue to help ensure all who need it have access to the necessary food to be healthy and well.

 Click here to find summer meal site near you.

NC Budget and Tax Center

House lawmakers approve stricter penalties for SNAP recipients

A new rule also requires DHHS to investigate modest lottery winnings

Last week, House lawmakers undercut SNAP, the Supplemental Nutrition Assistance Program, which is the nation’s most important anti-hunger program and plays a critical role in ensuring that North Carolinians have enough to eat. They made it more difficult for those who receive SNAP to access this critical nutritional support by increasing disqualification periods to the maximum level allowed under federal law. The bill also requires the Department of Health and Human Services to investigate unreported lottery winnings in excess of $2,250 among SNAP recipients.

The approval comes just two weeks before some of North Carolina’s poorest adults, who are already living on the edge, stand to lose food assistance as the SNAP time limit returns to the state’s most-economically struggling counties. The time limit kicked in earlier this year for the 23 counties with healthier economies.

The bill that the House approved has three major sections:

1. The bill includes a work penalty provision. Under this bill, SNAP recipients that are not in compliance with work requirements would be disqualified from benefits for three months for the first issue of noncompliance, six months for the second instance, and permanently for three instances. Examples of work requirements include registering for work, participating in an employment and training program, and not voluntarily quitting a job or reducing hours to below 30 hours per week without good cause. Some people are exempted, such as children, older adults, and people unfit for work.

The reality is that 4 out of 5 SNAP participants are working or not expected to work. Nearly half of the folks on SNAP are children who—like older adults and people with a disability—are not expected to work. And work rates are high among SNAP households that can work. Rep. Bert Jones, the bill sponsor, amended the bill to only subject the head of household to the disqualification period to ensure that children are not penalized for the challenges that their parents’ face in finding work or staying on the job.

2. The bill requires the State Lottery Commission to report cash lottery winnings of $2,250 or more to the Department of Health and Human Services, who then must crosscheck that information with SNAP recipients on a monthly basis. If the department discovers that there has been a case of unreported winnings, staff would investigate the SNAP household to determine fraudulent misrepresentation, which can carry a criminal charge.

Proponents of the bill cited fraud as a motivator of this provision despite data that shows error rates are at a near modern low.  Any amount of fraud is unacceptable. The lottery provision in this bill is in line with curbing fraud, and it is in line with federal law. However, it is worth nothing that less than 1 percent of SNAP benefits go to households that are ineligible, according to the Center on Budget and Policy Priorities.  That means that 99 percent of SNAP benefits go to households whom SNAP is designed to help put food on the table. The lottery cases are overblown in the media.

3. The bill authorizes a legislative study to review a federal option called categorical eligibility, which allows some North Carolina families with modest assets and low incomes—but high expenses such as child care, rent, and utilities—to be eligible for federally-funded food benefits. This policy makes sense because it enhances efficiency, saves North Carolina money, and helps at least 22,000 low-income people become eligible for food aid. Eliminating categorical eligibility, as the original bill would have done, is a substantial policy change that requires significant study. As such, the bill sponsor was wise to convert this provision into a study.

Let’s hope that the study committee reviews the compelling body of evidence demonstrating the harsh impact such a change would have on families, the operations of social service offices, and the broader local economy.

In general, the bill continues a shift in state policy designed to eliminate and/or limit public assistance and eligibility to the minimum level that is allowed. Lawmakers axed a modest but vital working family tax credit, drastically cut jobless benefits, required drug testing for some recipients of cash assistance, banned state waivers from the harsh SNAP time limit, and now again have their sights set on scaling back food assistance.

It is important for lawmakers to pivot and focus just as much attention as they have had on dismantling the safety net to growing jobs, ensuring that adults have access to jobs that pay enough to afford the basics, and investing state money into job training programs that can help these jobless workers regain their footing on the economic ladder.