NC Budget and Tax Center

Earlier this week Senator Berger announced that he and his colleagues drafted an amendment that would meet the demands of Moral Monday protestors but couldn’t find any sponsors. That seems curious given that, barring two sections which have no basis in the Moral Monday agenda, the proposal is not only revenue neutral but provides for additional revenue to meet the state’s pressing needs that have been unaddressed since the start of the Great Recession.

In reviewing the amendment for the amendment’s alignment with the Moral Monday agenda and fiscal impact, it is clear that there is a fiscally responsible path forward for meeting the priorities of North Carolinians to ensure that the state’s most vulnerable citizens can access health insurance, our children can be ready and prepared to learn at school with quality childhood experiences, our workforce can be trained for the jobs of the future, working families can be supported as they struggle to get by on low-wages and the human rights and ability to access a fair justice system for all North Carolinians can be protected.

So here is a bit on what we found. Read More

Yesterday, the North Carolina house unveiled its $21.11 billion budget proposal for the 2015 fiscal year that begins in June 2014 and ends in July 2015. The proposal is moving through the committee process with the expectation of a final vote on the House floor by Friday. Surprisingly, there is a considerable difference in how the House leadership pays for its budget compared to the Senate’s and Governor’s paths. In particular, the House anticipates a smaller revenue shortfall for the current fiscal year and a far larger amount in agency reversions (which is money sent back to the state at the end of the year).

How the state raises the billions of dollars that fuel the state budget gets relatively little scrutiny compared to the rest of the budget during the budget process. Examining how lawmakers pay for the budget is more important than ever in light of last year’s tax plan that drains $438 million from the state’s coffers in the upcoming fiscal year. This is on top of the fact that lawmakers are facing a half-billion current year revenue shortfall and a projected revenue shortfall of $191 million for the next 2015 fiscal year—not to mention the fact that the shortfall could be as high as $600 million (see section at the end of this post). It is also on top of the Medicaid shortfall, which lacks agreement among the Governor, House, and Senate on its actual cost. Their estimates are far apart.

For the most part, the House pays for its budget proposal in the same way as the Governor and the Senate pay for their budgets. The similarities and differences are summarized below.  Read More

False claims abounded this morning in support of the House Finance Committee’s rejection of restoring the state Earned Income Tax Credit, which would have helped working families make ends meet and undone some of the damage from the tax plan adopted last year. The Earned Income Tax Credit is a proven tool to help working families make ends meet and move up the economic ladder. In North Carolina, nearly 1 million taxpayers received the state Earned Income Tax Credit.

Led by House Republicans, the committee defeated a restoration amendment, voting against a measure to support North Carolina’s lowest paid workers. Here is a look at the false claims tossed around today, followed by the reality.

  • Those opposed to restoring the state EITC said the tax credit isn’t necessary because the point of the EITC is to offset taxes paid at the federal level like FICA taxes. REALITY: the state EITC plays a powerful role in offsetting the impact of state and local sales tax. An EITC at the state level is the most effective, most sharply focused way to counteract the situation today where the lower your income is the higher percentage of it you pay in state and local taxes.
  • Those opposed to restoring the state EITC claimed that taxpayers have gotten a reduction in their sales tax. REALITY: the 2013 tax plan extended sales taxes to more goods and services, increasing the amount of sales tax paid by many consumers not the rate. The reference here is likely to the expiration of the temporary sales tax and high-income surcharge that was put in place to provide a more balanced approach to closing significant budget shortfalls brought on by the job loss of the Great Recession and revenue collapse. This was a temporary sales tax set to expire.
  • Those opposed to restoring the state EITC claim that it works against “empowering” people to work, earn money, and support their families. REALITY: the state EITC only goes to families and individuals who work. And it builds on the success of the federal credit at moving people into the workforce, especially single mothers who struggle to raise their children and hold down a job when affordable child care is out of reach. Here is how the respected Center on Budget and Policy Priorities particular research findings for the benefits to women and children: “Women who benefited from those EITC expansions also experienced higher wage growth in subsequent years than did otherwise similarly situated women.  And, by boosting the employment and earnings of working-age women, the EITC boosts the size of the Social Security retirement benefits they ultimately will receive.  In addition, the research shows that by boosting the employment of single mothers, the EITC reduces the number of female-headed households receiving cash welfare assistance.”
  • Those opposed to restoration of the state EITC claimed that they already did enough last year to help working families. REALITY: the 1 million working families who will lose the state EITC will see their taxes go up. The net impact of changing the standard deduction and increasing in the Child Tax Credit by $25 and making all the other tax changes is still an increase in taxes for some taxpayers. For example, a married couple with two kids earned around $23,400 in taxable income before paying income taxes under the old tax code. Under the new tax plan that family will begin to pay state income taxes once it earns around $19,400 in taxable income.

Finally, the state EITC restoration would have been paid for by reducing the size of the tax cut for large, profitable corporations from a rate reduction of 6 to 5 percent to a rate reduction of 6 to 5.6 percent.The amendment would put greater balance into distributing the benefits of the tax plan passed last year.

BOTTOM-LINE REALITY: Supporting low-income working families is more likely to strengthen the economy than providing large, profitable corporations with a tax cut that they aren’t likely to spend locally or use to expand their payroll in the state.

 

North Carolina’s economic development efforts took a turn for the worse last night, when the Senate passed a bill that privatizes the state’s business recruitment, retention, and development activities. A similar proposal will likely pass the House today, and while the lower chamber’s privatization plan is marginally better than the Senate’s scheme, both leave a lot to be desired in terms of ensuring more effective job creation and protecting taxpayer dollars.

Privatizing job creation efforts is hardly a new idea, although it’s proven to generate more scandals than results in the sixteen states that have experimented with this approach. According to the General Assembly’s own Fiscal Research Division, the kinds of economic development public private partnerships envisioned in the House and Senate bills haven’t proven themselves any more effective at boosting job creation in the states that adopted them than in those states that simply kept their job recruiting efforts inside agencies of state government.   At the same time, FRD and other researchers have found that these privatization schemes have been marked by financial mismanagement (Wisconsin), conflicts of interest and pay-to-play incentive-granting (Texas and Florida), and the inability to raise private funds, leaving taxpayers on the hook (Missouri).

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This is the 6th post of a Budget and Tax Center blog series on public services and programs that face cuts in the budget process or have been underfunded in past years. See the other posts here.

If the Senate budget passes this year, rural communities are going to be living through a nightmare. Despite promises by the McCrory administration to support economic development in rural North Carolina, the budget passed by the state Senate last week continues long-term disinvestment in the very initiatives that rural communities need in order to create jobs and grow their local economies.

For most of the past 30 years, the state’s primary actor in promoting economic development in the state’s 85 rural counties was the N.C. Rural Economic Development Center. Incorporated as a state-charted nonprofit in the late 1980s, the Rural Center used a mix of state funding and private fundraising to support a range of rural development work—everything from small town revitalization efforts and building rehabilitation grants, to small business lending and workforce training programs.

Over the past three years, however, the legislature has significantly reduced state investment in these important activities, undermining the state’s ability to promote job creation and economic revitalization in rural communities, many of which are still grappling with long-term decline in manufacturing. Even in the darkest period of the Great Recession in FY 2009, the state strongly supported these efforts by funding the Rural Center at $24 million. Unfortunately, the new legislative majority in 2011 significantly reduced support for rural development, cutting the Rural Center’s budget down to $16 million.

Then, in last year’s budget, the General Assembly eliminated all state funding for the Rural Center, instead opting to move some of these operations into a newly-created Division of Rural Economic Development in the N.C. Department of Commerce. As part of this move, the legislature reduced state funding for rural development even further, from $16 million in FY 2012-13 for the old Rural Center down to just $13.8 million in FY 2013-14 for the new Rural Development Division, of which $2.5 million was dedicated to a newly created Limited Resource Communities grant program intended to support economic development specifically in designated low-resource communities (e.g., the poorest 40 counties in the state). And the damage to rural development extends beyond the dollar reductions—the new division simply doesn’t carry out many of the specialized initiatives once conducted by the Rural Center: the state no longer supports small business lending in rural areas, targeted rural workforce development, or small town revitalization efforts.

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