NC Budget and Tax Center

Deep in the weeds of the House budget is a provision that would authorize the state to issue just shy of $300 million in new debt to pay for five large projects. Each of these projects (listed below) has merit, but this proposal raises two important questions:

1) Why do we have to issue debt to pay for these projects?

2) What will we have to give up down the road when the bill comes due?

North Carolina shouldn’t have to borrow the funds for these projects. Don’t forget, the tax cuts passed in 2013 already cost the state nearly a billion dollars this year, much more than would be needed to cover the costs of these projects.

The 2013 plan will also slash corporate taxes even further over the next two years. If the scheduled corporate tax cuts go into effect, it will cost the state an additional $100 million next year and another $300 million the year after that. If we hold off on additional corporate tax cuts, North Carolina could pay for these projects outright.

Ultimately, this means throwing money out the door in interest payments to keep cutting taxes for wealthy individuals and corporations. The Fiscal Research Division estimates that interest payments on the new bonds will start at $22.7 million next year and then rise past $28 million in the subsequent years.

The interest payments alone would be enough to cut the waiting list for pre-K in half, or put 1300 teacher’s assistants back into North Carolina classrooms, or avoid raising tuition at Community Colleges (as is slated to happen in the House’s budget).

Overall, the House spending plan is moderate compared to budgets we’ve seen over the last few years. But, even while it’s taking a step in the right direction, the House still cannot get around the enormous hole that we started digging in 2013. That’s why, when we need to invest in North Carolina’s future, the House is reaching for the credit card instead of writing a check.

Projects to be funded with bond revenues:

  • Phase 1 of new Highway Patrol Training Academy ($30 million)
  • DHHS Medical Examiner Lab ($13 million)
  • NC State Engineering Building ($65 million)
  • UNC Charlotte Sciences Building ($90 million)

Appalachian State Health Sciences Building ($71 million)

NC Budget and Tax Center

Another round of tax cuts for corporations, extended tax breaks for selected industries, and considerable fee hikes for families and businesses are included in the tax and budget package that the House leadership unveiled yesterday afternoon. Because tax changes affect the level of state resources that are available for investment, lawmakers must decide on its tax priorities ahead of approving their budget bill for the upcoming 2015-17 biennium. The House Finance committee tweaked the tax changes last night and now the budget bill is moving through the committee process with the expectation of a final vote on the House floor by Friday.

How the state raises the money that supports public schools, health care, courts and other core supports to the economy and communities should get just as much scrutiny as the spending side of the budget debate—but this is rarely the case. Examining how lawmakers pay for the budget is important in light of the 2013 tax plan that continues to drain resources, which otherwise could have been used to build opportunity and replace the worst cuts enacted since the economic downturn.

The House leadership pays for its FY2016 budget proposal in the following way: Read More

NC Budget and Tax Center

Last week, state officials announced that revenues are estimated to come in $400 million above projections set by the state. This is good news for North Carolina, as we previously noted, but it’s important to remember that it is a relatively small boost that doesn’t come close to covering the cuts to services made since the recession and is likely one-time money driven by the improving national economy, not North Carolina’s tax code. These considerations are timely as the House plans to fast track its budget, with the goal to release and approve a proposal by the end of next week ahead of the holiday weekend.

Most importantly, this revenue announcement will not come close to addressing the challenges that state budget writers face. There remains a very deep level of underinvestment in schools, higher education, and communities, and lawmakers’ choice to pass cut taxes that primarily benefit the wealthy and profitable corporations in 2014 and again in 2015 means that there are far fewer dollars available to position the state competitively.

Here are a few things about the revised revenue estimates that state lawmakers should keep in mind as they work on the state budget:

  1. A surplus means we have more than we expected, not that we have more than we need.

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House lawmakers unveiled their 2015-17 biennial budget Thursday morning—and education proposals were longer on policy pitches than big figure changes, including measures that would affect student assessment & classroom staffing models as well as seven different pilot programs aimed at teacher preparation, workforce development and remediation, among other ideas.

The budget also did not include a much anticipated announcement on teacher pay — that’s to come at the beginning of next week.

Read on for a list of highlights.

K-12 House Budget

School vouchers: Provided the Supreme Court allows the Opportunity Scholarships program to proceed, which provides students with state funds to attend private schools, House lawmakers propose a $6.8 million increase for 2015-16—bringing the annual cost of program to $17.6 million

Disability vouchers: Students with disabilities would be able to use up to $8,000 state funds annually to attend private schools—that’s up from $6,000 annually in prior years. Families could also get tuition funds up front versus having to wait for reimbursement.

Teacher assistants: Lawmakers added $88.9 million compared to the base each year — but the move is just to backfill the loss in lottery receipts and other nonrecurring funds. So the takeaway is that there’s no real change here–funding levels remain the same as ’14-15.

Textbooks & digital resources: $50 million (for textbooks) compared to the base each year, with a cumulative increase during the biennium of $100 million. Textbook funding has been obliterated in recent years. Read More

NC Budget and Tax Center

Members of the Kansas Center for Economic Growth are visiting North Carolina this week to share what has happened in Kansas following massive tax cuts signed into law by Governor Brownback back in 2012. Kansas has become a case study of the grave consequences resulting from a dogged pursuit of tax cuts as an economic growth strategy. The results are not that good.

In 2012, Kansas enacted tax cuts that were considered among the largest ever enacted by any state. Tax cut proponents in other states – including North Carolina state lawmakers – held Kansas up as a model to be replicated. Accordingly, North Carolina state lawmakers followed Kansas’ path and passed huge income tax cuts in 2013 that largely benefited the wealthy and profitable corporations and significantly reduced available revenue for public investments.

For Kansas, the reality in the wake of the costly tax cuts has been nothing to write home about. Here are some low-lights of Kansas’ experience, accordingly to the Center on Budget and Policy Priorities.

  • Deep income tax cuts caused large revenue losses. Kansas’ tax cuts last year cost the state more than 10 percent of the revenue it uses to fund schools, health care, and other public services, a hit comparable to a mid-sized recession. The revenue loss is expected to rise to 16 percent in five years if the tax cuts are not reversed.
  • The tax cuts delivered lopsided benefits to the wealthy. Kansas’ tax cuts didn’t benefit everyone. Most of the benefits went to high-income households and taxes were even raised for low-income families to offset a portion of the revenue loss.
  • Kansas’ tax cuts haven’t boosted its economy. Since the tax cuts took effect at the beginning of 2013, Kansas has added jobs at a pace modestly slower than the country as a whole. Furthermore, the earnings and incomes of Kansans have performed slightly worse than the U.S. as a whole as well while the number of registered business grew more slowly in 2013 than in 2012.

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