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NC Budget and Tax Center

State lawmakers once again turned their back on hardworking North Carolinians who struggle to support themselves and their families with low wages.

Yesterday, just before the House Finance Committee was scheduled to debate an economic development bill, House Bill 89, the sponsor stripped out a provision that would have reinstated the state Earned Income Tax Credit (EITC), a tax break that helps thousands of North Carolinians who work at low-wage jobs. North Carolina’s EITC expired at the end of 2013 when state lawmakers failed to extend it, and this economic development bill would have been the perfect opportunity to bring it back.

The EITC is widely recognized as one of the most effective anti-poverty tools nationwide, especially for children. Nearly 907,000 North Carolinians claimed the state EITC for tax year 2012, benefiting nearly 1.2 million children and providing a $108 million economic boost to local communities across the state.

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The bill sponsor, Rep. Moore, informed House Finance Committee members that the state EITC provision was excluded from the revised bill in order to increase the chances of the bill gaining bipartisan support among state lawmakers. Read More

Commentary

Following sharp questioning of Commerce Secretary Skvarla in a Senate Finance Committee hearing Tuesday, it was readily apparent that the Senate would take a different tack on economic development than the House, which passed its own much-criticized package last month. In a surprise press conference yesterday afternoon announcing their own “jobs package” , however, Senate leaders made it abundantly clear that “different” didn’t mean “better” when it comes to growing an economy that benefits everyone in the state. While the bill does take a few positive steps forward on improving our state’s incentive programs, on balance, the bad outweighs the good and does not represent the most effective approach to economic development.

Most importantly, the proposal doubles down on tax cuts and company-specific tax incentives, instead of policies that benefit companies by adding economic value to communities. We’ve known for decades that North Carolina’s competitive edge in the global economy rests on providing companies with the skilled workforce and infrastructure they need boost to their productivity and ensure long-term profitability.

Unfortunately, the proposed changes to the Job Development Investment Grant (JDIG) program ignore these time-tested strategies for robust economic development in favor of budget-busting tax cuts and corporate incentives that have proved more expensive and less effective than advertised. In fact, 60 percent of JDIG projects have failed to live up to their promises of job creation or investment since the program began in 2002, and JDIG is out of money because the state spent more than half the available funds on a single project in Charlotte.

At a time when North Carolina needs to create at least 400,000 new jobs just to meet the needs of growing population, now is not the time to double down on ineffective economic development.

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Commentary

Budget and Tax Center economist Patrick McHugh is out with a powerful new report entitled “Growth Without Prosperity: Seven years After the Great Recession Started, Recovery Still Eludes North Carolina.” This is from the release that accompanied the report:

The worst of the Great Recession is behind us, but the damage lingers, weighing down communities and families across North Carolina. We are now seven years removed from the financial crisis of 2008, but in North Carolina wages are down, job creation is lagging, and many communities are still stuck in recession.

Given all of the positive headlines lately, it’s easy to get the impression that the recovery is in full swing. Last year was the best since the financial crisis, with North Carolina and the nation finally getting back to the number of jobs that existed before the recession. The unemployment rate has also been dropping since the bottom of the Great Recession in 2009. However, these positive trends do not tell the whole story, particularly in North Carolina.

There are still not enough jobs for everyone who wants to work in North Carolina, but that’s far from the only problem. Simply put, North Carolina’s economy is not working for everyone:

Growth without prosperity: Economic output has rebounded nicely since the worst days of the recession, but it is not translating into larger paychecks for many North Carolinians. Adjusting for inflation, gross state product—which measures the value of all goods and services sold—is up 18.5% compared to 2007, but wages are actually down slightly. Read More

NC Budget and Tax Center

Last week, Governor McCrory unveiled his two-year budget proposal for July 2015 through June 2017. He has since touted how his plan reinvests in the public services and programs that are essential for economic opportunity and quality of life. However, a close look at his 2016 fiscal year (FY2016) spending plan reveals that he fails to reinvest in a meaningful way in the critical public structures that benefit us all. Genuine progress will continue to be hampered until state lawmakers build a tax system that can adequately match the needs of a growing economy.

Governor McCrory’s proposed budget for FY2016 increases year-to-year spending by nearly $439.8 million, or 2 percent. This is in sharp contrast to past recoveries when state investments were far quicker to return to, and advance beyond, pre-recession levels. Enrollment growth in public schools, the UNC system, and the Medicaid/Health Choice programs is estimated to exceed the year-to-year increase in spending in the governor’s proposal, totaling nearly $442.6 million in FY2016. That means every new dollar increase, on net, is dedicated to funding enrollment growth (see chart below).

It also means that non-enrollment expansion items in the proposal are made possible by cutting or allowing spending to expire for other vital programs that are already stripped bare from previous underinvestment. That’s like rearranging the deck chairs on a sinking ship. Read More

NC Budget and Tax Center

Some legislators want to severely limit the resources the state can invest in schools and other needs and are considering arbitrary formulas to guide those decisions, even though we are already doing less with less. State investments as a share of the economy would be $3.2 billion higher if North Carolina caught up to 2008 levels. That means the Governor and legislative state budget writers have a lot of catching up to do to replace what was lost while also keeping up with the growing needs of a growing state. Tying our hands with artificial limits on how much we can invest is a road to ruin.

The goal of these arbitrary formulas is to radically restrict state spending and shrink the reach and effectiveness of critical public services, regardless of need or cost. One example is a formula that would limit year-to-year growth in total state spending to the rate of inflation plus population growth. Automatic spending limits—as well as caps on year-to-year revenue growth—are sold as common-sense measures, but in reality they are not a responsible way to measure the cost of providing basic government services. Instead, such limits merely ensure perpetually insufficient funding and never allow policymakers to replace the cuts enacted in the aftermath of downturns.

Case in point: inflation, as measured by the Consumer Price Index, doesn’t accurately reflect the cost of providing public services overtime. That’s because the CPI measures changes in the cost of goods and services that urban households purchase—not changes in the cost of public goods that benefit all of us. Read More