NC Budget and Tax Center

The North Carolina House just passed HB 943, which would put a $2.86 billion bond referendum before the voters this fall. This move is based on a growing consensus that investing in our schools, roads, state facilities, parks, and local infrastructure is an economic must.

Issuing new debt should be pared with a few pragmatic fiscal steps. First, we should not cut taxes again, which would undermine the flexibility we will need to repay the debt. Second, we should use regular appropriations to pay for most repairs, and keep the bond finances for transformative projects that move North Carolina’s economy forward.

If we are going to issue more debt, we cannot afford another round of tax cuts. If we borrow to improve the state’s infrastructure, the state will need strong future revenue growth to repay borrowers; more tax cuts or limits on revenue growth are bad fiscal policy. Moreover, reducing taxes even further could jeopardize North Carolina’s AAA rating, and force us to pay higher interest rates. The bond rating agencies are very sensitive to states’ long-term fiscal stability and states with lower credit scores have to pay higher interest rates. Other states that have cut taxes even more dramatically than North Carolina (e.g. Kansas) have been downgraded by the credit rating agencies, not an example that we should follow if we are about to purchase new debt.

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As the ongoing budget stalemate continues in the General Assembly, the Senate offered up this morning its latest version of the “NC Competes” bill, the mis-named economic development package that will likely do very little to make North Carolina genuinely competitive for private investment and job creation in the global economy. Like previous renditions of the package, today’s proposal just doubles down on tax cuts and corporate subsidy programs that have proven time and again to be ineffective at meaningfully growing our state’s economy. But it largely goes from bad to worse in terms of the state’s discretionary incentive programs.

In general, economic development incentives are not the most effective tool to promote meaningful job creation or widely shared economic prosperity. They tend to influence only a small number of firm location decisions and frequently end up going to the urban, wealthier areas that need incentive dollars the least in order to attract investment. And in North Carolina, the Job Development Investment Grant program—the state’s flagship incentive program—has failed to live up to its promises of job creation and investment in 60 percent of its projects.

The truth is that incentives just don’t play a major role in making our state competitive for business investment. While JDIG may play a role in luring a small number of businesses to the state, the program only accounts for a vanishingly small amount of the total number of businesses, jobs, and investment that come to North Carolina. Since the end of the recession, 95% of the jobs created, 92% of the growth in the number of businesses in the state, and 99% of the state’s GDP growth have occurred *without* investment from JDIG.

So it’s unfortunate that the Senate doubles down on this ineffective approach. Here are few of the most problematic provisions:

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NC Budget and Tax Center

Revenues that fuel the state budget are growing so slowly that they are not even keeping pace with population-plus-inflation growth, according to Barry Boardman who is the chief economist for the state legislature’s non-partisan Fiscal Research Division. Weak economic growth and tax cuts are keeping state revenues low, Boardman explained during a presentation that he gave to lawmakers earlier this week.

More tax cuts are looming too—a move that will sustain the damaging trend of slow revenue growth that makes it harder to meet basic needs and build a stronger economy. The House and Senate leadership put forward budgets that included additional tax cuts totaling approximately $652 million and $950 million, respectively, over the next two years.

The presentation shows that during the immediate years before the Great Recession, state revenues were growing faster than the inflation-plus-population benchmark. At that time, the state tax code was better suited and comprised of a progressive income tax based on ability to pay. The trend reversed after the 2008 fiscal year, with the population-plus-inflation growth rate outpacing revenue growth. The economic downturn caused revenues to plummet. And before revenues were able to fully recover back to pre-recession levels, lawmakers cut taxes deeply as part of the 2013 tax plan.

Revenues are not expected to outpace population-plus-inflation growth in either of the next two years; they are expected to remain below the long-run historical average. Read More

NC Budget and Tax Center

North Carolina is losing ground on key economic indicators such as child poverty and family economic security. A new report from NC Child  paints a bleak picture of how children are suffering from the fallout of an economy that is downright broken for many North Carolina families, as well as state lawmakers’ recent policy decisions. Genuine progress is within the state’s reach if lawmakers make smart investments and enact better policy choices.

More than a half of a million children belong to families that are living in poverty and struggling to pay the bills, even though the state just entered into the sixth year of the official economic recovery. In fact, child poverty is higher now than it was when the recession hit: 1 in 4 children currently live in poverty compared to 1 in 5 children in 2008. And, poverty has the fiercest grip on children of color and children under age five here and across the United States.

Previous research shows that three-quarters of these children have at least one parent that works, but low wages and unstable employment keep families in the economic struggle. This economic reality is further confirmed in the NC Child report, which finds that nearly 1 in 3 children live in families that lack secure employment, an increase since the recession hit. Read More

NC Budget and Tax Center

Contributed by MDC

What’s one thing that all places in North Carolina have in common? From our booming metros to our small towns, from Roanoke Rapids to Cullowhee, income mobility for low-income young people in this state, and in the South in general, is far worse than in other U.S. regions. It’s surprising to learn that even in our most economically dynamic places like Charlotte and the Triangle, people who grow up in families at the low end of the income distribution are likely to stay there as adults, and only small numbers make it to the middle or top. According to data from the Equality of Opportunity Project, for young people born in the bottom quintile of the income distribution in the Triangle, 37 percent will stay there as adults, another 29 percent will only move up one quintile, and a mere 5 percent will make it to the highest quintile.

Over the past two decades, Durham has moved from a low-skilled, tobacco-reliant community to become the “City of Medicine” and a Southern center of culture and creativity. Its dynamic, knowledge-based economy is a magnet for the health, pharmaceutical, biotechnology, and IT industries. Its universities and Research Triangle Park, both created and sustained through a history of public and private investment, are rich in employers and in the middle-skill jobs that pay living wages for new recruits, boasting an employment rate projected to outstrip the state and the U.S. by 2021. Yet, despite this thriving market, too few youth and young adults who grow up in Durham, particularly youth of color, are getting these good jobs, and too few have the academic and workplace skills to compete with more qualified candidates from other cities and states. Many struggle to find their way through a fragmented collection of institutions and organizations that are working to support young people but are not always well-resourced or working together. Much of this reflects Durham’s history as a tobacco and textile manufacturing center, where employment was not conditioned on education or credentialing, along with a legacy of race-based inequity in educational investment and expectations.

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