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Plans to finance both public education and transit at the local level would be stopped in their tracks under HB 1224 that passed the state Senate Finance Committee yesterday. The bill not only places a hard cap on the local sales tax rate at 2.5 percent but also only allows counties to levy a sales tax increase for either education or transit—not both.  This bill joins a slate of other bills that would restrict local control. The full Senate is scheduled to vote on the bill Monday night.

In effect, the bill restricts local governments’ authority to meet local needs and balance their budgets. Importantly, the bill is aimed at shifting the responsibility of funding public education away from the state and towards local governments. The state clearly cannot afford last year’s tax plan and now legislators are proposing budgets that would make serious cuts to public education as a result. Those cuts would have to be absorbed by children in the classroom or addressed at the local level, putting local governments in a tough spot having to choose whether or not to make up the difference via a local tax.

Local governments are dealing with the fallout from last year’s tax plan in other ways too. They no longer have access to the school Capital Building Fund, which received a portion of revenue generated from the state corporate income tax. Schools used this fund to help them meet their education obligations, as my colleague explained last month. The result is a $382 million dent over the next five years. This loss is on top of the looming $63 million-annual dent resulting from elimination of the local privilege tax in 2015. Read More

North Carolinians are being dealt a bad hand. The deep revenue losses resulting from the 2013 tax plan is creating a reality in which there are too few dollars available to meet the needs of children, families, and communities. Budget writers are facing a self-imposed budget crisis and finding it difficult to agree on just how large the cut to public schools and public health should be to meet its priorities and balance the budget. To be clear, budget writers agree that those core budget areas should be cut compared to the enacted 2015 fiscal year budget but have yet to agree on the size of the cut.

That’s the main reason why North Carolina is more than two weeks into the new fiscal year without a revised state budget.

For weeks budget negotiators in the House and Senate have been shuffling the deck, making proposed cuts in core areas of the budget and moving that money around in order to finance much-needed pay raises. This budget shuffle is further proof the state is facing a revenue problem. Read More

State budget writers are currently grappling with the task of ironing out a final budget in the face of last year’s huge tax cuts that are hampering our ability to invest in the building blocks of a strong economy. As we entered into the new fiscal year without a revised budget, the News and Observer Editorial Board called upon lawmakers to reconsider their revenue-losing, lopsided tax plan. Here’s more from their editorial that ran over the weekend:

As North Carolina lawmakers struggle to agree on the second year of the state budget, it’s becoming clear that last year’s decision to cut taxes came too early and went too far. The state compressed its three-level personal income tax rates of 6, 7 and 7.75 percent to a flat 5.8 percent and reduced the corporate tax rate from 6.5 to 6 percent.

Had the Republican-led General Assembly held off on these cuts, North Carolina would be enjoying a budget surplus now. There would be money to increase teacher pay without cutting education elsewhere. There would be money to invest in the University of North Carolina and in the state’s neglected roads, bridges and water systems. And there would be money for modest, well-targeted tax cuts.

Instead, the legislature’s Republican leaders and Republican Gov. Pat McCrory cut taxes in a way that is creating an artificial crisis. The state doesn’t have enough money to meet the needs of its growing population and can’t find a sustainable way to lift the public schools teachers’ pay that has sunk to 48th in the nation. In North Carolina, the rich are getting richer as the stock market hits all-time highs and corporations are profiting from a rising economy, but the state has forgone the tax boom that should have come with that recovery.

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Lawmakers should take another look at taxes and find a way to generate revenues that will meet the state’s needs and support its ambitions.

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North Carolina Senate and House budget writers met today in a rare public meeting to break the budget logjam and iron out a final budget deal for the 2015 fiscal year (FY)—which began yesterday. Because lawmakers approved a two-year budget last year as part of the biennial budgeting process, vital public services and programs are continuing but at modified levels per the Governor’s budget directive.

Leaving the budget for FY2015 in place is an option but it’s a bad option. Spending for Medicaid would be far below what’s needed under the already-approved budget due to enrollment and claims backlogs as well as the Medicaid rebase. The budget also fails to include other election-year priorities such as much-needed pay raises for state employees and teachers.

The Senate and House all put forward budget proposals that use wildly different estimates on items that should be fairly consistent across budget proposals. Before moving on to sub-committee negotiations where the full budget differences will be hashed out, budget writers’ goal for the meeting today was to seek harmony on a final budget estimate for three basic areas: 1) agency reversions; 2) the Medicaid shortfall and rebase; and 3) lottery revenues. Doing so allows budget writers to know how much money is available on the spending side. Lawmakers walked away with an agreement on estimates for agency reversions and Medicaid estimates but not on the lottery revenues. Read More

In a bizarre turn of events, the House Committee on Appropriations met today to review and vote on a new spending plan for the upcoming fiscal year. The bill passed in what appears to be along partisan lines, and it heads to the House floor tomorrow. For the most part, the new spending plan leaves in place the second year (FY2015) of the two-year budget that lawmakers already approved last year. The changes are mainly geared toward moving lottery dollars into the General Fund, boosting pay for teachers and state employees, and adjusting the education budget.

See the NC Budget and Tax Center’s statement on the budget here.

The day started with Governor McCrory and Speaker Tillis holding a joint press conference at 1pm to make an education announcement. It was revealed that House leadership planned to unveil a new spending plan that doesn’t rely on raising additional lottery dollars generated from increased advertising.  What wasn’t mentioned at the press conference is that the new plan relies on more lottery dollars to finance pay raises, those dollars just aren’t generated from relaxing the advertising rules. Those dollars just happen to be the result of revised lottery projections under current rules. In other words, the budget is still relying on a source of funding that is unstable and regressive. Read More