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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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NC Budget and Tax Center

As North Carolina continues to recover from the Great Recession, growing more good-paying jobs in the state will require a skilled and educated workforce. As BTC analyst Cedric Johnson writes in the latest issue of Prosperity Watch, an increasing number of jobs are expected to require some level of postsecondary training, and meeting this workforce demand means that a growing number of the state’s public school students must exit the state’s education pipeline prepared to compete in a 21st century economy. And nowhere is this more important than among North Carolina’s lowest income public school students, a growing population that typically needs additional instructional supports to finish high school and enter the workforce fully prepared. See the latest Prosperity Watch for details.