NC Budget and Tax Center

Revenue is up but North Carolina still falls short

Revenue remains up in North Carolina. This isn’t surprising as the national and state economies are growing. Revenue collections are expected to be $237 million above projections for this fiscal year, which is welcome news. However, as previously highlighted, this better-than-anticipated revenue does not mean we have adequate revenue to meet the needs and priorities of a growing state.

Costly income tax cuts enacted in 2013 greatly reduced revenue for public investment – reducing annual revenue by around $1 billon. Last year, state lawmakers passed more tax cuts that, once all tax changes are fully in place, will reduce annual revenue by more than $2 billion. These are dollars that otherwise would be available for public schools, affordable higher education, healthcare services for the elderly and poor, and helping ensure that economic growth extends to rural and distressed communities across the state.

The projected $237 million in better-then-anticipated revenue falls far short of what’s needed to adequately address challenges we face as a state. Getting average pay for North Carolina teachers closer to the national average, reducing Pre-K waitlists that totaled more than 7,200 children last year, helping promote economic growth in rural and distressed communities, and improving the states foster care system are among challenges that require additional state funding support. Many other challenges exist – ensuring affordable higher education and a growing elderly population – that have implications on the economic health and overall quality of life for North Carolinians.

While better-than-anticipated revenue is welcome news, such news does not serve as validation of costly tax cuts passed in recent years. Nor does this news mean that North Carolina is positioned for broadly shared economic prosperity in the years ahead. Rather, concern about whether our state will truly be able to keep up with the needs in a growing state that seeks to remain competitive and an attractive place to live should continue.

NC Budget and Tax Center

There’s a reason providing teachers a meaningful raise is seen as unrealistic

State Superintendent of Public Instruction June Atkinson recently proposed a 10 percent pay increase for public school teachers. In response, NC House Speaker Moore stated that he doesn’t think that’s a realistic goal because North Carolina can’t afford the price tag. Speaker Moore says he believes we must pay our teachers more than we do, but that this should be done in a responsible way.

The requested pay increase comes as North Carolina ranks among the very bottom of states for average teacher pay. State funding for pay increases in recent years has largely targeted early-career teachers, leaving more experienced educators wondering if they will ever get a meaningful pay increase.

The reason providing teachers a 10 percent pay increase is deemed a hefty, unrealistic task by state leaders is clear – costly tax cuts ushered through by state leaders in recent years. Tax cuts included in the current two-year budget, once fully phased in, will reduce annual state revenue by more than $1 billion. When you include the cost of the tax cuts passed in 2013, the combined reduction in annual revenue increases to more than $2 billion. These are dollars that would otherwise be available under the old tax code in place prior to the tax changes. The tax cuts largely benefited the already well-off and profitable corporations and shifted the tax load to low- and middle-income families and individuals.

State leaders have proven their ability to push through their priorities in recent years and tax cuts have certainly been a major priority. The self-inflicted challenge that North Carolina faces – providing all teachers a meaningful raise – is a result of state leaders’ dogged pursuit of more and more tax cuts. This challenge is not happenstance, but rather a consequence of choices made by state lawmakers.

North Carolina’s ability to make public investments that are crucial to promoting widespread prosperity and that support a growing economy requires a tax system that raises adequate revenue to meet the growing needs of our state. Tax cuts passed in recent years will increasingly challenge our ability to strengthen the foundation that ensures opportunity for all North Carolinians – quality public schools, affordable higher education, and healthy and vibrant communities, for example.

What is not realistic is for state lawmakers to continue cutting taxes, which reduces revenue for public investments, and expect our state to be able to compete for good-paying jobs and remain an attractive state to raise a family and operate a business. All North Carolinians lose as we are taken down this dangerous path of cutting taxes at the expense of investing in our people and our future.

NC Budget and Tax Center

Revenue bump doesn’t mean NC has what’s needed to meet growing needs

News that revenue is up in North Carolina doesn’t mean that we have what is needed to meet our state’s growing needs. In fact, total state revenue for the second quarter of fiscal year 2016 was below the level of revenue raised for the same period prior to the end of the Great Recession, fiscal year 2008, when adjusted for inflation.

By contrast, a majority of states experienced state tax receipts (adjusted for inflation) that exceeded their respective peak levels before the end of the recession in the third quarter of 2015, based on BTC’s analysis of most recent state tax collections data provided by the U.S. Census Bureau.* North Carolina ranked 34th worst among states, with tax revenue below its peak quarter prior to the end of the recession. The recent revenue outlook report from the General Assembly’s Fiscal Research Division highlights that we still have not reached this peak revenue level.

News from state officials that as of December 2015 revenue was up over the year still does not signal that North Carolina is collecting revenue in line with our state’s growing needs.

State leaders’ insatiable appetite for tax cuts largely explains why state tax revenue for North Carolina has yet to return to its peak pre-recession level, despite an improving national economy. The huge, costly tax cuts passed since 2013 greatly reduced annual revenue that otherwise would have been raised under the old tax system. Once all tax changes are fully implemented, annual revenue loss will total more than $2 billion dollars.

The massive revenue loss from tax cuts challenges our ability to make investments in the foundation that help move our state forward. State leaders claim that providing all teachers a meaningful raise is unrealistic. State funding per student for public schools remains below its pre-recession spending level when adjusted for inflation. State funding for our public universities is 16 percent below pre-recession spending while tuition and mandatory fees increased by nearly 43 percent during this period. Tuition at community colleges has increased by 81 percent since 2009. More than 6,400 fewer state-funded slots are available for NC Pre-K than in 2009 despite more than 7,200 children being on NC Pre-K wait lists last year. State support to help promote economic development in rural and distressed communities across the state has been cut drastically in recent years. Inadequate state support to help unemployed and underemployed North Carolinians retool and retrain in order to secure better paying jobs to support their families persists. These are examples of foregone opportunities to invest in our people and our future. Read more

NC Budget and Tax Center

Costly tax cuts drain resources for investments in NC’s education pipeline

A report released today by Budget & Tax Center highlights that state support for early childhood development, public schools, and public colleges and universities remains below investment levels prior to the Great Recession. This trend will persist under the current budget passed by state lawmakers that North Carolinians must live through until July of 2017. The annual cost of tax cuts in 2015 balloons to over $1 billion each year within four years, and comes on top of costly tax cuts passed by state lawmakers in 2013.

Ensuring high-quality learning and education opportunities for all North Carolina children and students remains a challenge as the student population grows and best practices in the classroom evolve. The BTC report highlights areas of inadequate investment in North Carolina’s education pipeline.

  • State funding for NC Pre-K is 15 percent lower when adjusted for inflation than the 2009 budget year, when funding and the number of children served peaked. This year, more than 6,400 fewer state-funded slots are available in NC Pre-K than in 2009 despite more than 7,200 children being on NC Pre-K wait lists last year.
  • State support for the Smart Start program, which promotes school readiness for North Carolina children from birth to age five, is nearly 40 percent below 2009 when adjusted for inflation.
  • State funding per-pupil for public K-12 schools is nearly 9 percent below its 2008 pre-recession funding level when adjusted for inflation.
  • Compared to peak funding in the 2008 budget year, state support per student at four-year public universities this year is down nearly 16 percent while tuition have increased significantly during this time period.
  • Tuition at community colleges has increased by 81 percent since 2009.

The report highlights other areas of diminished and lagging support for public education – the decline in state funding for classroom textbooks, for example – and how state lawmakers shifted existing state dollars from one area to another to make state support for public education appear more generous than in reality.

Public investments in early childhood development, quality public schools, and affordable higher education are essential building blocks of long-term economic growth and shared prosperity. Yet amid an uneven and slow economic recovery, state policymakers chose to deliver greater benefits to the wealthiest few rather than boosting investments in its education pipeline to ensure access to opportunity for all North Carolina children and students, the report notes.