NC Budget and Tax Center

As North Carolina students embark upon a new school year, lots of media coverage has focused on waning state-level support for public schools. This waning support extends beyond public schools to both ends of the education pipeline – early childhood and higher education. Whereas North Carolina should be boosting investments in its entire education pipeline in order to become a more competitive and attractive state, we have taken a different path.

Early childhood programs, like NC Pre-K and the Child Care Subsidy Program, are crucial to promoting the healthy development of North Carolina children. Although child poverty has worsened since the Great Recession, state investments in early childhood programs remain woefully inadequate while waiting lists persist. Today, the NC Pre-K program serves approximately 8,000 fewer four-year olds compared to 2009 peak levels during the recession (see chart below).

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NC Budget and Tax Center

After enacting huge, costly income tax cuts in recent years that largely benefited the state’s wealthiest people and biggest, most profitable corporations, pursuing more tax cuts would threaten North Carolina’s economy – and yet it appears state lawmakers are doing just that.

Questions remain about what will or won’t be in the budget the Legislature passes. What is known, though, is that the spending target agreed upon by the House and Senate is $230 million less than what the state is projected to take in over the year from tax revenue.

If that turns out to mean a tax-cut proposal, it will come in the face of strong evidence that such a strategy doesn’t deliver widespread economic benefits.  North Carolina is experiencing a very uneven economic recovery. Many people still can’t find jobs and many who are working are being paid less than what it takes to make ends meet. Tax cuts aren’t going to create the jobs North Carolina needs and they take resources away from what the state should invest in to promote real growth – quality public schools, affordable higher education, modern infrastructure, and safe and healthy communities, for example.

A continued pursuit of failed trickle-down economics policies would occur as investments in those public services and others are still below pre-recession levels and insufficient to meet growing needs.

State lawmakers are pursuing two paths to usher in more income tax cuts.

One path builds more tax cuts into the state budget. Budgets passed by both the House and the Senate lower the corporate income tax rate to 3 percent from 5 percent over the next two years. These tax cuts will result in more than $450 million less available to the state for public services over the next two years. As we’ve highlighted previously, cutting corporate income taxes won’t boost North Carolina’s economy; taxes are but a fraction of a business’s costs. Furthermore, the Senate’s budget changes how corporations apportion their income for state income tax purposes and reduces the corporate franchise tax rate. In total, tax changes included in the Senate’s budget would result in nearly $1 billion in less state revenue over the next two years.

The second path, Senate Bill 607, would amend the state constitution to arbitrarily cap the state income tax rate at 5 percent. This would reduce annual state revenue for public investments by around $1.5 billion. The result would mean more erosion of vital services and probably other tax increases – most likely the state sales tax. In combination with other proposed changes to the state constitution, this path would hamstring state lawmakers in the years ahead from meeting the priorities of North Carolinians by restricting the overall level of investment in our public schools, public colleges and universities, and other important areas.

These two paths that state lawmakers are pursuing are troublesome, particularly at a time when investing in North Carolina’s future is important to the state’s economic prospects. Consequently, the continued pursuit of trickle-down economics fails to promote broadly shared prosperity and prevents the entire state from moving forward together.

State Rep. Nelson Dollar

State Rep. Nelson Dollar

If you had any doubts about the kind of long-term damage to state government that would be wrought by the ALEC-inspired “Taxpayer Bill of Rights” constitutional amendment (aka “TABOR”) recently endorsed by the North Carolina Senate, take a look at yesterday’s new budget agreement between legislative leaders and the Governor.

As Colin Campbell of Raleigh’s News & Observer reported this morning, the new agreement would provide for growth in state spending of about 3.1% over last year — 0.4% more than the 2.7% that the story reports would have been possible (i.e. the rate of inflation plus population growth) were a TABOR amendment in place.

But here’s the rub: Even with a hike that’s above the TABOR threshold, the new budget will not be able to deliver even the modest and still inadequate pay increases and service improvements that were contained in the House’s version of the budget. This is from Campbell’s article

“While the House called for all state workers to get a 2 percent raise, House senior budget writer Nelson Dollar said that’s now unlikely with less money to spend.

‘It’s $420 million less, so obviously what the House was looking at in terms of raises and in terms of investing in education will not happen,’ said Dollar, a Cary Republican.”

A TABOR constrained budget would, obviously, be even more inadequate.

The obvious and incredibly sobering bottom line therefore: If North Carolina puts TABOR into the constitution,we are all but guaranteed that teachers and other state employees will never get another decent raise again unless the state literally does away with some major function of government to free up the necessary funds.

No wonder Colorado legalized pot. People need something to ease the pain of being the only Americans forced to live under such a disastrous amendment.

NC Budget and Tax Center

Amid major differences between the House and Senate respective budgets, public schools across the state wait to see what level of state support will be provided for public education. The final decision doesn’t just matter for the education of our children but the attractiveness of our communities and the long-term potential of our economy to grow together.

Funding may not solve every challenge in public education, but it certainly can make a difference in ensuring that a quality education for every child can be provided. As I’ve previously highlighted, smart allocation of public dollars can ensure that regardless of where they live in the state, every child receives a quality education, and in so doing an opportunity for them and in turn the economy to do well in the future.

Here are six trends that highlight the impact of state-level budget decisions on public education in North Carolina.

  1. Total state funding for public schools remains below pre-recession level

State funding for public schools has not yet reached its peak level for FY 2008 prior to the Great Recession. For FY 2015, total state funding for public education was $8.04 billion compared to $8.6 billion for FY 2008 when adjusted for inflation. This decline in state funding equates to $578 million in less funding for public schools.

Total Pub Ed Spending

Note: For this blog post, state funding for teacher pay increases are included in total spending for public education. BTC normally backs this particular funding out of the public education budget, as it has historically been included in the Reserves section of the state budget. Accordingly, figures in this blog post may differ from BTC’s other analyses of the state budget.

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“I feel like our kids are being held hostage by the General Assembly’s lack of a budget.”

That’s the word from Yancey County Schools’ superintendent Tony Tipton, who says that lawmakers’ failure to reach a deal on a two year state budget means students haven’t been able to learn how to drive over the summer.

From the Asheville Citizen-Times:

The other big wild card in school funding this year is whether the state will continue paying for driver’s education classes. The Senate budget would eliminate funding and the House would continue it.

That has left many WNC school officials reluctant to continue their driver’s ed programs past the end of the 2014-15 fiscal year June 30 for fear that they would have to pay all of the cost with local funds.

Some systems stopped classroom instruction but allowed students who had completed classwork to get in their time behind the wheel. Others just halted their programs altogether, said Lee Roy Ledford, head of a private company that employs 60 people providing driver’s ed instruction in nine WNC school systems.

“Probably half of our faculty or staff is sitting idle right now,” he said.

“I get calls every day from parents: ‘What about my kids’ driving?’ ” Tipton said. “I feel like our kids are being held hostage by the General Assembly’s lack of a budget.”

Both Jackson and Buncombe schools said they are looking at the prospect of charging $300 per student for driver’s ed if the Senate position prevails.

Teacher assistants are taking tough hits as well in Western NC.

The General Assembly has steadily cut funding for teacher assistants in recent years. Jackson schools at first were able to use local money to keep from laying off assistants, but eventually Murray said he decided, “That is a bleeding wound that I can’t keep let happen,” and had to make adjustments.

Assistants now don’t work when school is not in session. Many also work in school lunchrooms or drive buses to piece together enough hours to be full-time employees.

More than 60 percent of school funding in North Carolina comes from the state. WNC school officials say local sources of funds have already been stretched to fill in for previous state funding shortfalls.

Scared off by the prospect of potentially losing their jobs each year, many TAs have left their jobs voluntarily in Yancey County.

Keeping assistants has already become more difficult than it should be because the General Assembly seems to argue every year over how many to pay for, Tipton said.

“Over the last six years, some of ours have left and said it’s just too disheartening” to wonder each summer whether they will have a job when school begins, he said.

Read the full story on the effects of the NCGA’s budget stalemate here.