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NC Budget and Tax Center

The Governor’s budget irresponsibly jeopardizes North Carolina’s future economic prospects.

There are two main reasons: it uses one-time money that won’t be there in years to come, and it makes cuts in key areas that are the building blocks of a strong economy.

Self-inflicted revenue shortfalls resulting from the tax plan enacted last year mean fewer dollars to build a strong foundation for the state’s economy and improve the lives of all North Carolinians. The Governor’s use of one-time money and cuts to key areas, like higher education and health, are shortsighted and harmful to the state’s long-term stability and growth.

The Governor should put forward a responsible plan to pay for his priorities by stopping any further tax cuts from going into effect and urging legislators to re-examine the tax decisions made last year.  Next year’s financial gap has the potential to grow even larger as the costs of personal income tax changes are felt. State policymakers would do well to plan for that impact and its potential devastating effect on families and the state’s economy.

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Thom TillisNorth Carolina House Speaker Thom Tillis headlined a press event at the General Assembly this morning that was supposed to be about kicking off the 2014 legislative session but that, at times, felt a lot like a part of Tillis’ U.S. Senate campaign.

There will plenty of time for dissecting the details of what was said at the event, but there was at least one familiar conservative talking point repeated by Tillis that deserves to be debunked immediately and often.

Namely, it is utterly absurd for legislative conservatives (or anyone else for that matter) to argue — as the Speaker did at at least one point — that Democrats imposed more significant cuts on state services (like public education) back in 2009 and 2010 than have been imposed since the GOP assumed control of the General Assembly  in 2011 and the Governor’s mansion in 2013. This is like blaming FDR for the plunge in federal spending during the Great Depression.

Earth to Speaker Tillis: Yes there were large and problematic state budget cuts in 2009 and 2010, but that’s mostly because state revenues had literally dropped like an anvil as a result of the global Great Recession. Read More

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McC709The General Assembly kicks off the summer session at noon but the big story of the day comes an hour later when Governor Pat McCrory unveils his budget recommendations for next year.

It is worth remembering that McCrory only proposes the budget, the House and Senate actually approve it. And if last year is any indication, the final budget may not look much like the one released today.

Last March, McCrory sent lawmakers a spending plan that called for a one-percent across the board raise for teachers and state employees.  The final budget that lawmakers passed and that McCrory signed contained no raise for teachers or state workers.

McCrory’s budget called for $58 million in new funding for textbooks in schools to restore some of the cuts in textbook funding in the last two years. The final budget included no new funding for textbooks.

McCrory’s budget called for $9 million more for instructional supplies for schools. The final budget that passed the House and Senate instead cut another $6 million for classroom supplies.

And McCrory’s budget called for $3.3 million in funding for the highly successful drug treatment courts that the Republican General Assembly had defunded in the last two years. McCrory even singled out the drug courts in his State of the State speech. But the final budget passed by the General Assembly included no funding for the drug courts.

There are plenty more examples and then there is tax reform. McCrory also said in his State of the State speech that any tax reform must be revenue neutral, but the final tax plan approved last summer will cost $600 million a year when fully implemented and is a major reason why there is a budget hole this year and a shortfall projected for next year.

So take whatever you hear today and read in the headlines tomorrow about McCrory’s budget with a grain of salt. The leaders of the House and the Senate will make the major budget decisions again this year, not the Governor, no matter how assertive he promises to be.

NC Budget and Tax Center

State policymakers return to Raleigh tomorrow challenged with addressing a budget gap of $335 million for the current fiscal year as a result of a huge forecasted revenue shortfall for the current fiscal year and a Medicaid shortfall. Next year, state policymakers face a budget gap of around $228 million, which could reach as high as $637 million based on higher costs estimated from the personal income tax changes.

In the face of underperforming revenue, today the General Assembly’s Revenue Laws Committee voted favorably to pursue changing an arcane tax policy that would FURTHER reduce annual revenue by $10 million next year, FY 2015, and by more than $23 million for FY 2016.

In pursuit of ultimately shifting to a single sales factor apportionment formula, today the Revenue Laws Committee voted to give greater weight to the sales component in determining the amount of state income taxes paid by corporations. The state’s current tax system uses a formula that considers a corporation’s property, payroll, and sales in North Carolina. The tax change would give two-thirds weight to the sales component.

This tax change would create winners and losers. Around 3,000 corporations would see their taxes decrease under the tax change while around 6,000 corporations would see their taxes increase, according to analysis by the General Assembly’s Fiscal Research Division.

Proponents of this tax change claim that doing so will improve the state’s business climate by making expansion of property and payroll in the state more attractive to businesses. Other states that have adopted an SSF formula based on this premise have not seen this happen, however, and there is no reason to believe that North Carolina will experience a different outcome.

Furthermore, reducing the amount of revenue available for public investment will make the self-imposed budget challenge resulting from the tax plan passed last year worse. And everyone will pay the price because this will require further reductions to investments in educating our children, maintaining our infrastructure and protecting the safety and well-being of North Carolina families—investments that are needed to support a strong economy.

NC Budget and Tax Center

When state policymakers convene next week for the 2014 legislative session the budget debate will likely be at center stage. The most recent consensus revenue forecast signal that boosting investment in critical public services will not be an option unless state policymakers take a new direction.

Today, the Budget & Tax Center released a report that highlights opportunities for legislators to begin bolstering investments in various areas of the state budget that help create pathways to the middle class, strengthen communities across the state, and alleviate the economic struggles of North Carolina families. These opportunities include boosting investments in education, workforce development initiatives, safe and healthy communities, and environmental protection.

The BTC report also highlights the significant challenge that legislators face if they choose to seize this opportunity to change the state’s direction and boost investments in North Carolina’s future. The tax plan enacted by policymakers last year reduces the amount of revenue for public investments in the years ahead. When policymakers return to Raleigh next week, they will have to address a budget gap of $335 million as a result of a forecasted revenue shortfall for the current fiscal year and a Medicaid shortfall.

The budget challenge continues beyond this fiscal year. Next year, state policymakers look to face a budget gap of at least $228 million according to the consensus revenue estimate. This budget gap, however, could reach as high as $637 million based on cost estimates that identify higher costs for the personal income tax changes in last year’s tax plan.

The reality is that policymakers must revisit the tax plan in order to bolster schools, health care, and other things that help strengthen North Carolina’s economy. Under the inadequate tax system created last year, every year going forward, policymakers are likely to struggle to fund these needed supports to a strong economy.