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Falling Behind in NC, NC Budget and Tax Center

This is the 4th post of a Budget and Tax Center blog series on public services and programs that face cuts in the budget process or have been underfunded in past years. See the other posts here and here and here.

Chances are schools across North Carolina will continue to rely on outdated textbooks and limited resources for classroom supplies for the upcoming school year. The Senate budget approved last week fails to provide additional funding for these two classroom areas in the wake of dramatic state funding cuts to both textbooks and classroom instructional supplies in recent years.

Since the 2009-10 fiscal year, state funding for textbooks has been cut by 81 percent, down from $119 million when adjusted for inflation to around $23 million for the current school year. As for classroom materials and instructional supplies, state funding has been cut by nearly 47 percent since FY 2009-10, down from $90.7 million when adjusted for inflation to around $50 million for the current school year. Local schools systems have been challenged with replacing these state funding cuts with other funding sources or continuing the trend of doing more with fewer resources.

K-12 ed_Textbook & Classroom Supplies
Inadequate state funding for textbooks means the continued use of outdated textbooks, and in some cases schools have resorted to making photocopies from textbooks to ensure that students have learning materials. Diminished funding for classroom instructional materials has meant teachers having to reach into their pockets to buy supplies for classroom instruction.

The decision to not restore funding for textbooks and classroom material and supplies in the Senate budget comes on the heels of policymakers passing a tax plan last year that significantly reduces annual revenue for public investments now and in the years ahead. Policymakers now face huge revenue shortfalls for the current budget as well as for the upcoming 2014-15 fiscal year budget, which are driven by the tax plan passed last year. This foregone revenue could have help boost investments in our public schools.

As House budget writers work to put together their proposed budget, restoring funding for textbooks and classroom supplies would represent a positive step in promoting a quality education for all North Carolina students. Revenue options are available to responsibly demonstrate this commitment. Policymakers should stop the additional income tax cuts slated to go into effect January 2015. Doing so would allow for greater investments in the state’s future workforce, and in turn, the Tar Heel state as a whole.

NC Budget and Tax Center

Yesterday evening, members of the Senate Finance Committee gathered to consider a modified version of House Bill 1050 (HB 1050) which includes repealing the local privilege tax. A repeated claim by proponents of the tax repeal is that additional revenue from the local sales tax – resulting from the tax plan passed last year – will make up for the revenue lost from repealing the local privilege tax.

A closer look at a fiscal note provided by the General Assembly’s Fiscal Research Division, however, highlights that the math simply doesn’t add up to support this claim.

Fiscal Research estimates that a full repeal of the local privilege would result in nearly $63 million in less revenue for cities and counties across the state. Revenue from an expanded local sales tax is projected to bring in an about $10.9 million in additional annual local revenue and sales taxes from online sales via Amazon is expected to bring in around $2.9 million – for a total of $13.8 million in local revenue from an expanded sales tax.

Local Privilege Tax Repeal

It is clear that $13.8 million in additional local sales tax revenue is not sufficient to replace $63 million in lost revenue from the repeal of the local privilege tax. Less revenue means local governments will likely be further challenged with providing its residents with core public services and an attractive quality of life.

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

At a time when an increasing number of jobs in the state are expected to require some level of postsecondary training, North Carolina families and students have to shoulder more and more of the cost of a college education.

A report released today by the Center on Budget and Policy Priorities highlights that state spending per student for higher education in North Carolina is 25 percent below pre-recession levels when adjusted for inflation. Meanwhile, average tuition at North Carolina’s public, four-year colleges increased by more than 34 percent during this time period.

Some of the outcomes from these budget cuts have been well-documented on North Carolina’s campuses. For example, in the 2014 academic year, state funding cuts led NC State to eliminate 187 full-time equivalent positions and 27 positions from its library system, the report highlights. UNC-Chapel Hill has eliminated 493 positions, cut 16,000 course seats, increased class sizes, cut four of its seven centrally supported computer labs, and eliminated two distance education centers. Read More

NC Budget and Tax Center

At his Tax Day press conference, Governor McCrory repeated the often-heard claim that the effect of cutting taxes on the state’s economy speaks for itself. Last year’s tax cuts may be speaking, but they’re not telling the story its proponents hoped—for the very good reason that tax cuts are just a poor strategy for promoting business growth and long-term job creation.

Here’s the Governor on Tuesday:

“Businesses are relocating to North Carolina because of the changes we made in our tax code and that speaks for itself.”

This claim does not bear up under serious scrutiny. In fact, decades of evidence support the opposite—taxes don’t drive business location decisions. Rather, the public investments that taxes make possible are the most important factors in determining where companies decide to locate—investments like an educated workforce, infrastructure, strong industry clusters, and proximity to research and development institutions.

So let’s examine the evidence Governor McCrory presented, starting with Lee Controls—a New Jersey-based company that recently relocated to Brunswick County and cited tax reform as one of the major reasons for their move. The company is promising to create just 77 jobs over several years. While creating even one new job moves the state in a positive direction, the fact remains that trying to dig North Carolina out of the job losses from the Great Recession is going to require more employment growth than can be generated by one 70-job project at a time.

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