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Back to School Series, NC Budget and Tax Center

This is part of a Back to School blog series that highlight various issues to be aware of as the 2014-15 school year kicks off. (See Part 1 and Part 2)

This week, more than 1.5 million North Carolina’s students headed back to school to underfunded classrooms. For yet another school year, teachers will do their best to prepare today’s students to grow into critical thinkers and succeed as workers in a demanding 21st century economy with too few resources available. Legislative leadership and the Governor approved a budget that fails to make up lost ground in public education, keeping spending below the last budget that was in place before the Great Recession.

In fact, when the pay raises for teachers are properly placed in the salaries and reserves section of the General Fund budget and not the public education section—a practice that has long been in place—public education spending in the new budget is below last year’s spending levels (see graphic below). This certainly is not progress, but rather sliding backwards with a budget trick used as cover.

Five years into the recovery from the worst economic downturn since the 1930s, catching up and keeping up with the needs of North Carolina’s students is stalled due to the fact that lawmakers chose to enact a tax plan last year that keeps the state from replacing the most damaging cuts to public investments. The 2013 tax plan is draining available resources—$5.4 billion over five years—that is needed to regain lost ground and reinvest in the building blocks of a strong economy. The tax plan’s impact is evident throughout the final budget for fiscal year 2015. Read More

NC Budget and Tax Center

The 2013 tax plan continues to rear its ugly head. The final budget deal released late last night is yet another reminder that the state cannot afford cost of the tax plan that primarily benefits the wealthy and profitable corporations.  If the state could afford those deep revenue cuts, budget writers would not be relying on more federal dollars and lottery revenues to make their budget balanced nor including another round of harmful budget cuts and policy changes to early childhood education, public schools, higher education, and social programs. But, those are the conditions North Carolinians will be facing over the next year as we enter year six of the official economic recovery.

While the budget delivered on its promise to provide an average 7 percent teacher pay raise, that boost in much-needed pay came at the expense of dollars needed to pay for other state priorities—even within the public education budget for programs that serve at-risk students, for example. And unfortunately, it’s just a snapshot of what we should expect to see in future years. Meanwhile, other states are moving full steam ahead and replacing the most damaging cuts made during the aftermath of the recession.

The cost of North Carolina’s personal income tax cuts will be much higher than previously expected, at least $200 million more each year. Read More

NC Budget and Tax Center

North Carolinians are being dealt a bad hand. The deep revenue losses resulting from the 2013 tax plan is creating a reality in which there are too few dollars available to meet the needs of children, families, and communities. Budget writers are facing a self-imposed budget crisis and finding it difficult to agree on just how large the cut to public schools and public health should be to meet its priorities and balance the budget. To be clear, budget writers agree that those core budget areas should be cut compared to the enacted 2015 fiscal year budget but have yet to agree on the size of the cut.

That’s the main reason why North Carolina is more than two weeks into the new fiscal year without a revised state budget.

For weeks budget negotiators in the House and Senate have been shuffling the deck, making proposed cuts in core areas of the budget and moving that money around in order to finance much-needed pay raises. This budget shuffle is further proof the state is facing a revenue problem. Read More

NC Budget and Tax Center

From poverty to job creation, North Carolina has been slow to bounce back from the Great Recession on the economic front. The storyline is much the same when it comes to tax collections. North Carolina’s tax revenues at the end of 2013 were lower than its previous peak that occured just prior to the economic downturn, according to new data released by the Pew Center on the States.

These findings fail to signal an economic comeback. In fact, they illustrate that there is a considerable amount of lost ground to regain even as state revenues are projected to slowly pick up as the economy grows stronger. Catching up will be all that much more difficult due to lawmakers’ decision to pass a costly and lopsided tax plan last year that primarily benefits the wealthy and profitable corporations.

State revenues were down 4.5 percent, or $287.4 million, in the last quarter of 2013 compared to the state’s previous peak quarter that occurred in the third quarter of 2007—just before the onset of the Great Recession. Note, this was under the old tax code. See the figure below. North Carolina fared better on this measure compared to all of its southern neighbors except for Tennessee and only 19 states in total. For the states that experienced a recovery to peak revenue levels by the end of 2013, more than half of them raised taxes to keep up with the growing demands of a growing population.   Read More

Falling Behind in NC, NC Budget and Tax Center

This afternoon, Governor McCrory released his $20.99 billion 2015 fiscal year budget for the period that runs from July 2014 to June 2015. His proposal creates more problems than it solves, failing to take prudent steps that would put North Carolina’s budget on a more sustainable path. Similar to his budget proposal last year, his new spending proposal follows suit and fails to catch up—let alone keep up—with the needs of kids, working families and communities in many areas of the budget.

The Governor’s budget was constrained in major ways—which were self-imposed by state lawmakers last year when they decided to cut taxes. The state is facing a revenue shortfall of $191 million in the 2015 fiscal year (not to be confused with the nearly half-a-billion shortfall for the current 2014 fiscal year that ends in June). The driver of these revenue shortfalls—despite an economic recovery—is the series of tax cuts that Governor McCrory signed into law last year that was already estimated to drain available revenues to the tune of $437.8 million in the 2015 fiscal year.

As we reported last week, estimates suggest that the revenue losses from the tax plan, particularly stemming from the personal income tax changes, could reach $600 million next fiscal year.

Yet, rather than prudently recommending the halting of future tax cuts that are scheduled to go into effect in January 2015, the Governor chose to keep this next round of tax cuts in place despite the diminished revenue picture. As we warned last year, North Carolina cannot afford to pay for tax cuts that primarily benefit the wealthy and profitable corporations at the expense of teacher layoffs, growing waiting lists for critical public services, and higher tuition rates.

State spending under the Governor’s proposal would continue to remain well below pre-recession levels, as illustrated in the chart below, even though spending over the base budget would slightly increase. All areas of education funding fall short of what was called for in the continuation budget. Tax cuts are making it harder to regain lost ground. Read More