Nine ways the Senate budget falls well short of what North Carolina needs

As we wait for the House budget proposal, it is worth digging deeper into the shortcomings of the Senate budget proposal, the passage of which marks the first completed step in the process during which the Senate, House, and Governor must come to agreement about how to fund the needs of a growing state more than a year into the COVID-19 pandemic.

The budget proposed would leave North Carolina more than $7 billion below historical investment levels as a share of the state’s economy during a time of unprecedented and ongoing need. The proposal also includes a suite of tax cuts that would overwhelmingly benefit wealthy North Carolinians and corporations along with their shareholders, and the full impact of the revenue loss when the tax changes are fully implemented — while not completely yet known — would exceed $5 billion annually.

The Senate’s two-year plan once again chooses corporations and the richest over everyday North Carolinians — a vision that has yet to result in tangible improvements in a host of areas where people continue to be blocked from their full potential and greater well-being. Investments in the sound, basic education that the state has a constitutional obligation to provide will go woefully unmet if this plan becomes law, as will the need for our state to finally expand Medicaid to ensure that hundreds of thousands more North Carolinians can receive care when they need it. These and many other opportunities have been missed through this first major step in the budget process, and should the ideas from the Senate be agreed to by the House and the Governor, North Carolina will continue down a harmful path for its people.

  • Failing to make progress toward ensuring a sound, basic education. The Senate budget fails to make meaningful progress toward providing North Carolina students the education they are owed under our constitution in direct violation of a June 7 court order issued as part of the long-running Leandro school funding case. That order requires the General Assembly to fully implement the first two years of a seven-year plan to deliver a constitutional education system by the 2027-28 school year. The Senate budget would fund just 13 percent of the plan, eschewing the evidence-based, court-ordered plan to improve the recruitment and retention of diverse teachers and principals, create a finance system that’s adequate and equitable, support low-performing schools and districts, overhaul a discriminatory school accountability system, and create improved connections to college and careers.
  • Short-term and inadequate funds for equitable early education. The Senate budget fails to meaningfully ramp up investments in NC Pre-K, Smart Start, childcare subsidies, or boosting pay for childcare workers and pre-kindergarten teachers, that is also required by a June 7 Leandro cort order. The Senate budget marginally increases per-slot funding for NC Pre-K but does not increase the number of available slots. While it provides some funding for Smart Start, these funds are one-time only, so the system does not receive continued investment. State dollars would have provided ongoing support to North Carolina’s youngest children and their families and would have helped ensure that federal funds lead to transformative change. Instead, the Senate budget relies on American Rescue Plan funding, which does not meet our state’s long-term needs or Leandro requirements.
  • Choosing to pass on a key fiscal incentive to expand health care access. Senate leaders failed to address the lack of affordable health care access for more than 500,000 North Carolinians. Read more

Five takeaways from the Senate’s budget proposal

This past Monday evening the North Carolina Senate released its much-anticipated budget, providing further details that demonstrate just how limiting the General Fund spending cap is for our communities.

The Senate budget represents a missed opportunity to recognize the importance of public investments in addressing the needs of North Carolinians: educational achievement through a sound, basic education for every child; well-being of our families through a public health infrastructure; social services to support those in need; and the resiliency of communities through homegrown business retention and quality jobs.

The Senate’s budget plan would bring the state’s investments to a new low while committing the state to untold losses in the form of revenue reductions by eliminating income taxes for profitable corporations by 2028 and lowering the already flat personal income tax rate.

As the state continues to respond to the ongoing COVID-19 pandemic and looks to recovery, now is the time to make greater investments to solidify the foundation of a future for every North Carolinian where their health is protected, their families are supported, and their neighbors are connected. Instead, legislative leaders continued to use flawed theories driven by anti-government, trickle-down ideology  at the expense of everyday North Carolinians.

#1 – State spending would reach a historic low

Totaling $25.7 billion in FY 2021-2022 and $26.6 billion in FY 2022-2023, the budget would hold down investments – more than $7 billion short of the historical average as a share of our state’s economy – while locking the state in for years to come with fewer dollars available to make future investments.

#2 – Billions in the bank with millions in need

This proposal comes on the heels of the updated consensus revenue forecast, developed by the state’s leading economists, showing billions more in anticipated revenue growth. This windfall contradicted previous predictions, thanks to robust federal aid that stabilized the economy and the record gains for profitable corporations and high-income people throughout the pandemic that increased state tax revenue collections.

Despite the strong revenue outlook, Senate leaders propose large transfers of General Fund dollars to the flush Rainy Day Fund (i.e. Savings Reserve) and State Capital and Infrastructure Fund (SCIF), well above the statutory requirements they themselves created. These transfers put more funds on the sidelines when today’s hardship threatens to stall future opportunity and stability.

#3 – State leaders have a key role to play

Senate leaders have also begun, through this bill, allocating Fiscal Recovery Funds coming to North Carolina’s state government from the American Rescue Plan. As it stands, the Senate plan fails to provide a comprehensive vision for how the funds will be used. Instead, Senate leaders have identified a handful of areas where their priorities align with permitted uses of these one-time federal funds rather than committing state funds, such as bonuses for state employees and funding for health clinics to respond to the public health emergency.

A better strategy would be to provide a more complete picture of the use of federal funds and deploy state dollars as needed to sustain services and programs and make sure the state has the infrastructure supports to ensure that our schools, our health clinics, and our communities can fully recover from the pandemic and economic downturn over the next several years. Investing public dollars has fueled the COVID-19 response and will be essential to ensuring that a full and equitable recovery is made.

#4 – Forward-thinking investments require profitable corporations and the rich to pay their share

Senate leaders have again prioritized tax cuts that will continue to hamper our state’s ability to meet the needs of a growing population. The bill would eliminate the corporate income tax altogether by 2028 and reduce the already flat personal income tax from 5.25% to 3.99% by 2026, among other changes. The personal income tax change would overwhelmingly benefit the top 20 percent of income earners in North Carolina, with 74% of the tax cut going to the top 20% compared to none of those with the lowest incomes once fully phased in.

The full impact of the corporate income tax elimination is not yet known, largely because its phaseout is too far in the future to be able to account for all of the variables with any level of confidence. Blindly phasing out taxes on corporations without knowing what reductions to public education and other budget areas will be required is the antithesis of responsible budgeting.  It is made worse by the fact that the state dollars on hand today are the result of unique factors like robust federal aid, no final comprehensive state budget for two years, and shifts in tax filing deadlines. By forging ahead with their commitment to reducing income tax rates, Senate leaders are forcing future budgets to their status quo approach of austerity.

#5 – A budget without public input

The lack of adequate investments and fundamental blows to the state tax code’s adequacy is compounded by the the absence of transparency and indifference for the democratic process informing a major policy decision at a critical moment in the state’s rebuilding from the pandemic.

To date, public hearings and input on what is needed to ensure our communities are more resilient after the past year have not been solicited nor provided a forum. Instead, legislative leaders set arbitrary spending limits behind closed doors rather than reflecting and assessing the full scale and scope of hardship and solutions available to them through a collective commitment.

With strict rules for amendments in committee and anticipation that the bill will be forced through the chamber by the end of the week,  the NC General Assembly leaders have blocked not just input from the public but debate with elected leaders who are not in their party.

It’s high time our legislative leaders set aside their zeal for tax cuts and disinvestments, which have pushed everyday North Carolinians further from economic opportunity and well-being with every austerity budget. Let’s instead invest in our communities and forge a path to a more equitable future.

Suzy Khachaturyan is a Policy Analyst at the Budget & Tax Center, a project of the NC Justice Center.

State lawmakers recommit to failed austerity despite ongoing pandemic, documented hardship

For months, the state’s legislative leaders have been negotiating the fate of North Carolinians and our shared future behind closed doors as they decide on a total spending figure for the biennial state budget.

Yesterday, they reached a decision to maintain their status quo approach, despite unprecedented hardship for North Carolinians. The arbitrary spending amount announced by House and Senate leaders — $25.7 billion in 2021-2022 and $26.7 billion in 2022-2023 — will continue the now decade-long trend of austerity budgeting in which state infrastructure, services, and publicly supported programs cannot adequately respond to long-term challenges or meet the needs of a growing state.

The recent practice of “pre-conferencing” proposed spending levels across the chambers is not a requirement of the process. It is a symptom of larger dysfunction that has plagued North Carolina’s state budget process. The tradition of backward budgeting doesn’t serve our state’s best interests. In backward budgeting, chambers agree on an arbitrary spending cap, often prioritizing tax cuts for the wealthy and profitable corporations, and then dollars are allocated based on what remains.  Our leaders set North Carolinians up for failure before the state budget process has even begun in the public realm.

Read more

Four important takeaways from the Governor’s budget proposal

Last week, Gov. Cooper released his recommended budget on the use of funds in the state’s primary bank account, the General Fund. In his first comprehensive plan for the state since 2019, the Governor would plan would shift the course of North Carolina’s spending trends, increase investments modestly in state infrastructure, and implement common sense policy changes that help families secure the health and well-being that supports strong communities and economies. 

Notably, the governor’s proposed plan for the state does not include funds passed as part of the federal American Rescue Plan, which includes approximately $5.3 billion for the state to address COVID-related needs, an estimated $1.3 billion for child care, and additional dollars to address the rising costs of the pandemic and the economic downturn.

The governor’s budget makes no effort to raise revenue; however, it does provide bottom-up tax credits targeted at North Carolina families who face the greatest harm from our state’s upside-down tax code and who have been hit hard by the pandemic’s employment and income impacts.

Here are four key takeaways:

1. The plan proposes a modest increase in spending across the state budget.

Read more

The American Rescue Plan is the relief North Carolinians need

One Hundred Dollar money bill. Benjamin Franklin with face medical mask. COVID-19 coronavirus USA, Economy world crisis.Yesterday, the American Rescue Plan was passed by the U.S. House of Representatives and President Biden is expected to sign it into law shortly. The scale of relief included in the bill — totaling $1.9 trillion — is just what is needed to meet this unprecedented public health and economic crisis and will support millions of North Carolinians to ensure that they can keep a roof over their heads and food on the table.

Key elements of the COVID-19 relief package that will help families stay afloat in North Carolina include:

  • Increased housing assistance and an extension of increased SNAP food benefits to help people families keep their homes and afford food,
  • Extended pandemic unemployment assistance through September 6,
  • Financial assistance to help people meet urgent expenses, such as rent, groceries, utility bills, and car payments, delivered through expanded tax credits and stimulus payments,
  • Improved access to affordable health coverage through enhanced premium tax credits for people with low incomes and middle-class families, and
  • New incentive for holdout states like North Carolina to expand Medicaid.

The package also includes much-needed state and local government fiscal relief to keep our communities going. These funds will help North Carolina and localities restore and maintain critical public employees, prevent further layoffs and cuts to core services like education and health care, and provide assistance to people who have been hit hardest by the pandemic and recession. In addition, there are dedicated funds to support schools that can be used to pay for the cost of distance learning, safe in-person instruction, caring for the physical and mental health of returning students, and most importantly, aid with learning loss that students have suffered.

Overall, the American Rescue Plan provides much-needed but temporary relief. As we are at the one-year mark of the COVID-19 public health and economic crisis, it has become increasingly clear that economic recovery isn’t going to happen overnight, particularly for people of color, who have waited longest in past recessions to see the gains from a rebounding job market.

We have more work to do to build a more equitable economy that works for everyone, including the enactment of permanent policies that will reduce the longstanding inequities that were exacerbated by the COVID-19 public health and economic crisis.

Suzy Khachaturyan is a Policy Analyst at the NC Budget & Tax Center, a project of the North Carolina Justice Center.