Data reveal a big error in how NC has pursued economic recovery from the COVID-19 recession

Tying economic life support to employment equity goals would be better for all

A new report from the Economic Policy Institute shows that the cutoff of federal unemployment insurance will reduce incomes and curtail spending, further increasing hardship and likely slowing the progress toward a full recovery from the COVID-19 pandemic downturn.

In North Carolina, an estimated $2.3 billion in income will be lost annually, which in turn will reduce household spending and demand in the broader economy.

As North Carolina deals with the fallout from this federal cutoff, it is worth reflecting on the role that policies aimed at stabilizing the economy play in a downturn and a recovery. So-called “automatic stabilizers” are key tools that increase assistance to people when times are bad and pull back on support when conditions are improved.

When the American Rescue Plan passed in March, federal unemployment insurance benefits were set to expire on September 6. This arbitrary date for the cutoff was scheduled to arrive, regardless of where the country stood in recovering from the pandemic and economic downturn. And on September 6, the cutoff happened — even though the Delta variant surge was well underway and labor market measures were already suggesting a slowdown in the economy.

In short, a key support for jobless workers and the economy ended too soon. The flaw in tying a policy change to a certain date rather than connecting it to the desired economic outcomes is the threat of a slower and less equitable recovery.

When people have not recovered from a recession, neither has the economy.

Policymakers should learn a lesson from this failure and redesign our systems and policies so that the response to a crisis is both timely and sustained until all those harmed by a recession have secured a foothold on the path to financial security.

The well-documented inequities in the economic damage caused by the pandemic recession require that policymakers not just ensure that our economic stabilization tools are automatic but also tie them to indicators of how those most harmed by this recession and historically excluded from assistance are faring. Acting in this way — not based on the average unemployment rate, but instead based on such indicators as the unemployment rate for Black workers, who experience deeper job losses in downturns and slower returns to employment — would benefit everyone

In North Carolina, the latest data from the second quarter of 2021 showed that the unemployment rate for Black and Latinx workers was 7.7 percent and 7.5 percent respectively, compared with 3.5 percent for whites. The reality is that barriers to employment and re-employment persist for workers of color in particular, and the harms of COVID-19 have disproportionately impacted these same workers because of segregation in the workforce, lower wage work, and generational barriers to wealth building.

Without a combined commitment to reach full employment for all workers and systematically remove barriers to employment for all workers, disparities will persist and hold back the economy. During the last effort at expansion, research from PolicyLink showed that North Carolina stood to gain $11.3 billion annually in economic activity from pursuing full employment for all by reducing the barriers to work for Black and brown workers and all rural workers.

Policies that center Black and brown workers are a boon for our entire economy. North Carolina and the nation would be better served if we tied our commitment to strengthening the economy to how people are faring. Enacting such automatic stabilizers is an essential step in building a more resilient and inclusive economy.

Alexandra Sirota is the Director of the N.C. Budget & Tax Center.

Expanded Child Tax Credit has caused big reductions in childhood poverty, but more action is needed

Last week on Sept. 15, the third round of payments for the newly expanded federal Child Tax Credit (CTC) went out to millions of families with children across the country. The CTC is one of the nation’s key anti-poverty programs, and the American Rescue Plan Act made some important — but temporary — changes to the policy. It increased the amount of funding available to families, expanded eligibility by making the credit fully refundable, and changed the schedule for distributing the funds. Half of the funds are now distributed through monthly payments that began on July 15, rather than all payments being distributed in a lump sum when families file their taxes.

The expanded CTC is already leading to dramatic reductions in childhood poverty: Payments in July kept about 3 million children across the country out of poverty that month. To maximize the CTC’s impact in North Carolina, our state leaders must ensure that every eligible family receives the credit, while Congress needs to make these improvements to the CTC permanent.

Recent analysis from the Social Policy Institute explores how families in each state used Child Tax Credit payments. Families earning under $150,000 per year are eligible for monthly payments of $300 for each child under age 6 and $250 for children between the ages of 6 and 17. The Institute’s researchers found that the most common use for North Carolina families was buying food, followed by paying essential bills. Half of families reported using the funds to buy food, and nearly two out of five families said they paid bills. It’s not surprising then that families eligible for the CTC saw a decrease in severe food insecurity after monthly payments began. The share of families experiencing severe food insecurity dropped from 11 percent before payments went out down to 7 percent in the weeks after payments began.

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It’s time to use the state budget to fix North Carolina’s leaky roof

Years ago, a traveling salesman was stuck outside in a thunderstorm, miles from the nearest town. At the next house he came to, a man was standing in the door watching the rain pour. The salesman walked up and asked whether he might be able to stay the night while the storm passed.

“Well,” the man replied, “the only place I’ve got is in the kitchen, and the roof leaks so bad in there you’d get just as wet as staying out here.”

Taken aback, the salesman asked, “Why don’t you fix the roof?”

“Are you crazy?” the man replied. “It’s raining out here!”

“’Course I don’t mean now,” the increasingly frustrated salesman retorted. “Why don’t you fix it when it ain’t raining”?

“’Cause then it ain’t leaking.”

There’s some wisdom in that old country yarn about where North Carolina was when COVID-19 arrived. Our state government is like the roof in the story. We had been through the longest period of uninterrupted economic growth in generations, but leaders allowed our shared home to fall into disrepair. As soon as the storm started, it became even more painfully evident how years of neglect had left our public institutions unable to cope with a crisis.

We also allowed an economic situation to evolve that left far too many families with little or no shelter of their own to fall back on. Big corporations and the ultra-rich did just fine in the wake of the Great Recession, but most families and working people in North Carolina didn’t have the savings to survive without work or income when the pandemic shuttered businesses across the state. Like the traveling salesman, millions of North Carolinians were left out in the storm with little shelter in sight.

Now the combination of broken public institutions and a top-heavy economy are undermining the pace of our recovery. As we document in a recent report, hundreds of thousands of North Carolinians face enormous barriers in their effort to rejoin the labor force. Around 250,000 people in our state, mostly women, can’t work because they don’t have access affordable child care; roughly 100,000 have site concerns about contracting or spreading COVID-19 by working in person, 50,000 lack reliable transportation, and many either can’t access the jobs that do exist or lack broadband needed to work remotely or search for a job. In most of these cases, people of color and women who had the least financial cushion to fall back on when they lost jobs due to COVID-19 face the largest obstacles to rejoining the labor market.

The good news is we have an opportunity to rebuild our collective home. As legislative leaders huddle behind closed doors to hash out a budget, the question is whether they will make the long-overdue choice to fix our public institutions or continue down the path that left us out in the rain when COVID-19 darkened the skies. After years of not passing a budget, North Carolina has billions of dollars sitting in the bank that could be used to help people still struggling to make it through the pandemic. Unfortunately, the proposals made by both the Senate and House failed to tap into those resources and would continue to hand out tax cuts to profitable corporations. State action is also urgently needed to make good use of any potential additional federal support. Years of neglect made it hard for the state to deploy previous rounds of state aid, so investment is needed to get any future relief to where it is most needed.

It certainly hasn’t stopped raining yet, but it’s time to get those hammers swinging to put a new economic roof over the people of North Carolina.

Patrick McHugh is the Research Manager with the Budget & Tax Center.

Legislature’s plans for the use of American Rescue Plan funds fall short in three important ways

Click here to view and download a comprehensive list of the ARP items from the NC House and Senate budgets.

The $5.4 billion in flexible funding that North Carolina received from the federal American Rescue Plan presents a tremendous opportunity for the state. With such an unprecedented cash infusion, state leaders have a rare opportunity to both invest in transformational changes that can help all North Carolina communities respond to the ongoing threat of COVID-19, and lay a strong foundation for the future.

Unfortunately, an analysis of the planned uses of these dollars in the competing House and Senate budget proposals reveals a haphazard slew of line items – more than a hundred in each proposal – that altogether fail to provide a vision for change in our state.

Budget conferees are currently attempting to negotiate a compromise budget bill that will be presented to each chamber and, if approved, sent to the Governor. Our analysis to date has focused on the House and Senate proposals for the state’s General Fund dollars; however, the respective state budget proposals also include suggested uses for much of the flexible funding that was received by the state via the federal American Rescue Plan (via the State Fiscal Recovery Fund).

In addition to allocating the American Rescue Plan dollars, the House and Senate plans also allocate issue-specific federal grants to the appropriate state agencies. These dollars will go to support services including child care, mental health, and substance abuse, and will support areas like transportation, capital projects, small business credit initiatives, and more.

Three key takeaways emerge from our analysis (see below for more details):

  1. A lack of transparency and public input from communities is severely limiting the positive impact that’s possible with these funds.
  2. Rather than constructing a coherent vision of the transformational opportunities presented by the influx of flexible federal dollars, the budget proposals instead rely upon mostly arbitrary, one-time allocations for specific needs in specific communities.
  3. Rather than using federal dollars to make up for anticipated near-term losses resulting from a new round of tax cuts, North Carolina should pursue the more sustainable path of investing state dollars to address long-term needs.

A lack of transparency in the process of developing these appropriations does harm to the communities that are left out. State Fiscal Recovery Fund dollars allocated to state and local governments are able to be used to meet a broad range of needs to respond to COVID-19 and begin to build back stronger communities. Lawmakers should therefore seek and provide extensive opportunities for public input and assess needs in communities to ensure funding is targeted to those who need it most. Instead, the proposed plans allocate dollars to narrow uses without any indication of what needs exist.   Read more