NC Budget and Tax Center

Tax cuts have pitted capital needs against education, health, other vital services

North Carolina’s budgeting mechanism for servicing debt, paying to repair state property, and investing in new capital projects will change on July 1 with the implementation of the State Capital and Investment Fund (SCIF). Given that North Carolina has been underfunding repairs, renovations, and new capital projects for years, creating a pot of funds to address these needs that is separated from the rest of the General Fund does make a certain amount of sense.

The challenge, however, is that years of tax cuts have squeezed our ability to fund the needs of a growing state, so setting funds aside for capital projects at the outset of the budgeting process will create even fewer resources in other areas of the budget. The result is that our state is facing a growing gap between the revenue we need to keep up with providing basic services and with maintaining and building infrastructure to serve North Carolinians and the revenue that we collect.  This will only get worse in future years as the tax cuts continue to reduce revenue annually by at least $3.6 billion from what would have been collected under the tax code before the tax cuts began in 2013.

The SCIF creates a new dedicated pot of funds for these capital needs that is taken out of the General Fund before other appropriation decisions are made. The SCIF is funded statutorily with 4 percent of general fund revenues (projected to exceed $950 million for 2019-20 fiscal year), and 25 percent of the unreserved fund balance ($237.5 million in the upcoming fiscal year). Those funds will first be used to make $721 million in debt payments, with another $250 million devoted to repairing existing state facilities, and just north of $200 million for new capital projects.

Creating the SCIF has some merit as capital improvements and repairs are often the first things to get cut when budget writers don’t have enough revenue to go around, but a few bits of context are still important.

First, the scope of North Carolina’s capital needs far exceeds what the SCIF can meet in its current arrangement. North Carolina’s schools alone have over $8 billion in facility improvement needs, and that is only one area of capital needs that have been underfunded for years. Building and maintaining quality public facilities doesn’t come cheap, and the SCIF simply won’t generate enough funding to deliver what North Carolinians deserve.

Second, by setting aside debt and capital funds before the rest of the budgeting process takes place will make it even harder to meet all of the other needs of a growing state. While budget writers were in committee discussing the House’s proposal, thousands of educators were just outside demanding more funding for supplies, school nurses, teaching assistants, and a range of other vital educational needs that have gone wanting in recent years. And across areas of health, housing, and environment, documented needs for investments that would protect the public good have gone unfunded.

All of these challenges are rooted in years of decisions to give wealthy individuals and big corporations billions a year in tax cuts. Just this year alone, a scheduled reduction in the Corporate and Personal Income Tax rates drained another $900 million from the state’s coffers, funds that would have more than covered our existing debt payments without diverting support for everything else.

A final important note: At a time when revenue is already reduced, the move to solely propose funding capital projects through available revenue rather than looking to the potential for a state bond to take advantage of low interest rates is concerning.

As noted by some legislative leaders, this appears rooted more in fears of debt than in a practical consideration of what financing mechanisms would best allow the state to achieve its full set of priorities for our families and communities.

In the end, the SCIF is a cautionary tale. After years of lavishing tax cuts on the most prosperous North Carolinians, the legislature has backed itself into a corner where the only way to start addressing the need to repair existing facilities and build new ones is to take even more funding away from other services that are needed today.

NC Budget and Tax Center

House proposes a budget that still falls short of N.C.’s needs

Note: An earlier version of this post stated that this year’s proposed budget is $13 million less than last year’s enacted budget; however, that did not take into account the funds allocated to the State Capital and Infrastructure Fund, which will take effect with this biennial budget. 

Late on Monday, the North Carolina House of Representatives released their proposed budget for the next two years. Our budget is a reflection of our state’s values, and this vision falls flat. There is no effort to fix our state’s upside-down tax code, and it falls in line with the decades-long trend of decreasing investments in North Carolina as a share of our economy.

After taking into account the monies set aside for the State Capital and Infrastructure Fund – a policy enacted in the 2017 session, which takes effect July 1, 2019 – the house budget spends $721 million, or 3 percent, more than the budget approved for Fiscal Year 2018-19. Due to the statutory nature of this requirement, the funds are not appropriated and therefore are not reflected in the total budget amount.

With our growing population and growing needs, this proposal will fail to serve all North Carolinians and falls short of the investments we need to sustain an economy that delivers prosperity to all.

1. State spending as a share of the economy continues to decrease.

State investments have continued to decline since the recession, largely fueled by our lawmakers’ backwards commitment to lowering taxes, which began in 2013. With fewer revenue dollars as a result, the state’s commitment to funding the basics such as public education, health, and infrastructure diminishes, and so do the quality of such services across our state.

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NC Budget and Tax Center

Medicaid expansion matters to educators and students

Prescription to apply for health insurance with personal computing tablet and stethoscope.

Today, as educators gather in Raleigh, one of their five demands this year is to expand Medicaid to improve the health of students and their families. While students themselves would not gain new health care coverage through closure of the coverage gap, research shows that when parents become newly eligible for Medicaid coverage, they also enroll their children in coverage.

Read more about the benefits of Medicaid expansion for our students in the newly released report from the NC Justice Center here.

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

NC Budget and Tax Center

The real facts on how Medicaid Expansion will help North Carolina

Here are the real facts about how Medicaid Expansion can help people in North Carolina live healthier lives and have the health insurance that they need.

FACT: Medicaid coverage improves health and financial security.

Health insurance provides financial security by protecting people from catastrophic, unexpected medical expenses. Medicaid serves this purpose by protecting individuals and families with low incomes. Numerous studies show that poor health is associated with a higher risk unemployment and job loss.

Many studies, including the Oregon Health Insurance Experiment where low-income individuals were randomly selected to receive Medicaid coverage, point to the benefits of improved health outcomes as a result of health insurance coverage. Research findings on the clinical outcomes from participants in the coverage experiment include an increase in overall health care utilization, self-reported health, and reduced financial strain. Other studies have found reduced mortality rates and improvements in self-reported health among adults.

FACT: Expanding Medicaid will allow North Carolina to serve more people and won’t harm people currently covered by Medicaid. Read more

2019 Fiscal Year State Budget, NC Budget and Tax Center

What the House budget should include

The state budget is about our priorities for North Carolina, a reflection of what we value and how we plan to invest in our people and communities for the future.  Indeed, in its best version, a budget can serve as a roadmap for how we ensure each and every community in our state thrives.

But for years our vision for North Carolina’s future has been arbitrarily constrained by policymakers because of their focus on cutting taxes for the rich and big companies, an approach that isn’t going to help our long-term economic growth and is reducing our annual revenue by at least $3.6 billion so that we can’t invest in opportunity today.

As House members gather to discuss proposals for how our tax dollars will be invested in our collective well-being and begin full debate on their proposal next week, here are some key issues that a House budget (and any budget for North Carolina) should address:

  1. The arbitrarily low level of public investments despite a growing state. North Carolina continues to spend at a 45-year low as a share of the economy which means that we aren’t providing the same foundation we did in years past even as we seek to support stronger economic performance.  The research is clear that public investments in education, infrastructure, and health matter for our economic growth, potential, and quality of life. North Carolina can afford to make these investments if our leaders choose to invest in us rather than give tax cuts to the few.

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