North Carolina ain’t broke (financially), so now let’s fix it – New revenue data show NCGA has a choice: help people or corporations?

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North Carolina has the funds to invest in a just recovery. An updated assessment of state revenues shows collections have come in stronger than previously expected over the past year and continued growth should provide some of the resources needed to dig out of the COVID-19 hole. 

First the numbers. North Carolina is on track to collect $29.5 billion in revenue for the current fiscal year and is projected to see modest revenue increase in each of the next two years. That means the state should have almost $5.6 billion more this year to fight the effects of the pandemic than came in during the last fiscal year. That could be great news for people and communities still struggling to rebuild from COVID-19, but it depends on whether the legislature chooses to direct resources to where the need is the greatest. With the state $7 billion a year short of what we have historically invested in the people of North Carolina, this jump in collections won’t get us to where we need to be, but it could be a start. 

So how did we get here?  

Some of it was federal aid preventing another Great Depression, some is corporations and high-income people having a good financial year, and some is due to the timing of when revenues actually came in. 

First, federal aid headed off what could have been worse than the Great Depression. What could have been a recession of nearly unimaginable proportions was tempered as supplemental unemployment benefits, stimulus checks, and other aid created a safety net for many North Carolinians. When the pandemic arrived in North Carolina, most people rightfully worried state revenues would shrink dramatically. But that was before the federal government stepped in with several rounds of financial assistance for people and businesses. Federal aid hasn’t addressed all of the need, but it provided a vital backstop that kept people in their homes, food on the table, and the lights on. Aid for families also helped to prop up, personal income and sales tax collections increased during COVID-19, instead of revenues falling off a cliff. The most recent round of aid passed is partially responsible for the state’s financial outlook improving even since the last forecast was released in February before the historic American Rescue Plan was passed. 

At the same time, a lot of big corporations and well-healed tar heels had a very good financial year. Many big corporations posted record profits over the last year, which drove up corporate and franchise tax payments. The figures just released expect corporate and franchise collections to jump by more than a billion dollars, an increase of more than 75% compared to the last fiscal year.  

Finally, some of the jump in collections is rooted in one-time changes which impacted when revenues were actually collected. The filing deadline for personal income taxes was delayed, so some of the revenues which would have come in during the last fiscal year showed up during the current one. Second, North Carolina started collecting sales taxes on many online sales, so sales tax collections jumped significantly, pushed even further by people shopping online during the pandemic. 

So where do we go from here?  

The choice is pretty clear. Either we invest in rebuilding a more just North Carolina or continue lining the pockets of rich people and big businesses. 

Some legislative leaders would love to divert more state resources into corporate balance sheets and wealthy shareholders’ bank accounts. The Senate recently moved to eliminate the corporate income tax entirely without really doing anything to help the families and businesses which have born the brunt of the pandemic. That bill still has not become law, so there is time to head off this most recent attempt to funnel funds into the deepest pockets. 

Now that we know the state isn’t going broke, its time for a real recovery plan. Far too many North Carolinians still face barriers returning to the workforce, covering the cost of basic necessities, and the financial fallout from COVID-19 has been the most dramatic for many low-income workers, people of color, and women.  

The question now is what leaders in Raleigh will choose to do. Will we see another windfall for profitable corporations and wealthy people, or a down payment on a just recovery. Justice and economic imperative point in the same direction – invest our public funds in building a better future. 

Patrick McHugh is the research director for the nonpartisan N.C. Budget & Tax Center. Mel Umbarger contributed to this post.

Gov. Cooper emphasizes bipartisanship in his State of the State speech

Gov. Roy Cooper mixed some of the resiliency themes he introduced in his inaugural address with promotion of his budget priorities and hopes for bipartisan agreement in his State of the State address Monday night.

Cooper, a Democrat, fist-bumped with legislators as he made his way down the center aisle of the House chamber before and after his address to state representatives and senators.

Cooper heaped praise on the generosity and ingenuity of residents and businesses the pandemic as he urged more bipartisan agreement in state government.

“North Carolinians want us to work together like they have had to,” he said.  “Members of the legislature, we know we can find common ground because we have done it before.”

In the Republican response, House Speaker Tim Moore said Republicans and Cooper have many of the same goals, but different ideas for reaching them. The state should “stay the course” with “smart budgeting, regulatory reforms, and tax cuts,” Moore said.

Even as he stressed bipartisanship and talked about passing a budget that both he and Republican legislative leaders could sign, Cooper again emphasized his support for Medicaid expansion, one of the sticking points that has prevented adoption of a comprehensive state budget since 2018.

North Carolina is one of a dozen states that has not adopted Medicaid expansion.  An expansion-like bill sponsored by House Republicans never made it out of that  chamber last session, and leading Senate Republicans have repeatedly rejected the idea.

Cooper said the landscape has changed in the last year – the federal government is offering financial incentives to states that have yet expanded, more people are without health insurance due to pandemic-related job losses, and the state will move to Medicaid managed care in two months.

A bipartisan group of businesspeople, health care providers, legislators and others met last winter to develop principles for insuring more residents.

“Expanding Medicaid does all the things we agreed on in our bipartisan council meetings,” Cooper said. “It gets more people covered. It makes people healthier. It uses tax dollars wisely and reduces health care costs for businesses. It makes health care more fair. It reaches rural areas. Let’s make a deal. Let’s get this done.”

Affordable higher education and greater investments in education will make North Carolinians prepared for the jobs the state is attracting, Cooper said.

Both Cooper and Moore referenced Apple’s decision to build a $1 billion campus in Research Triangle Park and bring 3,000 jobs to the state.

Cooper also pushed for direct aid to businesses hit hardest in the pandemic – restaurants, hotels, and tourism, for his proposed school construction bond, clean energy jobs, and broadband expansion.

“We have a plan and the money to stretch high-speed internet to our state’s farthest corners,” he said.  “And we should use them both to get this done.”

Cooper called on the state to end racial injustice.

Black and Latinx communities have borne the brunt of the COVID-19 pandemic, and 2020 was a summer of nationwide protests against law enforcement officers killing unarmed Black people.

While  Cooper was speaking Monday, protesters gathered in Elizabeth City over a county deputy shooting Andrew Brown Jr., a Black man, last week. The shooting has drawn national attention.

“We must face head on the stark reality of systemic racism, and how it hurts people and leaves them behind—who gets to see a doctor, who gets hired for a job, who gets charged with a crime, who gets prison time, who gets killed,” Cooper said.

“Over the past year, and just in the past week, we’ve seen the harm suffered by too many people of color in our state and across the country. And I want to say clearly: We must all stand together to stop racial injustice in North Carolina. Everyone should have opportunity and everyone should be able to feel safe in their own homes and communities without fear of authority who should be there to protect them.”

The state has about $5 billion in unreserved cash in its general fund because it has not had a new all-round budget since 2018.

Moore said Cooper would push for increases in state programs, bureaucracy and spending, while Republicans “will use this one-time surplus of funds on capital projects and sectors to invest in our state.”

Moore talked about a law passed this year requiring school districts to offer summer school, a House bill that would give tax breaks to the businesses that received PPP loans, and voter ID.

Legislators are working on bipartisan criminal justice laws that would “end disparities while continuing to respect our law enforcement officers,” he said.

A bipartisan House bill would require a law enforcement officer to intervene when another officer is using excessive force.

A Senate Republican bill would increase penalties on people who “engage in a riot.”

Cooper proposes asking voters to approve $4.7 billion for school and state building projects.

Gov. Roy Cooper has again proposed that voters approve borrowing money for statewide construction and renovation projects.

But the idea of borrowing, no matter who comes up with it, has proven to be hard to get legislative approval recently. Senate Republicans prefer paying for buildings with direct appropriations.

As part of his budget this year, Cooper has proposed putting a $4.7 billion bond to a vote in November.

-$2.5 billion would go to K-12 school construction.  A report from the State Board of Education and the  Department of Public Instruction based on a 2015-16 survey found school districts needed $8 billion for buildings, additions, renovations, and other capital costs.

-$500 million would go to community colleges

-$783 million would go to UNC campuses. The largest project is a new Brody School of Medicine building at East Carolina University, at $187 million.

The recommendation includes money for renovations at two of the state’s development centers and two of its neuro-medical centers, the state alcohol and drug treatment center in Black Mountain, and money to expand TROSA, a residential addiction treatment center based in Durham, to the Triad.

The bond recommendation includes $229 million to move the state Department of Health and Human Services from the Dorothea Dix campus in Raleigh to Blue Ridge Road.

Assorted state attractions would get a total of $460 million, including $70 million for NC Zoo exhibits.

Cooper included a $3.9 billion general obligation bond as part of his 2019-20 recommended budget that the legislature did not consider.

The state House has been amenable to the idea of asking voters to approve borrowing for capital projects. In the last two years, House Republicans have put together their own bond proposals, and passed them with little opposition.

In 2019, House Speaker Tim Moore cosponsored a $1.9 billion school construction bond bill that moved swiftly through the House and died in the Senate.

approval.

The House tried again last year, passing a $3.1 billion bond bill with the money to go to school construction and transportation projects. That bill also died in the Senate.

Gov. Roy Cooper’s budget puts Medicaid expansion back “on the table”

The proposed budget Gov. Roy Cooper released last week included his long-time priority, Medicaid expansion for 500,000 North Carolinians without health insurance.

The standoff over Medicaid expansion between Cooper and the Republican-led legislature contributed to Cooper vetoing the state budget in 2019.

Cooper said at a news conference last week that he would not veto a budget over one issue, but he would not sign a budget that was “not right for North Carolina.”

“Getting more health care coverage to people in North Carolina is certainly a priority,” he said. “Medicaid expansion is the best way to do that. Everything is on the table this budget session. I’ve agreed with the legislative budget leaders that we want to put everything on the table. We hope that each side gets what it wants – that we work together to reach a budget I can sign.”

Medicaid expansion offers health insurance to adults who earn up to 138% of the federal poverty level. North Carolina is one of a dozen states that has not adopted Medicaid expansion, according to the Kaiser Family Foundation.

Republicans who control the state legislature have opposed expansion since it was first adopted as part of the Affordable Care Act, back when Bev Perdue held the governorship.

Republicans have offered various reasons over the years for opposing expansion – that Medicaid was “broken,” that expansion would cost the state too much, and later, that they did not want to expand the Medicaid population while the state was shifting from fee-for-service to Medicaid managed care.

The federal government picks up 90% of the costs for people who get Medicaid coverage under state expansions. Most of those who covered under expansion are low-income, childless adults.

Senate Republicans said they did not like an expansion-like plan that House Republicans devised that would have had hospitals pick up costs the federal government did not pay. That bill never made it out of the House.

The most recent federal COVID-19 relief package includes financial incentives for states that have not yet expanded Medicaid.

The Kaiser Family Foundation estimated that North Carolina would net $1.2 billion if it expands Medicaid.

Senate leader Phil Berger, an expansion opponent, told the Associated Press earlier this month that the extra money is time limited, and that coverage gaps could be addressed without “creating a whole new level of entitlement in the state of North Carolina.”

Cooper late last year created the bipartisan NC Council for Health Care Coverage to come up with ways to get coverage to more people. The Council developed a set of guiding principles, but did not settle on one strategy.

So far, Republicans have proposed bills with limited reach, such as the proposal to allow parents on Medicaid whose children are temporarily taken into foster care to keep their coverage.

In a Facebook post last week, Sen. Kevin Corbin, a Macon County Republican, said he was working on a bill with Sen. Jim Burgin, a Harnett Republican, that looks at expanding health coverage for working families.

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.

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