Lawmakers miss opportunities for progress; double down on austerity and trickledown economics
[Editor’s note: In the newest BTC Brief from the North Carolina Budget and Tax Center, veteran state budget experts Cedric Johnson and Alexandra Sirota provide a detailed and damning look into the new 2017-19 budget enacted by state lawmakers over Governor Cooper’s veto on June 28. It’s the kind of document that deserves to be read and shared widely by caring and thinking North Carolinians.]
Introduction
Lawmakers have passed a new state budget that will serve as a roadmap for how North Carolina will operate for the next two years — unfortunately, this roadmap has numerous potholes and an unclear destination. It does not reflect the spending decisions that can drive better economic outcomes or strengthen the connection to opportunity for every community across the state.
Despite a veto of the budget by Gov. Cooper, House and Senate leadership garnered the needed votes to override the veto and approve the budget. Overall spending for the 2018 fiscal year (FY18) — which runs from July 2017 through June 2018 — is a 3.1 percent increase over the prior fiscal year. While this figure is slightly above the arbitrary formula of population plus inflation — which budget writers have used as a flawed guide for determining spending targets — it is insufficient to keep up with the growing cost of delivering public services to the state’s growing population and to make up for ground lost during the Great Recession.
Under the budget, total state spending for FY18 remains below 2008 pre-recession spending. Furthermore, the new budget marks nine consecutive years that state spending has declined as a share of the state’s economy (see Figure 1).
The austerity budgeting that has defined nearly a decade of North Carolina policymaking is forced by continued tax cuts that have largely benefited the highest income earners in the state and profitable corporations — tax cuts that have reduced the dollars available to make smart public investments. Proponents justify further tax cuts with the claim that they have driven North Carolina’s improving economy. Evidence does not support this false claim, however. North Carolina’s economic recovery has been particularly uneven, with nearly all of the economic gains and job growth going to particular regions of the state and passing over far too many communities.
This reality highlights in no uncertain terms that economic prosperity has not been broadly shared and continued budget cuts to fund costly tax cuts are not the remedy for addressing the needs of communities across the state.
The new budget also fails to prepare for likely federal budget decisions that will have fiscal implications for North Carolina. The state recently experienced what uncertainty at the federal level means for North Carolinians upon learning that only$6.1 million of $930 million in requested federal funds (less than 1 percent) would be provided for disaster and relief efforts to address the aftermath of Hurricane Matthew. Despite this uncertainty and unfortunate reality, the new budget increases reliance on federal dollars to pay for core public investments such as early education and health services. As such, future lawmakers will face the challenge in the future of addressing the needs of a growing state with inadequate resources.
Tax cuts are the elephant in the room that lawmakers fail to acknowledge
The final budget includes a package of tax cuts that reduce available revenue by a total of 528 million over the two-year budget period. However, the full cost of the tax cuts will reduce available annual revenue by around $900 million, and this reality is not included or apparent in the budget because the tax cuts are set to kick in starting January 2019.
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