As legislators begin building a state budget, they’re getting a boost from a $3.25 billion surplus thanks to more money than anticipated flowing into state coffers from tax collections and interest earnings.
Legislators heard the details of the state’s revenue forecast Tuesday morning, a financial report compiled by economists working for the legislature’s fiscal research division and the state budget office.
The $3.25 billion in “over collections” represents 10.7 % more than what the state expected.
The state also has hefty savings. The Rainy Day fund has $4.75 billion. The target amount is $3.29 billion.
With money left from the current year that was unappropriated and higher than expected tax revenue, legislators will have about $8.3 billion available this year to increase spending, put in reserves, or cut taxes.
In a statement last week, Senate leader Phil Berger called the surplus “welcomed news” but urged budget caution.
“We must continue to prioritize responsible spending, addressing our state’s workforce needs, and providing additional tax relief to our citizens,” he said in a statement.
Tax cuts approved in previous years have reduced the personal income tax rate and the corporate income tax rate. The personal income tax rate will drop in steps to 3.99% in 2027 from 5.25% in 2021. The 2.5% corporate income tax rate will drop to zero in 2030.
Alexandra Sirota, executive director of the nonprofit NC Budget and Tax Center, said the state should “put communities and families first,” by adopting a spending plan and policies that will help them face economic uncertainty.
A top priority should be satisfying the Leandro funding lawsuit to provide a sound basic education to all public school students, she said. Making high-quality early childhood education accessible to all parents and addressing the need for affordable housing should also be high priorities.
“This is more money than we thought we were going to have. It’s not more money than we need to drive the kind of economic well-being that we know is needed,” Sirota said.
“So often, the conversation suggests these dollars provide new opportunities. There is a large backlog of things we’ve been ignoring that need to get addressed right away.”
State economists will offer a revised look at budget numbers this spring that considers actual tax collections after the April filing deadline.
State economists expect a “slowcession” in the next two budget years starting July 1, with small declines in revenue due to slowing economic growth and tax cuts.
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