North Carolina’s April surprise mimics national trend, warrants caution

Policymakers are beginning to put the finishing touches on their budgets this week in the House. The Senate will soon follow.  While the April surprise has some thinking of investments in core services that are needed or, even more disturbing, proposing more tax cuts, a cautious approach is warranted.  Not only does the revenue announcement last week not signal that the state has what is needed to support strong and effective public services, it is quite possibly a one-time event.

The Washington Post today reported that a number of states  have announced revenue collections higher than anticipated largely on the personal income tax side and due to strong investment income performance.  North Carolina’s Fiscal Research Division and Office of State Budget Management identified similar sources for our own state’s revenue surplus.  From the article:

“This year’s April surprise will likely help more states meet or exceed revenue projections for fiscal 2015, which ends on June 30th for 46 states,” NASBO’s Brian Sigritz writes in the blogpost. “However, most of the gains are due to an increase in income tax collections, partly from the strong stock market performance in calendar year 2014, and are viewed as one-time occurrences.”

The fact that North Carolina appears to be mimicking national trends means that tax cuts also can’t serve as an explanation for the surplus. It also means, again, that policymakers should be very cautious in how they consider this money in their budgets.  It seems increasingly clear that a fiscally responsible approach would be not to expect the bump from current economic conditions to be a permanent feature of the new tax code and certainly not reason for more tax cuts.