North Carolina has entered a remarkable – and remarkably busy – decision-making period. The state government is inundated with an extraordinary flow of money, yet inundated with fiscal uncertainty.
A telling moment came this week when Democratic Gov. Roy Cooper attached numbers to budget target negotiations between House and Senate Republicans that lawmakers had withheld. House Republicans first proposed spending $ 26.4 billion in the 2021-2022 General Fund budget, then fell to $ 26 billion. Senate Republicans have set their target lower to $ 25.5 billion.
Both legislative targets are significantly lower than the overall General Fund spending of $ 27.3 billion in Cooper’s recommended budget in March and in his revised plan of $ 26.6 billion when factoring in newly available federal funds. . In a state budget in which nearly six in ten dollars goes to public education, North Carolina schools, community colleges and universities have a lot to gain from internal maneuvers to close a gap of more than ‘a billion dollars.
Building an omnibus budget is always a bit of a puzzle, involving income estimates, assessments of the needs of people and places, and a mix of politics and politics. This year, as nation and state emerge from a pandemic that has exposed and exacerbated disparities in the economy, health and education, the puzzle has expanded beyond its conventional dimensions with a massive injection of federal funds and an accumulation of unspent state revenue.
The Biden administration’s US bailout, promulgated by Congress in March, sends $ 5.7 billion to the North Carolina state government, along with millions to local governments and school systems. In addition to the first pandemic relief packages, extraordinary federal assistance gives North Carolina the opportunity to address a range of needs and challenges, from expanding to early childhood fortification providing community colleges with equipment to improve the workforce, modernizing school buildings so that young people have safe and modern learning environments, and bridging the digital divide with broadband in all states.
The state’s own accumulation of revenue is the result of a confluence of factors: the impasse between the governor and the legislation that maintained spending for two years tied to an outdated pre-pandemic budget; and the state’s financial, pharmaceutical, technological and educational sectors that have been resilient during the pandemic with employees working from home and paying taxes on their income. An updated consensus forecast is expected soon to show unspent revenue totaling around $ 7 billion.
Of course, it’s better to have money than not. Yet there is an important difference between the pieces of the puzzle. Federal stimulus and unspent state funds are one-time, one-time revenues, while a large portion of the General Fund budget consists of recurring revenues that fund people and programs year after year.
For example, non-recurring income could be used to give educators a one-time bonus. Base salary increases for educators that remain in effect year after year would come from recurring revenues.
Now North Carolina is mostly inundated with one-time revenue; rescue funds have a term of four years. North Carolina remains uncertain about General Fund negotiations between Republicans in the House and Senate and between GOP lawmakers and the Democratic governor, who has veto power.
Whether North Carolina can build on unprecedented federal funding and sustain progress, especially in education, over the medium term is made more uncertain by pressure from Republican lawmakers in favor of another series of tax cuts. Since 2013, the legislature has enacted tax changes – including a lower, uniform personal income tax rate and the lowest corporate tax in the country – that have reduced state revenues by more than $ 4 billion. dollars in 2019-2020. Now a push is underway to phase out corporate tax from the state, to cut taxes on franchises, and to soften the package by lowering the personal income rate and increasing the standard deduction – au final, at the cost of about a billion in additional revenue.
North Carolina is caught between competing dynamics – between a federal government propelled by the pandemic into an expansive phase and a state government still pulled into a small public sector. Eliminating corporate tax would reduce the diversity of revenue sources and further erode the overall tax base to support a modern top 10 state. The renewed argument that people always spend money better than their government remains a time-worn bromide – refuted by North Carolina’s own history as a good roads state, as a model of public higher education and as a civic community with a constitutional mandate to give all its young people the possibility of free and solid basic education.