Despite pandemic, North Carolina is in good financial shape, forecast says
Despite the coronavirus pandemic, North Carolina is still in decent economic shape, according to the state’s new revenue forecast.
The two-year forecast expects “modest economic growth” and stability as the pandemic begins to wane, also assuming there is more federal COVID-19 relief to come soon.
The last state revenue forecast, in May 2020, was relatively early in the coronavirus pandemic, and much of it mentioned uncertainty. Both the Internal Revenue Service and the state Department of Revenue extended the usual tax filing deadline of April 15 to July 15 this past year. And on top of that, there was uncertainty about the arrival of an economic recession and how businesses — and consumers — would react and be impacted by COVID-19 related restrictions.
Instead, according to the new report, expected revenue collections are “well above” the May 2020 forecast by $4.1 billion, which is 17.6%.
The revenue forecast is a joint forecast of the Office of State Budget and Management, which is part of the executive branch, and the Fiscal Research Division of the General Assembly.
“We expect modest improvement throughout the upcoming biennium, with the worst economic impacts from the pandemic behind us,” the report states. It explains that this year’s anticipated revenue surplus is helped significantly by sales tax collections increasing despite the pandemic, along with the delayed tax payments.
The forecast also says the economy is in the “recovery phase of the business cycle after the quick and sudden recession precipitated by the pandemic.” The economic outlook also expects things to continue to get better over the coming years.
What this means for the state budget
North Carolina has its state budget process every two years. The last time, in 2019, there was a budget stalemate between the branches.
Gov. Roy Cooper, a Democrat, vetoed the Republican-led General Assembly’s proposed state budget. The House overrode his veto, but the Senate did not. Instead, the legislature passed a series of “mini” budget bills, signed by Cooper. The General Assembly also has a fail safe of the previous budget amount rolling over into the next budget, so there’s no reason for a government shutdown. Still, the budget process that usually finishes up over the summer dragged out for months.
In the end, teachers did not get raises and Medicaid was not expanded — two issues at the center of the battle.
This budget season, the key players are all the same: Cooper, Senate leader Phil Berger and House Speaker Tim Moore. All three have pledged to find common ground.
The legislature’s first priority, before the budget process starts this spring, is passing more COVID-19 relief.
Berger told reporters on Thursday that the next coronavirus relief bill is going to be about allocating primarily federal money, while state money “for the most part will be spent and dealt with in the budget.”
The new revenue forecast shows the federal money that went to the state had a much larger impact on the state’s economy than the last forecast predicted.
“It stimulated consumer spending and helped many small business stay open,” the report states, providing an estimated $18 billion to households and $12.5 billion to businesses in North Carolina.
The picture isn’t entirely rosy, however.
The report also notes that “despite solid revenue growth, a small segment of the workforce will remain un- or underemployed as long as COVID-19 is prevalent.” That will still impact the economy and state revenue.
Cooper said in a statement that “while state revenue is strong, people across our state are still hurting and we must use these funds to help them recover from this pandemic.”
“We must bring real help to our schools, to small businesses and to people who have lost income and lack health care to ensure our state and entire economy emerge from this pandemic stronger than ever,” Cooper said.
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This story was originally published February 11, 2021 at 3:59 PM with the headline "Despite pandemic, North Carolina is in good financial shape, forecast says."