Expect a ‘slow and mild’ recession, Roy Cooper’s new budget director says
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North Carolina Budget
North Carolina is going through its budget process for the 2023-25 fiscal year. Here’s a look at coverage of the process and what’s in the budget from The News & Observer and The Charlotte Observer.
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Passing North Carolina’s state budget is a top priority for state lawmakers this year.
They expect to pass a two-year spending plan that will change the lives of North Carolinians in many ways, from possible tax cuts to raises for state employees and teachers.
But first, in March, Democratic Gov. Roy Cooper will send the Republican-majority General Assembly his budget proposal. This session there’s a new state budget director in his administration: Kristin Walker.
Walker has worked in the Office of State Budget and Management for seven years, and before that spent 11 years in the legislature’s fiscal research division, so she is well-versed in all things state budget. Walker is a graduate of the University of Michigan and Duke University.
The News & Observer interviewed Walker about her job and what’s on tap this year. Here are three big takeaways about the state’s finances.
Revenue forecasts
To craft a budget proposal, officials need to know how much revenue the state expects to receive from taxpayers.
“(Tax) collections are running about 10% over what they projected,” Walker said. “That, of course, is one-time money” that can’t be counted on to pay for ongoing expenses.
Sales tax revenue was down about 1% in December but collections from other sources went up, she said.
In past years, the state has used budget surpluses to give bonuses to state employees and retirees, and to add to savings.
In February, the joint revenue forecast from the governor’s administration and the legislature will be an important indicator of what the state can afford to spend. It will also influence Cooper’s budget proposal this spring.
After Tax Day in April, there will be another joint revenue forecast issued in May, “because the data is just so much better,” Walker said.
‘Slow and mild’ recession on the horizon
North Carolina’s expectations for taxes depend on its economic outlook.
Walker said North Carolina’s economists predict a “slow and mild recession is on the horizon, and most economists across the country are thinking that.” That will affect tax revenues for the coming fiscal year that starts July 1, she said, and the year after.
For the fiscal year from 2024 to 2025, revenue looks “pretty flat,” Walker said, due to the economic outlook and reduction in the personal income tax. That tax rate went down this year as part of the 2021 state budget, which was a two-year spending plan.
The personal income tax rate was reduced to 4.75% as of Jan. 1, 2023, down from 4.99% in 2022 and 5.25% the three years previous to that. It is likely to be reduced further in the upcoming legislative budget.
Budget process is already underway
Walker said that the budget office is already meeting with state agencies about what they’ll ask for as they build their “business case” with data to show why they are making requests. A lot of what has driven budgets she’s worked on the past 15 years — spending on Medicaid, education and state employees salary and benefits — are the same this year.
Walker said Cooper’s budget proposal will likely keep in line with his past priorities, including state employee compensation, teacher compensation, mental health, Medicaid and K-12 public schools.
Cooper’s budget proposal will be only that, as he is a Democrat and Republicans control the General Assembly. Republicans have more power after the past election, with a supermajority in the Senate and one vote short of a supermajority in the House. But there have been compromises in the past and there could be again.
Budget meetings will start in the spring and a state budget should be passed before the fiscal year ends June 30. If it’s delayed, though, state government continues at current budget levels and won’t shut down.
In 2019, there was no full state budget at all after several months of a stalemate. In 2021 the budget became law in November, five months late.
This story was originally published January 20, 2023 at 6:00 AM with the headline "Expect a ‘slow and mild’ recession, Roy Cooper’s new budget director says."
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