NC has $3 billion surplus ahead of decisions on budget, taxes, raises
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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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The revenue forecast for North Carolina predicts that 10.7% more taxes will be collected this year than expected.
That means an extra $3.25 billion for the state, courtesy of taxpayers. It could also mean further tax cuts and potentially higher raises for state employees and teachers in the state budget.
The numbers are part of the consensus forecast, a joint forecast from the General Assembly’s fiscal research division and the Office of State Budget and Management.
Here are the reasons for the surplus, according to the forecast:
▪ A “smaller-than-expected decline in individual income tax collections, especially due to larger-than expected tax payments from pass-through businesses electing to be taxed at the entity level,”
▪ “Persistently high corporate profits, particularly among large multi-national corporations,”
▪ “Resilient consumer spending,” even with inflation, and
▪ “Higher-than-expected investment returns on the General Fund balance.”
The consumer price index released by the U.S. Bureau of Labor Statistics on Tuesday says prices have risen nationally by 6.4% since last year at the same time. For the South, inflation is at 6.9%.
Recession ahead?
State Budget Director Kristin Walker, who is part of the Cooper administration, told The News & Observer in January that tax collections have been running about 10% over what was projected.
Sales tax revenue was down about 1% in December but collections from other sources went up, Walker said then. She said at the time that economists were expecting a “slow and mild” recession ahead.
Wednesday’s report described an economic “slow-cession” with stagnant growth this year and slow growth in 2024.
“We anticipate inflation continuing to slow from recent peaks toward the Federal Reserve’s 2% target but remaining above that target well into 2024,” the forecast concludes.
The last forecast was in May 2022, and highlighted that North Carolina had recovered faster from the coronavirus pandemic economic downturn than expected. That forecast also noted that inflation was expected to remain high for the fiscal year ending in June.
Budget season
There will be another joint revenue forecast in May, with better data from April’s Tax Day. That’s also the height of state budget season. The budget process is already underway at the General Assembly, with appropriations committees meeting the past two weeks to hear overviews of state spending areas.
Democratic Gov. Roy Cooper will release his budget proposal in March.
The budget has been at the core of power dynamics for years between the governor and the legislature, often dragging out months past the start of the fiscal year. And it also usually contains policy provisions, not just those allocating money. The 2021-22 budget, passed in November of 2021, included a new law that limited Cooper’s powers in states of emergency.
Republicans, who have a supermajority in the Senate and a majority in the House, are the state budget writers. They are one vote short of total control, meaning they could override a budget veto if at least one House Democrat votes with them.
In a statement Wednesday, Senate leader Phil Berger said the $3.25 billion surplus “confirms that North Carolina’s tax policies are fueling economic growth. The surplus is a significant increase over the current fiscal year’s budget.”
And not so fast on ideas for spending, Berger indicated: “While this year’s surplus is welcomed news, we need to be cautious as we prepare the budget. We must continue to prioritize responsible spending, addressing our state’s workforce needs, and providing additional tax relief to our citizens.”
Cooper urged the money be used for education in a statement on Wednesday.
“These increased funds are needed desperately to pay our teachers more, fund our schools, provide quality child care for parents in our workforce and to pay for the tax cuts for working families that we put in place last year,” Cooper said.
“I hope we can negotiate a bipartisan budget that makes these investments without more tax breaks for the wealthiest among us,” he said.
This story was originally published February 15, 2023 at 3:15 PM with the headline "NC has $3 billion surplus ahead of decisions on budget, taxes, raises."
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