NC’s state revenue forecast is sunny again, but with caution as inflation soars
It’s another sunny day for North Carolina’s state budget, but some leaders are already cautioning against spending given the potential for storms ahead.
A forecast of state revenue released Monday shows multiple reasons for the promising outlook for the state’s finances, including higher-than-expected job growth and higher-than-expected revenue from sales tax and corporate income tax.
But while state collections may be exceeding expectations, the outlook “faces significant headwinds,” according to the report.
The consensus forecast is a joint effort of the nonpartisan Fiscal Research Division in the state legislature and the Office of State Budget and Management, which is part of Gov. Roy Cooper’s administration.
The forecast reports “an elevated risk of recession during the forecast period given geopolitical uncertainty and evolving monetary policy by the Federal Reserve to address high inflation.” It adds that despite the risk, the legislative and executive branch economic experts do not foresee a “near-term” recession.
The Consumer Price Index was up 8.5% at the end of March.
Here’s what else the forecast shows:
▪ Inflation is expected to remain elevated but decelerate during the upcoming fiscal year that starts July 1.
▪ Consumer spending direction is unclear given the impact of inflation’s potential to slow consumer demand for higher prices.
▪ Revenue for the upcoming fiscal year is estimated to increase by 6.8%, or $1.9 billion, of the budgeted amount.
▪ The revenue forecast shows an increase of $4.2 billion in revenue for this current fiscal year.
More spending?
The state budget passed in November 2021 is a two-year budget, but there may be new legislative spending passed in the upcoming session that starts May 18.
Republicans, who hold majorities in both the House and Senate, don’t appear to take the windfall as a plan to spend more.
“Today’s forecast highlights the General Assembly’s winning formula of low taxes, reasonable regulations, and responsible spending. Our state continues to experience growth and record-breaking economic development coupled with regular revenue surpluses,” House Speaker Tim Moore and Senate leader Phil Berger said in a joint statement.
They also criticized President Joe Biden, a Democrat.
“While this is promising news, we must be cognizant of the national economy and the precarious position the Biden administration has put the American people in thanks to rising costs and runaway inflation. It is crucial that we continue on this track of responsible and disciplined spending in light of the potential for a recession as we begin the short session budget process,” Berger and Moore said.
Cooper, a Democrat, did not mention numbers in his statement about the forecast, but listed his spending priorities.
“Our state is strong in many ways and it’s more important than ever to build on our success by investing in good schools, quality healthcare, resilient infrastructure and clean air and water. Tough times have made North Carolina stronger and we can build a foundation for the future,” Cooper said.
Democratic leaders in the legislature mentioned similar priorities. They called the forecast “great news” and credited Cooper.
“It is great news that North Carolina is experiencing record job growth as we rebound from the pandemic thanks to Governor Cooper’s leadership,” House Democratic Leader Robert Reives and Senate Democratic Leader Dan Blue said in a joint statement.
Cooper and Republican lawmakers had a stalemate over the budget in 2019 and finally came to an agreement for the 2021 budget, with the governor saying he signed it into law because the “good outweighed the bad.”
Blue and Reives also brought up pay for state employees, who are receiving at least a 2.5% raise this year as part of the 2021 budget legislation, and teachers, who are getting an average 2.5% raise.
“It is also encouraging that workers’ wage growth is exceeding expectations. We need to make sure that teachers, public safety officers, education workers, and all state employees receive pay raises that will help us recruit and retain the best people,” they said.
While the legislature is back next week the day after the May 17 primary election, no voting sessions are expected before the week of May 25.
For more North Carolina government and politics news, listen to the Under the Dome politics podcast from The News & Observer and the NC Insider. You can find it at https://campsite.bio/underthedome or wherever you get your podcasts.
This story was originally published May 9, 2022 at 4:46 PM with the headline "NC’s state revenue forecast is sunny again, but with caution as inflation soars."
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