North Carolina’s financial condition continues to show positive signs in spite of the economic disruption caused by the past 15 months of pandemic quarantine and Governor Cooper’s mandated closure of most of the state’s small businesses in response to the COVID-19 panic. While this is a good news for the state and a great opportunity for state’s taxpayers and businesses to recover, it’s a bad omen for liberal spendthrifts who are never satisfied that government spends enough or taxes enough.
N.C. Senator Phil Berger (R), Rockingham County, President Pro Tem of the Senate, commenting on the state’s unanticipated $6.5 billion surplus noted, “A huge surplus doesn’t mean we’re spending too little. It means we are taxing too much.” Considering the past year and a half of yet another unanticipated event, such as the COVID-19 pandemic resulting in near total economic destruction, there is good reason for that remark.
Thursday, the Senate passed, with a bipartisan super majority, 32-18, a proposed state budget for the 2021-23 biennium that provides pay raises for state employees, invests in the state’s infrastructure, replenishes the state’s Rainy Day Fund and at the same time provides tax cuts for both citizens and businesses.
While the focus has been on the unanticipated income surplus and the subsequent distribution of a $25.7 billion spending plan for the next year, to increase to $26.3 billion in year two, the real story is how the state accomplished this. As Sen. Kathy Harrington (R), Gaston County noted, “A decade of smart governance means we’re now in a position to use cash, not debt, to improve North Carolina’s infrastructure, while simultaneously cutting taxes.”
When the Republicans took over leadership of the legislature in 2010, after more than 100 years of Democrat control, North Carolina was over $2 billion in debt to the federal government. Acting decisively, the legislature applied tight fiscal policies, increasing business taxes and reducing services that were not critical to state operations or its citizens. The aggressive fiscal planning resulted in the elimination of the state debt in two years instead of an expected four-year payout.
Since that experience, the legislative leaders have worked successfully to strengthen the state’s finances, holding all state agencies accountable for operational efficiencies, building reserves and whenever possible, passing on savings through tax reductions for both personal and business taxes. But this is contrary to the desires of liberal Democrats and the state’s teacher’s union, the North Carolina Association of Educators (NCAE).
The state’s Democrat Party quickly argued, “With unexpected revenue and funds waiting to be allocated from the last budget negotiation, North Carolina has a once-in-a-lifetime opportunity to address critical needs to invest in programs that will bolster the state for years to come. The Republicans’ proposal doesn’t reflect that opportunity and instead focuses on tax cuts for the wealthy and corporations while failing to invest in hard working North Carolinians.”
The NCAE and Democrats are particularly critical of the budget proposal because it raised teacher pay only 3% over the biennium as opposed to their desired 5% to 7.5% as Governor Cooper proposes in his budget. Further, the NCAE is disturbed that the General Assembly continues to fund school vouchers that allow low income families, who qualify and are selected through a lottery system, the opportunity to utilize up to $4,000 in state grants per year for use in private schooling for students in grades 1-12.
All of this is under the guise that increased teacher pay and removal of school choice options is for the benefit of the students.
Considering the bipartisan support that the senate budget received there is little chance these arguments will gain traction.
Some of the highlights of the budget proposal include the commitment of $4.3 billion in the state’s capital infrastructure fund with $3 billion to be used for new projects and $1.3 billion for current debt, setting aside $5.1billion for fiscal recovery funds, replenishing the state’s reserves including the state’s emergency rainy day fund, and providing pay raises for almost all state employees. The senate’s budget increases support for public education with an additional $500 million, fully funds $54.9 million for the state’s colleges, and funds the state’s community college system at $1.26 billion in 2020-21 and $1.32 billion in the following year.
At the same time that the senate’s budget spends increased sums for state operations, education and personnel, it also provides tax relief, cutting personal income tax. The first year the senate proposes dropping personal income tax to 4.99% and then to 3.99% from the current 5.25% which will represent a 24% reduction at the end of two years. Adding in increased child tax deductions of $500 per child and other programs, the overall impact on a median household income of a family of four will be a 37% tax cut.
Considering the financial impacts that the COVID-19 pandemic and subsequent quarantine has had on the state’s citizens and small businesses, the senate’s conservative and forward looking budget that actually benefits taxpayers, is the right approach at the right time.