Wednesday, 01 May 2019 09:26

House budget lower than so-called TABOR limit but savings suffer

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RALEIGH — The House proposed budget lowers some taxes, creates others, and cuts against the grain of past Republican efforts to prioritize savings reserves as a rainy day buttress to economic downturns and natural disasters.

Lawmakers introduced House Bill 966 Monday, April 29, during an evening session. It sets General Fund spending at $24.5 billion for 2019-20, and $25.3 billion for 2020-21.

The current budget is $23.2 billion, so the 2019-20 proposal is 3.1 percent higher, but below the 3.4 percent TABOR limit based on inflation and population growth. It is lower than Gov. Roy Cooper’s $24.5 billion budget proposal for next year, and $25.2 billion the following year.

“The House budget is still a work in progress as it makes its way to floor votes later this week, and then the Senate,” said Joe Coletti, senior fellow at the John Locke Foundation who specializes in fiscal and budget policy.

“I would like to see a better balance of saving, spending, and tax reductions more in line with what the legislature managed between 2011 and 2017 when North Carolina earned its reputation as a state that could make tax reform work for everyone,” Coletti said.

The House budget shows only $23.9 billion is appropriated, leaving $606 million on the table. The following year $24.9 billion is appropriated with $419 million left.

Coletti noted $200 million for salaries had been in reserves while lawmakers figured out how to distribute the pay raises.

The five biggest areas of new spending he cited are a pay and benefit increase at $422 million, Medicaid at $118 million, summer enrollment in the UNC system at $35 million, continuation of the film and entertainment grants at $31 million, and implementation of Raise the Age legislation at $29 million.

Cooper, as is customary, didn’t respond to a request for a response from Carolina Journal, but Alexandra Sirota, director of the Budget and Tax Center at the left-leaning N.C. Justice Center, criticized the spending plan.

“Once again, House leaders have chosen to cut taxes and reduce our ability to invest in community priorities. Another tax cut for large businesses — this time the franchise tax, which is not a targeted cut for small businesses in NC — will only serve to further erode our tax base and won’t deliver a better economic growth path for our state and families,” she said in a news release.

She chided lawmakers for failing to expand Medicaid, and to spend as much on education as liberals wanted, as the budget debate began in earnest.

Among highlights of the 2019-20 budget:

Only $104.6 million is slotted for the Savings Reserve in 2019-20, bringing the fund to $1.39 billion. It’s a fraction of the $2.6 billion recommended by the Office of State Budget and Management and the General Assembly’s Fiscal Research Division. No money was added to the reserve in 2012 or 2016. In 2016 $101 million was transferred from the reserve for Hurricane Matthew recovery efforts. After briefly reaching $2.01 billion in 2018, $756.5 million was tapped for recovery from Hurricanes Florence and Michael.

K-12 education spending increases $116.6 million to a total of $9.7 billion. The N.C. Community College System adds $8.7 million in spending, going to $1.18 billion. The UNC System rises $56.7 million, to $3.1 billion. Total state education spending is up $182 million to $14 billion.

Debt service increases to $721.1 million from $716 million this year, and is paid out of the State Capital and Infrastructure Fund instead of the General Fund.

Standard deductions for personal income tax would be 3.75 percent larger. For married couples it would go from $20,000 to $20,750; heads of household from $15,000 to $15,563; single filers and married couples filing separately from $10,000 to $10,375.

The Franchise Tax on the value of businesses will begin to fall in 2020. Businesses will pay corporate income tax based on sales in North Carolina, generating $3 million. Internet marketplace companies like Etsy will be forced to collect sales taxes, adding another $94.6 million. Those additional revenue streams will balance against the $99.9 million reduction in personal income and franchise tax changes, leaving tax revenues $5.3 million lower for the year.

State Department of Health and Human Services appropriations show an increase of $82 million to $5.6 billion. Medicaid and Health Choice, the largest driver of state DHHS appropriations, would increase $32.1 million to slightly less than $4 billion. DHHS would get an additional 14.5 positions for Medicaid and Health Choice, raising the total number of employees in that division to 485.

The budget appropriates $233 million in nonrecurring money from a Medicaid reserve fund, of which $63.9 million is for upgrades to the NC FAST computer system to enhance beneficiary enrollment in managed care programs under Medicaid transformation starting Nov. 1.

Total general government, which includes budgets for the elected Council of State officers and the General Assembly, is $428 million. That’s a $22.3 million increase despite showing elimination of some 42 positions.

The budget extends historic rehabilitation tax credits to Jan. 1, 2024. The same extension date would be accorded to sales taxes for fuel purchases by interstate commercial airlines, and for certain purchases and service contracts by professional motorsports teams, most notably NASCAR.

About $103 million in appropriations would go to a variety of disaster recovery activities, nearly all of which stem from Hurricane Florence.

Out-of-state businesses would be exempted from paying multiple business taxes if they are performing disaster-related work for a critical infrastructure company during a disaster response period.