RALEIGH — The state budget may be spared economists’ worst fears from the COVID pandemic, according to a new tax revenue forecast.
New estimates for the current fiscal year are $4.1 billion rosier than the prediction made in May, says the new consensus revenue forecast released Thursday, Feb. 11, by the Office of State Budget and Management and the General Assembly’s Fiscal Research Division.
The outlook is not completely positive. The state’s economic team warns that tax revenue may contract slightly in fiscal 2021-22 after years of growth.
The state now expects a substantial tax revenue increase versus the years prior — $27.6 billion, about 15% higher than the $23.9 billion collected last year. In May, the forecast had been for a 2% decline in tax revenue.
State economists credit COVID relief from the federal government for buoying North Carolina’s budget outlook. Stimulus money bolstered income tax returns and the Paycheck Protection Program aided business tax collections.
Sales tax collections were also higher than feared, in part due to a recent change requiring online marketplaces to collect sales tax.
House Speaker Tim Moore, R-Cleveland, touted the report as evidence that the Republican-led General Assembly’s conservative fiscal policies have helped the state weather what could have been a damaging recession.
“Today’s revenue forecast represents promises kept for North Carolina to prepare for economic and natural disasters with a pro-growth tax code and responsible budgets that invest in shared priorities,” Moore said in a statement. “People are paying lower taxes in North Carolina and benefiting from a pro-growth approach to the public and private sector.”
However, there are significant assumptions made in the new forecast that may not pan out.
Forecasters are counting on the federal government to pass another stimulus bill that makes direct payments to U.S. citizens and extends unemployment benefits still further.
The projection also assumes coronavirus cases continue their recent decline amid widespread vaccinations, and no new strain that boosts case counts.
Even this relatively rosy financial picture is not without cause for concern.
The state economists forecast that tax revenue will dip slightly in fiscal 2021-22, falling about 1% to $27.4 billion. Revenue would then grow slowly — 4% — in 2022-23.
“The state’s economy is in the recovery phase of the business cycle after the quick and sudden recession precipitated by the pandemic,” the report from the Fiscal Research Division states. “The forecast envisions that the economy will remain stable throughout the forecast period as the pandemic finally begins to recede later this calendar year.”
