Under the Dome

NC projections show future state revenue shortfalls

N.C. Senate Democratic leader Dan Blue, left.
N.C. Senate Democratic leader Dan Blue, left. cseward@newsobserver.com

State expenses are expected to grow faster than revenue starting in 2019, according to a five-year budget forecast.

The report by nonpartisan legislative staff offers a half-dozen suggestions for dealing with future shortfalls, including not paying for inflationary increases in spending items such as state salaries; using money unspent from previous years; calling off planned income tax cuts; or increasing the sales tax rate from 4.75 percent to 5 percent.

The budget projections prepared by the legislature’s Fiscal Research Division show shortfalls of $1.2 billion to $1.4 billion in years 2019-2020 to 2021-2022.

Sen. Dan Blue’s office said the Senate Democratic leader from Raleigh requested the information in the last week of June. It was delivered late last week.

The projections assume the state offers all services it does now, and factors in projected growth in public schools, community colleges, universities and Medicaid spending. Projections of annual spending growth range from 4.1 percent to 5.3 percent.

The state must pass a balanced budget. The General Assembly cannot approve a spending plan knowing the state won’t have enough money to pay for it.

The Republican-led legislature has been rewriting the tax code, starting in 2013 when it cut income tax rates, eliminated some tax credits and deductions, and increased taxes on electricity, movie tickets and other amusements.

A new round of income tax reductions set for January 2019 would cut the corporate rate from 3 percent to 2.5 percent and the personal income tax rate from 5.49 percent to 5.25 percent, among other changes.

Blue said in a statement that the report shines a light on how Republican budgeting is hurting the state.

“We’re still reviewing all of the details of this budget and really understanding what it will do to North Carolina in the long-term,” he said. “The numbers are clear – tax cuts have taken priority over our state’s core responsibilities. This is not healthy and it is not a responsible way to operate.”

Amy Auth, spokeswoman for Senate Republicans, said in a statement that Republicans aren’t going to let government grow as much as the projection shows.

“Legislative Republicans have no plans to expand government by a whopping 20 percent over the next five years – but leave it to the Democrat politicians responsible for recklessly spending our state into a $2.5 billion budget deficit to erroneously presume we plan to spend at unsustainable levels like they used to, when our track record of spending restraint and middle class tax relief has led to consecutive budget surpluses and a booming economy,” she said.

“Our nonpartisan fiscal research staff projects state revenue to grow more than $3.5 billion over the next five years, even with major tax cuts to the middle class. We have out-performed projections for three years in a row, and only Democrats would consider $3.5 billion in additional taxpayer dollars a ‘cut’ to state government.”

Lynn Bonner: 919-829-4821, @Lynn_Bonner