The NC budget ‘deal’ is a great start — with one worrying detail | Opinion

For a brief moment Tuesday, the North Carolina political world had all the intrigue of a papal conclave.

After nearly a year of negotiations, House Republicans announced that legislative leaders had reached a budget framework with a social media graphic showing white smoke rising from the Legislative Building.

It was clever. It was also a bit much.

What legislative leaders actually announced was not a full budget, not even close. There are still plenty of spending decisions, policy fights and conference committee details to work through before anything lands on Gov. Josh Stein’s desk. Sen. Phil Berger himself called it a “starting point,” which is not exactly the language of divine revelation.

Still, this is a real step forward. And from what we know so far, it looks like a pretty solid one.

The biggest sticking points appear to be resolved. Teachers would receive an average 8% raise, with starting teacher pay moving to $48,000 before local supplements. That is not the $50,000 goal the House had pushed earlier, but it is a serious increase that would put starting teacher pay among the best in the Southeast. It’s also one Republicans should be happy to defend.

State employees would receive a 3% raise, which is not as hearty but still more than many expected after months of hearing that a 2% raise might be the best they could hope for. There are also bonuses in the framework, along with much larger raises for law enforcement, correctional officers, probation officers and other hard-to-staff public safety jobs.

The tax compromise also makes sense. The Senate wanted to keep pushing down the personal income tax rate through the existing trigger system. The House wanted more caution, arguing that the formula did not properly account for inflation, population growth and the cost of running a fast-growing state.

The deal appears to move the state off the immediate trigger track and onto more of a glide path. The personal income tax rate would fall to 3.49% for several years, then continue down in later steps. That preserves the larger conservative tax-cutting project while giving lawmakers room to adjust if the numbers stop working.

The framework also includes $208 million for the children’s hospital project, a major priority for Berger and one of the more defensible big-ticket items in the stalemate.

That is exactly the kind of compromise the General Assembly needed, preserving our track record of fiscal discipline while still making smart investments. And not to toot my own horn too loudly, but it is also pretty close to the deal I suggested back in April.

One big caveat

The one part that gives me real pause is the proposed constitutional amendment to cap the personal income tax rate at 3.5%.

I am much more comfortable with the proposed levy limits on local property taxes. Property owners need protection from runaway local governments, especially in fast-growing counties where rising valuations can quietly turn into large tax increases. Forcing more discipline there is a good idea.

The income tax cap is different.

North Carolina voters already approved a constitutional amendment lowering the income-tax cap to 7%. I supported that. It created a meaningful guardrail while still leaving future lawmakers room to respond to a recession, natural disaster or other fiscal emergency.

A 3.5% cap is much tighter. Perhaps too tight.

Maybe supporters can convince me the state can responsibly operate under that limit for decades. But right now, I am a no.

My concern is not that lawmakers should be free to raise taxes whenever they want. They should not. My concern is that if North Carolina walls off the income tax too aggressively, future legislatures will look elsewhere when money gets tight.

That means more pressure for gambling. More pressure for marijuana. More gimmicks dressed up as revenue modernization. The state could end up avoiding one tax increase only to invite a different set of social costs.

Conservatives should be careful here. Fiscal discipline is good, but artificial austerity is not. There is a difference between limiting government and boxing in future leaders so tightly that they reach for worse options.

So yes, the white smoke was premature. But the outline is encouraging. Better teacher pay, decent state employee raises, a more responsible tax glide path and money for a children’s hospital make for a strong governing package.

The budget framework deserves praise. The income tax amendment deserves much more caution.

Contributing columnist Andrew Dunn is the publisher of the Longleaf Politics newsletter, which offers thoughtful analysis of North Carolina politics and policy from a conservative perspective. He can be reached at andrew@longleafpol.com.