The Office of State Budget and Management and the General Assembly’s Fiscal Research Division released their joint forecast for North Carolina’s revenue today. This is a standard procedure that occurs in the early days of the budgeting process to inform lawmakers of the state of the economy. The report includes major trends that affect revenues for the upcoming biennium, which begins July 1, 2023.
The report estimates that the current year (FY2022-23) will have a $3.25 billion surplus above previously projected revenues. The surplus is driven by a few factors, including a smaller-than-expected decline in the personal income tax collections, high corporate profits, consistent consumer spending on items with the sales tax despite inflation, and higher-than-expected investment returns on the General Fund balance.
The report also predicts that for the upcoming biennium (FY2023-25), the General Fund will see year-over-year declines of 0.2% in each year. This prediction is driven by a forecasted recession (the report calls it a “slow-cession”) with stagnant or slow growth throughout the biennium. This, combined with inflation, the continued phase-in of previously legislated tax reductions, and the transfer of increasing sales tax revenue to the Highway Fund and Highway Trust Fund present major headwinds reflected in the decreased revenue.
Legislators must set aside the $3.25 billion one-time surplus for the coming recession. To cushion against uncertainty and the predicted drop in revenues, legislators need to set aside money to draw from during the downturn. Moreover, legislators need to keep their promises to continue to lower taxes.
Senator Phil Berger welcomed the forecast numbers but is rightly guarded: “While this year’s surplus is welcomed news, we need to be cautious as we prepare the budget. We must continue to prioritize responsible spending, addressing our state’s workforce needs, and providing additional tax relief to our citizens.”
Cooper’s response was markedly different, saying your tax dollars are “needed desperately” for various “investments.” He failed to mention the predicted drop in revenues.
If lawmakers choose to pursue short-term political gains in spending the surplus, we will risk long-term detriment to the state.