by Paige Terryberry
Senior Analyst for Fiscal Policy, John Locke Foundation
North Carolina’s state government revenues continue to exceed expectations. According to the new state budget Director Kristen Walker, revenues for the current fiscal year that began July 1 are 10% higher than expected, as reported by the Associated Press. This translates into $1.2 billion more revenue than projected for this point in the year. Tax revenue of all kinds is up. Each major tax category has more revenue than last year at this time.
Though high tax revenues do provide more flexibility for budget writers, real recession threats mean there will be no excuse for a spending bonanza in the next budget. High revenues are partially the result of fiscal restraint from conservative leaders that enabled significant tax cuts which stimulate more economic growth. Aggressively saving for a recession prevents future tax hikes when revenues plummet from an economic downturn.
With the 2022 short-session budget, spending increased 7.6% on a year-over-year basis. Even so, legislators set aside $1.6 billion for the Rainy Day Fund. They also sent $1 billion to a new reserve to cushion for the impacts of inflation on the state’s budget.
Given that inflation will likely continue into the next fiscal year, legislators should be especially mindful of any new spending.
High revenues are not a bad problem to have. But when a recession hits, that excess revenue will drop. Such surpluses would certainly be spent in a progressive legislature, overextending future taxpayer obligations.
This legislature, however, has an opportunity to aggressively set aside these funds into reserves to prepare for a coming recession.