NC Budget: Recap and Highlights 2016

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Article I, Section 1 of the North Carolina Constitution declares that all citizens are entitled to “the enjoyment of the fruits of their own labor.” For decades, the John Locke Foundation has been North Carolina’s most trusted and influential source of conservative, free market, fiscally responsible ideas to promote freedom and opportunity for all North Carolinians. When our elected leaders approve budgets that lower taxes and restrain state spending, as they have done again this year, they are honoring what is both a promise to working North Carolinians and principles that form the basis of sound governance.

Building on reining in spending since 2011, this year’s General Fund budget totals $22.34 billion. Add in federal dollars, and spending in North Carolina exceeds $51.8 billion. Where those tax dollars are spent and how they are spent is a reflection of sound budgeting, fiscal responsibility, and real accountability to taxpayers.

Spending restraint and saving responsibly:

  • 2.8% increase in spending over last year
  • Third budget cycle in a row that restrains spending to less than the combined rate of inflation and population growth
  • Further tax relief:
    • Personal Income rate reduced to 5.499% from top rate of 7.75% in 2012
    • Corporate income rate reduced to 3% from 6.9% in 2012
    • Standard deduction (zero tax bracket) increased to $17,500 (over two years) from $6,000 in 2012
  •  More money in pockets of N.C. taxpayers:
    • With reduced personal income tax rate beginning in 2013, there was a $1.123 billion tax cut. A sales tax expansion generated additional revenue of $517 million. This leads to a $605 million net tax cut.
    • Looking at the 2014 median household income of $43,916, for 2016 there is a $166 net tax savings per family. That same family saves $290 in 2017 with an additional zero bracket increase to $17,500. That represents net savings, factoring in the sales tax base expansion.
    • Total amount of tax relief since 2011? $3 billion per year
  • Savings for natural disaster, repairs and renovations, and, most importantly,  against future tax increases:
    • More than $1 billion placed into reserves, bringing total savings to 7.5% of the General Fund (the highest percentage in state history)
  • Paying down debt, cleaning up:
    • Addressing $1 billion of state government’s $8.1 billion outstanding debt. In addition, paying off a $38 million debt for Wilmington Port improvements left over from former Gov. Jim Hunt’s administration (which left office in 2001), saving $45 million in interest payments.

Economic growth is dependent on a fair playing field and equal treatment for all. Eliminating special carve-outs, subsidies, and benefits reserved for a select few creates a fertile economic environment that encourages all businesses to grow, prosper, and create jobs.

Focused, prioritized, fiscally responsible treatment for all:

  • Did not reinstate 35% solar tax credit
  • Resisted state new market tax credit
  • Film grants limited to $30 million
  • Job Development Investment Grant cut $10 million
  • OneNC Fund cut $147,000

Making the right investments where it counts the most:

Education accounts for 57% of General Fund spending, recognizing it’s not how much but how the money is spent.

  • Increases education spending by $512 million over last year’s enacted budget.
  • Advances teachers and instructional support personnel one step on the state salary schedule and awards a 4.7% average salary increase for teachers, which has the potential to bring average pay to $50,000 and to $55,000 in three years
  •  $294.6 million more for teacher salary and benefit increases.
  • Keeping bureaucracy in check with a recurring 2.6% cut to state funding for central office personnel and a 0.5% cut to the Department of Public Instruction.
  • The School Online Protection Act will implement measures to protect student information tracked by digital and online educational applications.

Now that average teacher pay has reached competitive levels to retain and recruit the best and brightest to our education system, pay increases based on merit will allow good teachers the opportunity to earn more.

  • Pilot merit-pay programs:
    • Two-year $10 million bonus and merit pay for third-grade reading teachers
    • Advanced placement, International Baccalaureate and Industry Certification teachers can earn $50 for every student who meets success thresholds
    • Three-year, 10-district extra bonuses for teachers who take on extra responsibilities (mentoring, information technology, extra students)

Building on past expansion of school-choice options while ensuring those who choose to stay in the traditional public schools have the opportunity for a quality education that best meets their needs.

  • An Achievement School District will supervise and operate five of North Carolina’s lowest-performing elementary schools, bringing a proven record of success, turnaround teams, and hope for kids stuck in failing schools.
  • 10-year commitment to opportunity scholarships – 2,000 more kids per year, funding increase from $10 million to $145 million by 10th year.

North Carolina’s 16-campus university system is considered one of the best in the country. Even with heavily subsidized in-state tuition and diverse campuses, it is still out of reach for many students. Now it is more accessible and more affordable.

  • Universities now guarantee tuition for eight consecutive semesters, allowing students to plan and budget for the cost of their degree.
  • Three universities (Western Carolina University, Elizabeth City State University, and UNC-Pembroke) cap tuition at $500 per semester for in-state students and $2,500 for out-of-state students, making a college degree affordable and boosting enrollment for underutilized campuses.
  • University of North Carolina System institutions will be required to establish on-campus laboratory schools for grades 3-8 that will be used to improve teacher and administrator education and professional development.

State government provides services to North Carolinians, whether it’s paving roads, administering public health services, or providing public safety. State workers are state government. In addition to salary, our 313,000 state employees and 600,000 state retirees receive health insurance and pension benefits. Prudent fiscal management ensures solvency for those benefits today and fulfills commitments of tomorrow.

  • 62% of recurring money went to salaries; $500 million in salary and benefit increases for state workers.
  • State employees received 1.5% pay increase with many others eligible for more based on merit.
  • Retirees got a 1.6% cost-of-living bonus, taken out of the General Fund, leaving the state retiree pension fund untouched and whole.

A critical issue, long ignored by previous administrations, is mental health. The govenor identified mental health services as a priority in his budget, and the House and Senate followed suit.

  • $18 million in funds from the sale of the Dorothea Dix property to construct and convert mental health beds in rural areas of North Carolina. Certificate-of-Need (CON) restrictions were waived.
  • $20 million allocated for drug treatment, housing, and treatment courts.

Investments in transportation pay off – in increased economic activity, reduced congestion, and greater efficiency in moving goods, services, and people around the state. Changes in the funding formula for transportation projects, ensuring better use of scarce resources and updating revenues has resulted in a better-funded, more efficient, and more accountable highway system. The payoffs continue.

  • Appropriations from the Highway Fund and Highway Trust Fund increased 8.2% over last year with $259 million more spent on highways and transportation needs.

Rebuilding a strong economy:

North Carolina’s unemployment rate in 2011 was 10.4%, one of the nation’s highest. Today it is 4.9%. The state faced one of the highest tax burdens in the country and within the Southeast region. North Carolina ranked 44th in the Tax Foundation business tax climate rankings. Today we have lower taxes and are ranked 15th.

We owed billions of dollars in debt to the federal government. Those debts have been paid.

Overly burdensome regulations were stifling business growth and killing entrepreneurship. Six thousand rules have been reviewed, and over 10% of those eliminated completely.

In the past, government solved problems with more money and more programs. Today, priorities are set, funded, and met with clear measures, accountability, and results. With bold leadership and a commitment to conservative fiscal practices, North Carolina has seen restrained government spending, transformational tax cuts, smart investments, fiscal responsibility, and an economy that is stronger, growing faster, and is a national model.

  • Overcoming a $650 million shortfall in revenue in 2011 and a $400 million shortfall in 2013, a recovering economy produced surpluses the last two years. 2016 saw a $425 million revenue surplus.
  • North Carolina has beaten the national and regional averages in gross domestic product (GDP) growth, job creation and per-capita income growth since the adoption of conservative budgets in 2013.
  • North Carolina has the fourth-fastest-growing economy in the United States and the ninth-largest state economy overall.
  • 300,000 net new jobs have been created since 2013.
  • Unemployment rates are down in all 100 counties.
  • North Carolina has met or exceeded the U.S. per-capita income growth rate for 10 consecutive quarters, the best stretch of comparative income growth since 1996.

Recommendations for 2017:

  • Stay the course, continue the momentum, build on success, rebuild a strong economy.
  • Remain committed, as the John Locke Foundation is, to fight for freedom today to ensure freedom tomorrow.

For More information Please Contact:
Becki Gray


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About John Locke Foundation

We are North Carolina’s Most Trusted and Influential Source of Common Sense. The John Locke Foundation was created in 1990 as an independent, nonprofit think tank that would work “for truth, for freedom, and for the future of North Carolina.” The Foundation is named for John Locke (1632-1704), an English philosopher whose writings inspired Thomas Jefferson and the other Founders.

The John Locke Foundation is a 501(c)(3) research institute and is funded solely from voluntary contributions from individuals, corporations, and charitable foundations.