by Joseph Coletti
Senior Fellow, Fiscal Studies, John Locke Foundation
As of December 30, 2020, North Carolina still had $254 million unspent from the $3.6 billion it received in the Coronavirus Relief Fund blowout from the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The American Rescue Plan Act (ARPA) piles another $5.2 billion on top of those unspent funds. That amount does not count $3.8 billion in the new bill for local governments or $5 billion in targeted funds for education, health care, and payments to individuals and businesses.
That federal largesse is in addition to the state’s unreserved fund balance of $5.4 billion in February, which came about from a combination of $1.5 billion in fund balance at the start of the year, tax receipts running $2.4 billion higher than last year, appropriations $1 billion lower, and a baseline difference of $0.7 billion.
Any state that has $5.4 billion in unspent money should have no need for another $5.2 billion, especially since taking the money could mean no tax cuts until 2024. As reported by The Wall Street Journal,
The bill [ARPA] explicitly bars states from cutting taxes. States “shall not use the funds,” the bill says, “to either directly or indirectly [our emphasis] offset a reduction in the net tax revenue” that results “from a change in law, regulation, or administrative interpretation during the covered period that reduces any tax (by providing for a reduction in a rate, a rebate, a deduction, a credit, or otherwise) or delays the imposition of any tax or tax increase.”
Wow. Democrats in Washington are trying to dictate to governors and state legislatures that they can’t change their tax laws if they accept their share of the $1.9 trillion. … The language is so expansive that states could be limited from making any changes to their tax codes that reduce revenue even if they don’t use federal funds as direct offsets.
If the General Assembly does decide to take the money, despite the risk to future tax reform, there are a few things to consider:
And some recommendations:
Those recommendations would be over and above earlier recommendations for the $5.4 billion in unreserved fund balance, slightly amended here:
Rejecting $5.2 billion in assistance from the ARPA would be a small step for North Carolina to move the federal government back to fiscal sanity. It also would preserve the state’s freedom from unconstitutional federal commandeering. There are few good ways to spend $10 billion in one-time money, but these recommendations would reduce the harm.