• Nearly three months into the fiscal year, a budget bill has finally arrived
  • While containing several flaws, the good seems to outweigh the bad
  • Some parts of the budget and its process, however, are downright ugly

The long-awaited state budget plan has finally arrived, and at 600-plus pages there’s a lot to digest. Teachers and most state employees would receive an average 7% pay raise over the biennium: 4% this year and 3% next year. State retirees would receive a 4% cost-of-living adjustment to their pensions this year.

Moreover, the budget includes hundreds of millions of dollars for NCInnovation, billions in set-asides that are considered “off budget,” authorization of Medicaid expansion, universal access to the state’s school choice program, and continued progress on tax cuts.

As with any massive budget document, this one is a mixed bag, although on balance it appears the positives outweigh the negatives. Therefore, this article will highlight the good, the bad, and the ugly in this budget.

The Good

  • Universal Opportunity Scholarships: The budget plan would expand North Carolina’s popular Opportunity Scholarship program to all students. Currently, eligibility is limited based on household income. Under the budget proposal, all K-12 students would be eligible to enroll in the program. However, scholarship amounts would be awarded on a sliding scale, meaning lower-income households would receive larger amounts, and amounts shrink as income rises. Moreover, the program would give first priority to applicants with the lowest household incomes. Spending on the program would be scheduled to rise from $176 million this year to $505 million by 2031-32. This measure would go a long way toward fulfilling the rights of parents to determine their children’s education.
  • Continued Tax Reform: Income taxes would fall at a rate more rapidly than currently scheduled. The flat rate would drop incrementally to 3.99% by 2026, with a path to fall to 2.49% thereafter using 0.5% decreases each year certain revenue targets have been met. The budget would also repeal the state’s privilege tax levied on several professionals, ranging from attorneys to architects to photographers. Also included in the budget plan is a cap on the franchise tax, limiting to $500 the amount owed on the first million dollars of a businesses’ tax base. These reforms would all make North Carolina more economically competitive with other states for job growth and investment, which would translate into a win for workers. Hopefully, the legislature will soon create a path to completely eliminating the harmful franchise tax, an especially onerous burden on small business and independent contractors filing as a business.
  • Medical Freedom: The budget plan would prohibit state or local governments from refusing employment to people based on their COVID-19 vaccination status. This would be a bold step defending the medical decisions of individuals.
  • Fighting Back Against the Destructive Green Agenda: This proposal would prohibit the governor as well as any state agency from requiring any public utility to participate in “cap and trade” schemes for carbon dioxide emissions. Furthermore, the bill would prohibit the governor’s office from obligating North Carolina from participating in any such program created by other states. The budget also includes a provision that would bar any state agency from mandating any quotas on the sale or purchase of electric vehicles This measure appears to be a direct shot at Gov. Roy Cooper’s recent attempts to enter North Carolina into a “memorandum of understanding” to comply with California mandates on “clean trucks,” as well as his executive order to mandate a massive increase in the sale of electric vehicles. It is heartening to see the legislature fighting back against such gross government overreach that would wreak havoc on large swaths of the economy while devastating low-income households with higher energy prices.
  • Prohibiting Membership in Questionable Election Data-Sharing Program: North Carolina’s participation in the Electronic Registration Information Center (ERIC) would be prohibited in this budget plan. The Locke Foundation has expressed concerns about ERIC’s sharing of private information and cozy relationships with left-wing organizations. Staying away from this program is the right call.
  • Bond Referendum Transparency: When asked to take out a home mortgage or a car loan, borrowers must be presented with complete information about the full amount of payments required to pay the loan back, principle plus interest. The same should be true when voters get the chance to vote on local bond debt. This budget would require additional language on bond referenda informing voters of the true cost of the debt (including interest) as well as the likelihood that approving the debt would necessitate property tax increases to help pay back the debt. This provision would be an excellent step toward greater government transparency. 

The Bad

  • Creation of Another Corporate Welfare Program: The budget would authorize the creation of the “SelectSite Readiness Program,” which would “identify and evaluate” up to 15 “selectsites” that are considered ripe for development. This program appears to be an attempt to expand the corporate welfare efforts of the state.
  • New Tax on Ridesharing Services: The budget would create a new gross receipts tax to be levied on ridesharing services like Uber and Lyft.
  • No Additional Funds Added to Savings Reserve Fund: Despite billions of dollars being set aside into various “reserves” (see below), this budget would not allocate any additional funding to the state’s Savings Reserve Fund this year, and it would allocate only $125 million next year. Legislators should be given credit for building up the Savings Reserve Fund to $4.75 billion; however, with significant economic headwinds on the horizon, it would be prudent to use at least some of the available surpluses to build that reserve up still further this year.

The Ugly

  • Billions Set Aside Into “Reserves,” Hiding True Spending Amount: For FY 2023-24, the budget would set aside more than $7.2 billion in reserves. This amount represents about one-fourth of the $29.8 billion spending by the General Fund. While $1.4 billion of those set-asides is a statutorily required allotment to the State Capital and Infrastructure Reserve Fund (SCIF), most of the rest of those set-asides should be included in General Fund expenditures. As it stands, this year’s proposed total General Fund spending would mark a 6.8% increase over last year’s General Fund expenditures. That mark, however, is deceiving because of the billions in funding concealed in set-asides to “reserves.” Such deceptive practices should come to an end.
  • Nearly $2 Billion in “Off Budget” Funding Sent to Opaque Corporate Welfare Programs: Among the $7.2 billion set aside this year into “reserve” funds is nearly $2 billion being diverted to corporate welfare programs, including $1.25 billion slated for the “Regional Economic Development Reserve” and another $630 million to go to the “Economic Development Project Reserve.” As a result, there is no transparency regarding the intended spending of these funds or which legislators are pulling the strings for where they end up. And finally, of course, yet more expansion of corporate welfare represents a further shift away from free-market principles toward centralized economic planning.
  • $500 Million to NCInnovation: While better than the $1.4 billion the Senate budget had requested, the potential half a billion in taxpayer dollars over two years to NCInnovation included in this budget plan should be rejected. The budget would include some additional requirements on NCInnovation, such as certain benchmarks and some minimum transparency requirements; however, those do not offset the reality that NCInnovation is decidedly not representative of a free market.
  • Enabling Medicaid Expansion: The budget proposal would confirm the legislature’s previous commitment to expanding Medicaid, fully authorizing expansion contingent on the budget bill passing. Expanding Medicaid would be the largest expansion of entitlements in state history and would create an immediate, large funding gap that, as Locke research has demonstrated, would have to be made up through “new state appropriations, increased taxes on managed care plans, or higher taxes on providers.”
  • Casinos: The entrance of casinos into the budget debate was a major factor delaying the process and demonstrated the sort of backroom dealing that causes so many voters to become distrustful of their elected representatives. While casinos have been pulled from the budget bill, legislative leaders are still indicating the topic will be taken up this year.