The North Carolina General Assembly is still finalizing a two-year budget. Budget proposals from the House, Senate, and governor would have varying effects on North Carolina’s fiscal future. Spending restraint, tax cuts, and considerable savings would contribute to more opportunities and bigger paychecks for North Carolina families.
North Carolina reportedly had a record year of investment in film productions in 2021 despite having a cap on its film grant, a seemingly counterintuitive result that's consistent with research on film incentives. Owing to so many other factors influencing film productions, research has found film incentives have diminishing returns and argued for strictly limiting the incentives even if they're to grow the film industry as opposed to the state's economy. Research also finds that film incentives fail at growing a state's economy, returning only cents per dollar of tax credit or grant given.
The House budget plan, per previous agreement, would spend about the same total amount as the Senate plan. Differences exist, however, primarily with a less aggressive tax cut plan and more aggressive pay raises to teachers and state employees. Similar to the Senate plan, the House proposal would set aside significant funds in the Savings Reserve and Capital Infrastructure funds.
Recent revenue reports project overcollections in the current fiscal year of $6 billion. This added windfall provides many options to budget writers. The Senate budget plan focuses on tax cuts and significant investments in pay-as-you-go infrastructure projects.
State government prioritized spending federal Covid money over knowing that the money is accomplishing a goal. Cooper and legislators have time to make future expenditures more accountable. With $13.6 billion in federal funds still available and the worst of the pandemic behind us, the best course is to return the money.
An uncertain economic time is not good for borrowing. If the state takes out debt and the post-COVID economy turns out to be smaller, then debt capacity will shrink and the debt will end up taking more from other priorities. If the economy recovers quickly, then the state would have more money available for capital anyway.
North Carolina state government continued to have strong finances seven months after the economy first began to slow in March. Budget writers should nevertheless be cautious about adding spending commitments, however.
As Milton Friedman often remarked, the bill always comes due. Today’s spending must be paid by taxes, regardless whether those taxes were collected in the past, are collected this year, or will be collected in the future.