John Locke Update / Research Brief

Senate Budget Plan Leverages Surplus Revenue for Tax Cuts, Infrastructure Investments

posted on in Fiscal Insight, Spending & Taxes
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  • 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

With nearly $7 billion combined in projected surplus and previously unspent revenue, the North Carolina’s Senate plan focuses largely on tax cuts and pre-funding infrastructure projects.

The recent announcement of revised revenue projections showing an estimated $6 billion in revenue over earlier estimates helped to swell the level of unspent monies. The now-projected $29.7 billion in revenue for the fiscal year that begins July 1 would mark a roughly 23% increase in year-over-year revenue.

The Senate’s General Fund spending plan total of $25.7 billion for FY 2021-22 is appreciably smaller than Gov. Roy Cooper’s original budget proposal of $27.3 billion and leaves ample room for tax cuts and pay-as-you-go infrastructure projects while leaving $3.6 billion in unspent funds to carry over into FY 2022-23.

Below are highlights from the Senate’s budget proposal:

Tax Cuts & Business Grants

  • It would reduce the flat personal income tax rate from 5.25% to 4.99% in 2022, then phase it down to 3.99% by 2026
  • It would increase the standard deduction for married couples from $21,500 to $25,500
  • It would increase the child deduction by $500 per child
  • The personal income tax reductions are projected to save taxpayers $1.7 billion in their first full year
  • A family of four earning the median household income would see an income tax cut of 37%
  • It would phase out the 2.5% corporate income tax by 2028, reducing it by 0.5% each year beginning in 2024
  • It would reduce the franchise tax on businesses
  • It would utilize $1.5 billion in federal funding to provide economic support to small businesses that suffered significant revenue losses due to Cooper’s Covid-19 lockdowns
  • It would not offer tax refunds

Capital/Infrastructure

  • It would set aside $4.3 billion into the State Capital and Infrastructure Fund (SCIF) over the next two years, $3 billion to pay-as-you-go for capital and infrastructure projects, and $1.3 billion to pay down existing debt
  • It would require annual cash payments for capital and infrastructure projects, totaling $16.6 billion over ten years to fund such projects without taking on additional debt, with $12 billion of this amount dedicated for funding the projects, while the balance would be used to pay down existing debt
  • In contrast, Gov. Cooper’s budget plan called for $4.7 billion in new debt
  • It would allocate $2.8 billion over the biennium for strategic road and highway construction, with another $1.2 billion allocated for road resurfacing projects
  • It would spend $700 million on rural broadband through the GREAT grant project (the “Growing Rural Economies with Access to Technology” program that directs state funds to private broadband providers in underserved rural communities)

State Employee Salaries & Benefits

  • Teachers and the majority of state employees would receive 1.5% pay increases each year of the biennium
  • In addition, the budget would use federal funds to provide bonuses for state employees in the amount of $1,000 or $1,500, depending on their income level
  • It would provide an additional $300 across-the-board bonus to teachers and $1,800 bonuses to principals

Savings & Debt

  • It would set aside $1.5 billion into the state’s Rainy Day Fund (the Savings Reserve), in addition to the anticipated statutorily required $850 million contribution, bringing the total Rainy Day Fund balance to about $3.4 billion
  • It would add another $1.1 billion to the State Emergency Response and Disaster Relief Reserve fund, which currently holds about $66 million
  • It would use cash to finance over the biennium the remaining $400 million in Connect NC bond projects, rather than issuing this remaining debt, thereby eliminating future interest payments
  • It would appropriate $300 million over the biennium to the State Treasurer’s office to use toward paying down the nearly $28 billion in unfunded retiree healthcare benefits

Health Care

  • It would not expand Medicaid, in contrast to Gov. Cooper’s budget plan
  • It would allocate $133 million in state funds to help finance Medicaid’s transition from a fee-for-service program to a managed care model
  • It would modestly scale back Certificate of Need (CON) laws by increasing the amount of investment in certain equipment needing permission from the state

Policy Changes

  • It would transfer the power to investigate election fraud from the State Board of Elections (along with country boards) to the State Bureau of Investigation
  • It would reform the Emergency Management Act by clarifying and strengthening the governor’s obligation to obtain Council of State approval to declare a state of emergency and have any executive orders issued under a declared state of emergency expire after 45 days unless the General Assembly acted to extend the order
  • It would provide a $13/hour minimum wage for noncertified employees in local public schools and community colleges; however, using a one-time, short-term windfall to fund this recurring obligation would be short-sighted

Pork Spending

  • It would transfer $2.7 million from the Jobs Maintenance and Capital Development fund into the even more inefficient and crony-friendly Film and Entertainment Grant fund
  • It would allocate $50,000 for “a study on the economic impact of golf on North Carolina’s economy”
  • It would appropriate $60 million for business and travel “marketing”
  • It would allocate $50 million for “a revolving loan fund for megasites”
  • It would grant $14 million to the United States Golf Association for “site infrastructure development”
  • It would increase funding by more than $2.7 million for several cultural attractions that should be supported through voluntary patronage, including: the Roanoke Island Festival Park, Pamlico County History museum, the Piedmont Opera, and assorted local science museums
  • Among the SCIF-funded capital projects would be nearly 30 projects totaling more than $145 million for attractions or local project and charities — items that should be supported through voluntary support or via local governments — including: the Fort Fisher Aquarium, the Graveyard of the Atlantic, Beaufort County maritime museum, two local YMCAs, and various local historic sites

Note: A follow-up article will explore the Education portion of the Senate budget proposal in greater detail. 

 

 

 

Brian Balfour is Senior Vice President of Research for the John Locke Foundation, where he oversees the organization’s research and analysis on a variety of issues. He previously worked for the Civitas Institute for 13 years, and has a master’s… ...

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