by Paige Terryberry
Senior Analyst for Fiscal Policy, John Locke Foundation
Yesterday the Fiscal Research Division of the North Carolina General Assembly and the Office of State Budget and Management released a revised revenue forecast for the Fiscal Year 2021-2023 biennium.
They concluded that revenues would increase greatly, by $6.2 billion or 10.8% over the two year period. The new revenue forecast projects revenue collections for the current fiscal year that ends June 30 to be roughly $32.65 billion, $4.2 billion more than the original prediction. Revenue projections for FY 2022-23 has been revised to $30.7 billion, an upward revision of about $2 billion.
As a comparison, actual General Fund Revenue in Fiscal Year 2020-21 was $29.7 billion. If the forecast is correct for the current fiscal year, revenues will have increased by nearly $3 billion, or a year over year increase of 9.9%.
This revision reflects much higher revenue than originally anticipated. In June 2021 revenue for Fiscal Year 2022 was projected at $28.4 billion, or nearly 15% less than the May 2022 revision.
The revision is significant, but we are still in a time of high uncertainty. In June of 2021, we did not have the inflation that is now rampant. Inflation devalues the dollars in your wallet – but the government continues to collect. Sales and use taxes are exceeding the previous forecast as inflation bloats the price tags on the goods consumers purchase. You may be buying the same basket of goods – but the tax revenue will go up as inflation propels prices higher.
Thanks to fiscally conservative spending and pro-growth tax reform, North Carolina’s economy celebrates a healthy recovery from Covid lockdowns, allowing high tax revenue. The state’s unemployment remained lower than the national average throughout the pandemic. The strong job market allowed unexpected revenue increases for personal income.
Consumer demand is still high, yet the report cautions that consumer spending is uncertain in today’s inflationary climate: the forecast “takes a conservative approach and assumes that continuing inflation and an uncertain economic outlook will significantly slow consumer demand as consumers become less willing to absorb price increases.”
This higher revenue forecast is not a justification for a spending bonanza. With so much economic uncertainty on the horizon, legislators would be wise to continue to save up for the coming rainy day.
The revenue surplus does, however, bolster the case for a Taxpayer Bill of Rights that limits government spending and protects taxpayer dollars. If such surpluses occurred under a progressive legislature, there’s little doubt it would be spent on pet projects, bloating the budget and overextending future taxpayer obligations. A TABOR would prevent such shortsighted spending sprees, regardless of who is in charge.
As Senate Leader Phil Berger (R-Rockingham) and House Speaker Tim Moore (R-Cleveland) stated: “Today’s forecast highlights the General Assembly’s winning formula of low taxes, reasonable regulations, and responsible spending.” Spending the state’s windfall would upend the great work that has been done.