If a session of the NC General Assembly can be compared to an opera — comedy, farce or tragedy yet to be determined – then the governor’s recommended budget might amount to the overture. It introduces main themes and sets a mood. But there’s no guarantee that the governor and the legislators who are the opera’s singers will end up making music together.
As the 2014 legislative session gets under way in Raleigh, the overture is finished and the curtain is rising to reveal a bevy of performers. As usual, the task of finalizing a budget lies at the center of the plot.
Gov. Pat McCrory wants to maintain the tax cuts enacted by his fellow Republicans last year, despite the consequent loss of some $500 million in annual revenues. Conservatives pushed through the tax cuts, particularly benefiting upper-income earners and profitable companies, out of their belief that they would make the state more attractive to employers and thus help create jobs.
However, the revenue loss has put a tight squeeze on state spending. Education, human services and environmental protection – programs that are key to the state’s prosperity and quality of life – all have felt the pain.
Certainly there’s no reason to think that with projected budget shortfalls for the remainder of the current fiscal year (ending June 30) and the year following, the pain will disappear. If there’s an exception to the rule, it lies in McCrory’s proposed pay raises for teachers, who’ve seen their average salary sink to 46th in the country. The raises would be modest, but they’d put some salve on what has been one of the sorest of sore points for public school advocates and a source of well-deserved embarrassment for the state.
Will the governor be able to convince his ostensible legislative allies to go along? There’s been no love lost between Republican leaders in the House and Senate and the state’s teacher corps. Neither House Speaker Thom Tillis nor Senate President Pro Tem Phil Berger has been notably enthused about McCrory’s plan.
Perhaps they have in mind preserving those precious tax cuts while also closing budget shortfalls pegged by the governor’s office at $445 million for the current fiscal year and $191 million for the next. Perhaps they expect – as do some progressive tax-cut opponents – that revenue losses and thus next year’s shortfall will be even bigger. In other words, they may be wondering: Where’s the money for teacher raises supposed to come from?
McCrory says the shortfalls can be closed, and budgets kept balanced as required under the state constitution, by tapping some $614 million that in effect is up the state’s sleeve. There’s a $323.7 million pot of unappropriated but available funds, he says, and agencies are expected to return another $290 million that was appropriated for the current fiscal year but that won’t be spent.
As a solution to the shortfalls, this is troubling. First, it means even more belt-tightening in agencies that already are under extreme pressure to provide the services that are, or should be, state government’s very reason for existence and on which many residents depend. Second, it commits the state to paying for ongoing services with funds that, once used, are just plain gone. That violates a basic principle of sound budgeting.
Lower taxes, low wages
The tax cuts that are the Republican majority’s signature achievement have lowered and flattened the state’s personal income tax, so that instead of three brackets topping out at 7.75 percent for those earning the most money, everyone now pays at 5.8 percent. On the corporate income side, the rate has come down from 6.9 percent to 6.0 percent.
McCrory credits the cuts with the state’s significant drop in what was one of the nation’s highest unemployment rates. It’s fair to say that on that connection, the jury’s still out.
The state’s labor force has continued to shrink; even though the shrinkage has slowed, it still blurs the labor-market picture. Unemployment that declines because people stop looking for work is cold comfort. The national economy is improving, and North Carolina to some degree is piggy-backing on those gains. What’s more, as the progressive-minded NC Budget & Tax Center points out, “many of the newly created jobs pay ultra-low wages.”
The Center goes on to say, “As long as North Carolina keeps creating the lion’s share of jobs in industries that pay poor wages, the strength of the state’s long-term recovery will remain weak. A low-wage labor market simply doesn’t put enough money into the hands of workers to adequately support local business growth. Low wages mean fewer customers and lower sales, which ultimately will put the brakes on hiring.”
Investing for jobs
The better long-range strategy for attracting employers who are willing and able to pay decent wages involves not tax cuts but investment in strong education systems, modern infrastructure and programs that make for healthy, attractive communities.
Yet the legislature, with McCrory cheering them on, has told schools and universities to do more with less. Giving teachers a raise and putting some money back into textbook purchases would be fine, but there’s also an element of robbing Peter to pay Paul. The governor’s budget for next year would force the state’s public universities to do without another $49 million, compounding the damage from several years’ worth of recession-driven budget losses. Conservative distaste for the higher-education establishment may have some rational basis, but when it’s allowed to drive university budgets over a cliff, a cornerstone of the state’s success and a pathway to fulfillment for those in the generations to come is recklessly put at risk.
Legislators now will take McCrory’s budget recommendations and sing the songs they feel like singing. These are self-confident politicians who’ve shown they’re not necessarily inclined to follow the governor’s lead. And if a veto push comes to override shove, as it did a couple of times last year, they have the votes.
What a pleasant surprise it would be if, for example, legislative leaders decided that in an abundance of caution and out of concern for programs still facing the ax, they’d write a budget holding off on the second phase of tax cuts scheduled to take effect in 2015. That’s when the personal income tax is supposed to drop another tick, to 5.75 percent, and the corporate tax to ratchet down to 5.0 percent. Surely conservative doctrine is wise enough to embrace the notion that when you’ve gotten into a hole, the first thing you need to do is stop digging.