The 2017 budget promises nothing but more distress for North Carolina


By Rob Schofield - N.C. Policy Watch



Gov. Pat McCrory, Senate President Pro Tem Phil Berger and House Speaker Tim Moore love to boast that North Carolina is in the midst (or, perhaps, on the cusp) of a rousing economic “comeback.” Hardly a day goes by anymore in which one or more of these men isn’t issuing some kind of release claiming that conservative fiscal policies have somehow turned around the state’s economy and “unleashed the private sector” to create all sorts of new jobs and development.

Recently, the mantra has been all about how North Carolina was rated the third best state in the country “for business” by yet another “CEO” magazine. Never mind that it won virtually identical (if not more glowing) plaudits throughout the Perdue and Easley administrations and even during the Great Recession.

Here, however, is the hard reality: North Carolina is actually a national laggard when it comes to economic success and wellbeing. As N.C. Budget and Tax Center experts have documented in regular and sobering fashion in recent months on the group’s Prosperity Watch platform, North Carolina is home to:

  • stark and growing inequality,
  • low wages and high job scarcity,
  • stalled middle class living standards,
  • a median income that has declined significantly in recent years,
  • one of the nation’s highest number of “distressed cities,”
  • below average job growth and above average unemployment, and
  • a shrinking middle class.

And while a great many of these problems are clearly the result of long-term, large scale forces that state government has limited capacity to address – especially in the near term – it’s also clear that state fiscal policies of recent years have exacerbated these problems in numerous ways.

By declining billions of federal dollars that could have easily flowed to the state, enacting regressive tax cuts that have inured almost exclusively to the benefit of the wealthy and large, profitable corporations and slashing core services designed to boost the middle class, North Carolina has climbed into a self-destructive, do-nothing shell. Public structures (education, environmental protection, courts, transportation) are increasingly worn and threadbare and many communities and segments of the population are starting to lose touch with the “haves” of the state.

The 2017 budget: Taking matters from bad to worse

There are actually dozens of things not to like about the 2017 budget bill advanced by the North Carolina House of Representatives last week that double down on the failed tactics of recent years. Unfortunately, caring and thinking people have become so numbed and cowed by the relentless and regressive assault on progress and modernity that conservatives have been waging in recent years that many have acquiesced passively. Others have simply allowed themselves to be bought off by mere crumbs and/or simply shrugged their shoulders and expressed gratitude that things weren’t worse. Add to this the vindictive and mean-spirited brand of politics that is practiced by so many conservative leaders on Jones Street these days and it’s no particular surprise that numerous state lawmakers who know better simply waved the white flag last week.

Fortunately, despite the claims of bill sponsors and their apologists and the mostly milquetoast media coverage the muted legislative debate generated, some experts are tolling the damage that the budget bill will wreak (especially when combined with the destructive impact of budgets enacted in recent years).

Here are some of the biggest “sore thumb” problems that are already evident — even before the state Senate likely starts making things worse in the coming days:

#1 – The destructive use of artificial and crippling spending caps – Despite huge amounts of pent-up, unmet needs, House and Senate leaders agreed weeks ago to place an artificial “TABOR”-like spending cap on the budget. This will keep state support for services below inflation-adjusted, pre-recession levels even though the demand for services has grown significantly. As a result, state spending as a share of the economy continues to list along at Nixon-era levels. What’s more, 2017 will mark the first time in nearly a half century in which state spending will decline as a share of the economy for eight years in a row while the economy itself grows. Even with a slight bump in overall spending and modest pay hikes for teachers and state employees, needs will only increase – especially for vulnerable populations.

#2 – Adding still more, poorly targeted tax cuts – Despite the huge need for new dollars to rebuild structures and services decimated by years of cuts, the House doubles down on the use of poorly targeted tax cuts — much of which will go into the pockets of the state’s wealthiest individuals. As the BTC notes: “Their proposal reduces General Fund availability by $25 million due to raising the standard deduction to a maximum $16,000 from $15,500, based on filing status. It also raises the maximum by $500 each year over the subsequent three fiscal years. This approach is more costly and not as well targeted as restoring the state EITC, which does a better job of helping working families and addressing inequities in our tax code. They reduce General Fund availability by another $51.5 million for a tax break exempting mill machinery from state taxes.”

#3 – Providing inadequate pay to teachers and other state employees – Teacher raises will be decent for some teachers under the House plan (up to 5% for some), but the proposal has the distinct feel of an election year bone that will do little-to-nothing to make up for years of neglect — especially for veteran teachers. Add to the fact that other state employees will go for the umpteenth year in a row without a truly meaningful raise (just 2% this year) during a time of significant national economic growth and falling unemployment and it seems fair to ask: “If not now, when?”

#4 – Shortchanging a bevy of essential structures and systems – The list of programs for which lawmakers opted not to repair years and years of damage from repeated budget cuts is a long one and includes essential items like childcare, pre-Kindergarten, the Teaching Fellows program, school nurses, the Housing Trust Fund, re-entry programs that help ex-offenders, drug treatment courts, rural economic development, displaced homemaker services and rural Internet access to name just a few. Lawmakers also failed to repair the damage inflicted in recent years on higher education where tuition and fees for university and community college students continue to skyrocket.

Perhaps most egregiously, however, the House once again failed to expand Medicaid under the Affordable Care Act — a decision that will cost thousands of lives and cost the state billions in federal dollars that would boost the economy.

#5 — Leaving more than $127 million “on the table” – In an apparent effort to adhere to their inadequate and artificial spending caps, House members left $127.4 million unspent that could have addressed a host of critical needs like those described above. Instead (and in spite of the fact that they’d already socked away millions in rainy day funds), the House simply left the money just sitting there like a wealthy autocrat who squirrels away vast sums while his subjects suffer just outside the gates of his castle.

The bottom line

The 2017 budget passed by the North Carolina House last week is, in a word, a mess. And it’s only in comparison to the utter disasters that have preceded it in recent years that it looks something less than completely and irredeemably awful. What’s more, preliminary reports indicate that the Senate will likely expand regressive tax cuts and, quite possibly, pull back even further on teacher and state employee raises when it gets started in earnest.

Sadly, it is part of the tragic reality of modern North Carolina that things will get worse before they get better, and that state government leaders are actively abetting the process.

Rob Schofield is the Director of Research for N.C. Policy Watch.

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By Rob Schofield

N.C. Policy Watch

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