In wake of NC leaders missing another budget deadline, we demand tax policy, budget that puts people first

After a chaotic few weeks of abruptly released budget proposals and hurried votes, state lawmakers from the NC House and NC Senate left town at the end of the fiscal year in June without agreeing on a budget adjustment bill for the second year of the state’s two-year budget. (The NC General Assembly makes changes to the second year of the budget to come up with a spending plan for unanticipated revenue, among other adjustments.) This is little surprise at this point: Lawmakers have failed to pass a budget by their supposed deadline at the end of the fiscal year for 5 out of the past 6 years. This means North Carolina will operate under the unadjusted funding levels for the second year of the 2023-2025 biennial budget until legislators finalize a spending plan for FY 2024-25. They’ve agreed to come back to Raleigh for limited business at the end of July, but have said they won’t pick up budget negotiations again until November.

Lawmakers managed to enact a few stand-alone spending bills before adjourning, to authorize already established raises for teachers and fund a few months’ worth of reduced stabilization grants to minimally support a child-care industry on the verge of mass closures. The $67.5 million for child-care stabilization grants, which came primarily from reallocating federal funds from other uses, came through at the last minute thanks to the heroic actions of early childhood educators, parents, and advocates from across the state. But with reduced grant amounts, a spokesperson from the Department of Health and Human Services has said that North Carolina is still likely to see some child-care providers close their doors.

Lawmakers will need to pass an actual budget, not only to expand child-care funding and prevent broader closures, but also to ensure that federal funds from the American Rescue Plan Act (ARPA) are obligated (meaning committed to specific purpose according to federal rules) before the Dec. 31, 2024 deadline or the state will lose the funds. In the end, negotiations between the House and Senate broke down over relatively small differences in their proposals: the House wanted additional, small raises for teachers and state employees that the Senate did not. In terms of total spending levels, these differences amounted to less than $300 million — quite a small amount in the context of a state budget that tops $30 billion. In their reluctance to go along with the House’s minimally higher spending, however, Senate leaders indicate an understanding that the tax cuts they have scheduled far into the future, which will mostly benefit corporations and the wealthiest few, mean lawmakers won’t have enough money to meet the needs of a growing and changing state.

House and Senate proposals charge ahead with tax cuts for the rich instead of correcting course

Despite legislative leaders’ willingness to walk away rather than compromise, the bigger story of this year’s budget breakdown is just how much the proposals shared in common. Above all, both the House and Senate budgets represent an unrelenting commitment to continued tax cuts for profitable corporations and the wealthy few, at the expense of a better quality of life for most North Carolinians.

With regard to tax policy, NC House and Senate leadership remain in lockstep in their proposals. Even though revenue projections this year did not provide enough funds to support lawmakers’ many stated priorities, both budgets nevertheless maintained scheduled decreases in the personal income tax rate and kept the corporate income tax on track to be eliminated in 2030. When fully enacted, these cuts are expected to cost the state more than $13 billion in public funds each year — an amount equal to more than 40 percent of each chamber’s proposed budget.

These scheduled rate decreases will disproportionately benefit the wealthy few and come after more than a decade of tax cuts that have already enriched the most privileged among us, while leaving the majority of North Carolinians with chronically underfunded public schools and rising property taxes to make up the difference. Had the General Assembly instead kept in place the state’s graduated personal income tax rates from 2013, we would today have an additional $12 billion in public funds available to bring down the cost of living and fully fund child-care, invest in public education, and so much more.

Lawmakers reject common-sense tax trigger reform that would put NC revenue on surer footing

By scheduling tax cuts for years into the future, lawmakers are avoiding accountability for the harm these cuts will cause for future North Carolinians. Lawmakers have made claims of fiscal responsibility by adopting personal income tax cuts under a complicated revenue trigger scheme, where cuts automatically go into place if specific revenue targets are met. But as we’ve explained before, the revenue triggers are arbitrary, and the lawmakers have provided no explanation of why they were deemed appropriate thresholds for deeper tax cuts.

If they wanted to base tax cuts on an actual assessment of whether the state has adequate revenue, there are reform options on the table. Senate Bill 797 includes a process to assess whether a lower tax rate would bring in the revenue the state needs before the lower rate can go into effect. It would use a “revenue adequacy” trigger that incorporates measures of inflation and population growth into revenue thresholds, along with the "recession Indicator” trigger based on unemployment rates. If evidence showed that a tax cut would mean revenues too low to continue providing services for a growing population, or that a recession could be on the horizon, the cut wouldn’t go into effect.

Because the use of triggers will always limit future lawmakers’ ability to be responsive to current conditions and their constituents, they are never a wise move in tax policy. Legislative leaders’ unwillingness to even consider a more fiscally responsible reform, however, underscores their commitment to future tax cuts for the rich above basic good governance.

North Carolinians come together to halt lawmakers’ attempt to lock in harmful tax caps via a constitutional amendment

The past decade of tax cuts has come at great cost to quality of life for regular North Carolinians. With increasing frequency, North Carolina families are experiencing the chaotic impacts of chronic underfunding: school buses that never arrive, disappearing child-care slots as more centers are forced to close, and difficulty recruiting and retaining public school teachers and state employees. Seventy percent of North Carolinians want to see a state budget that invests more in education, infrastructure, and health care for the people, even if that means the wealthy and profitable corporations must pay more in taxes. Instead of listening to their constituents, Senate lawmakers this summer sought to use the state’s constitution to lock in a status quo of artificial scarcity and dysfunction for the next generation of North Carolinians.

Had the House joined their scheme, SB 630 would have put a constitutional amendment on the ballot in November to lower the maximum allowable income tax rate to 5 percent. By preventing future lawmakers from being responsive to their constituents and reinstating a graduated income tax above 5 percent, this amendment would have locked North Carolina into an upside-down tax code that benefits the super-rich. In turn, it would have created financial pressure to increase reliance on revenue sources like sales taxes, fines, and fees — all of which are known to hit moderate- and lower-income families the hardest. But North Carolinians came together to tell lawmakers to reject this amendment, stopping it, for now, from moving to the ballot.

When NC leaders include all of us in the budget process, our state will thrive

North Carolina is a prosperous state that could easily afford to provide excellent and dependable public services to families and communities. The people of our state deserve a budget process that is inclusive, timely, and that engages the public on issues that matter to them — not a process controlled by a powerful few that refuse to even debate proposals from colleagues. We deserve transparency in how the state will allocate ARPA dollars before the deadline. And we deserve adequate and equitable funding for the infrastructure and institutions that help our communities thrive, not continued financial perks for the wealthy and corporations. With the end of the fiscal year behind us, we’ll now come together not only to demand urgent funding for immediate needs like child-care in November, but also to demand a transparent and inclusive budget process in 2025 that puts the well-being of North Carolina families and communities first.