Revenue Surpluses

 


The state of North Carolina received a bit of good news last week when the Office of State Budget and Management projected a $400 million revenue surplus for the fiscal year ending June 30. Some legislators, such as Senate leader Phil Berger said the surplus was due to state tax policies. That may be true. While taxes were decreased for some, hundreds of thousands of state residents paid more in state taxes than last year. Due to the elimination of retirement and medical deductions, many seniors paid more in taxes this year. Other less obvious tax increases, such as adding taxes on several services and eliminating the back-to-school tax-free weekend, also raised money for the state.

While state tax policy may have contributed to the revenue surplus, House Speaker Tim Moore took a more pragmatic view when he said the improving economy played a major factor. Indeed, his assumption is supported by the fact that several states have seen surplus revenues increase by dramatic amounts. Minnesota’s revenue surplus for the year is $1.87 billion while California will receive record revenues with a projected surplus of at least $2 billion. Like Moore, state officials from both Minnesota and California credited the improving economy with their surpluses. Jerry Brown, California’s governor who is in his fourth term, also has a reputation for sound fiscal management and long-range planning.


Unlike North Carolina, these two states achieved their surpluses without dramatic cuts in unemployment benefits or shifting the tax burden from wealthier residents to the poor and middle class. Minnesota actually increased taxes two years ago, and it’s unemployment rate, at 3.6 percent, is significantly lower than North Carolina’s. And spending levels in California reached record levels.

The question now is what should North Carolina do with the projected revenues? North Carolina Rep. Donny Lambeth, a Winston-Salem Republican who co-chairs the Appropriations committee, told the Raleigh News & Observer “There will be tough days ahead of us, and I think it would not be very wise to try to just run with all that money and spend it.”


By state law, the North Carolina General Assembly has two options: use the money for one-time expenses or put it in the state’s savings account. At this point in time, the financially prudent thing would be to place it in the latter, at least until our state leaders come to terms with our short-term and long-term needs.

There are numerous short-term needs. The state court system is asking for another $25-50 million just to keep the courts operating at a minimal level. N.C. Supreme Court Justice Mark Martin said earlier this year that the state faces “a situation where the justice system is unable to promptly serve those who turn to us for help.” And revenues could decrease next year if the state decides to reinstate the medical deduction that many senior citizens complained about losing this past year.

The long-term issues are even more daunting. Gov. Pat McCrory has requested that two bonds for $1.5 billion each be placed on this fall’s ballots. One would be used to improve state highways and the other would be used to renovate state buildings. That, however, is just a pittance as to what the state truly needs. State officials have estimated that if new revenue sources are not found, transportation funding could reach a shortfall of $60 billion by 2040.


“To say we’re at a crisis point isn’t really an understatement,” State Sen. Mike Lee, a Republican from New Hanover, told the Wilmington Star earlier this year.

Transportation could be a minor expense compared to providing services for the elderly. In just another three years, North Carolina will have more people 60 and older than 17 and younger. In another 20 years, the median age in the state will increase from 38.3 to 40.9. Three years may not seem like much, but it represents a tremendous shift to an older population, a population that is generally less productive but requires more services.

Against all of these possible and projected future expenses, $400 million does not seem like much. But every $400 million counts. It’s good news the state has a revenue surplus. Given our future needs, that money needs to be budgeted just as scrupulously as if the state had a $400 million deficit.

 
 

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