North Carolina should end the budget year more than a half-billion dollars above revenue projections, and House and Senate Republican leadership swiftly credited their tax-cutting, and regulatory-relief policies for the positive budget news.
The General Assembly’s Fiscal Research Division and the Office of State Budget and Management released a consensus report Thursday projecting 2016-17 tax collections would be $552.5 million above initial budget projections for the fiscal year.
Stronger-than-expected wage growth increased both personal income tax and sales tax collections, the report said. If that rate of growth continues, the 2018-19 fiscal year surplus could reach an estimated $1 billion.
Senate leader Phil Berger, R-Rockingham, emphasized how rare North Carolina’s enormous surplus is.
“Even as the majority of other states face revenue shortfalls and budget crunches, Republican state leaders’ tax cuts, and disciplined spending have generated a $552 million revenue surplus for North Carolina — making us one of just four states in the country expecting surpluses,” Berger said in a news release.
“We hope Gov. Cooper will rethink his pledge to block job-creating future tax cuts for families and small businesses and instead partner with legislative Republicans to stay the course on spending taxpayer money wisely and continuing our state’s record of success.”
Republicans have said they plan to enact more tax reform this year.
“This positive revenue forecast is more good news for North Carolina and maintains our status as one of the fastest growing economies in the United States,” Rep. Nelson Dollar, R-Wake, the senior Appropriations Committee chairman, said in a written statement.
“The report is further evidence that tax relief, regulatory reform and responsible budgeting by the state General Assembly have turned our economy around by encouraging innovation, attracting entrepreneurship and creating a competitive business climate for our rapidly growing population,” Dollar said.
The policies are working also are making North Carolina “an exciting place for newcomers and residents alike to start a family, grow a business, and seek prosperity,” Dollar said.
That commitment to creating opportunity and commercial growth through a commonsense, conservative approach to state government must continue, he said. The revenue surplus reflects a “significant impact” GOP reforms have had on wage gains, job creation and tax collections, he said.
Cooper weighed in on the surplus in a way legislative leaders foreshadowed. In a statement Thursday afternoon, the governor said, “Growing revenue projections are welcome news and give us an opportunity to invest in our future with better schools and a stronger middle class, while also making sure those hit hard by Hurricane Matthew aren’t left behind.”
With such a large revenue surplus forecast, lawmakers also may be tempted to increase spending.
A sharp difference between House and Senate budgets had to be worked out in 2015, when the House initially proposed a general fund budget that increased spending 5 percent, and the Senate proposed a more modest 2 percent expansion. The budget ultimately grew by 2.1 percent.
Earlier Thursday, House Speaker Tim Moore, R-Cleveland, issued a statement that indicates Republicans are in agreement that they would continue to put more money into savings reserves.
The House Appropriations Committee passed House Bill 7 , titled “Strengthen Savings Reserve”, which would require state lawmakers to store funds in a savings reserve every fiscal year. The measure is expected now to move to the House floor for a vote, possibly as early as next week.
Moore’s release noted that Cooper opposed the savings account last year, and criticized Republicans for “building up the rainy day fund in excess of what’s necessary for the state.” At the time Cooper said the money would be better spent on people, and questioned the wisdom of letting the money sit idle in reserve accounts.
Republicans diverted hundreds of millions from the $1 billion savings reserve account they built up to Hurricane Matthew and wildfire relief last year, Moore noted.
North Carolina had no reserve savings under Democratic Gov. Bev Perdue and Democratic majorities in the state General Assembly in 2009. Under Democratic control the state was also billions of dollars in debt to the federal government for unemployment insurance liabilities, but has since paid that debt under Republican leadership.