As state budget negotiations get down to the fine details, with an extra $6 billion in over-collected tax revenue on the table, Republicans are moving forward with another conservative spending plan to make key investments and return tax money back to those who earned it. It puts the minority party, legislative Democrats, in a tough spot. Do they back a seemingly inevitable veto from Gov. Roy Cooper, or do they get the best deal they can for their districts and supporters?
On Friday, June 4, Carolina Journal learned that serious progress had been made between House Speaker Tim Moore, R-Cleveland, and Senate President Pro-Tem Phil Berger, R-Rockingham, and their respective chambers on overall spending for the two-year numbers. Late that Friday and throughout the weekend, the deal came together. After approval from their caucuses, Moore and Berger announced that the General Fund spending for fiscal 2021-22 will not exceed $25.7 billion, a 3.45% increase in spending.
The fiscal 2022-23 expenditures will increase by 3.65%, to not exceed $26.7 billion. As reported by CJ, along with the topline budget figures, budget writers have agreed to terms that replenish the state’s “Rainy Day Fund,” significantly reduce taxes, and fund the State Capital and Infrastructure Fund. House and Senate budget writers have also agreed their budgets will not include a bond or Medicaid expansion.
The GOP budget framework that caps spending growth at the rate of population plus inflation growth, a spending limitation promoted through the “Taxpayer Bill of Rights” movement, will budget spending a billion dollars less than Cooper has suggested in year one alone.
“Legislative leadership is well aware that this opening announcement falls far short of what our state needs,” Cooper spokesman Ford Porter said in an email to The News and Observer.
“Real negotiations must occur, and the governor looks forward to working toward an agreement,” he continued.
Liberals are already blasting the GOP, an effort designed to get Democratic lawmakers in line to vote against a veto override. Writing on the PoliticsNC Blog, Alexander Jones called the GOP budget framework a “nonstarter.” Jones wrote that the GOP budget agreement between House and Senate Republicans is “so far outside the realm of what Governor Cooper would sign, that it is entirely unserious.”
Republicans would argue that Cooper’s spending plan that would increase spending 12.4% over two years was also so far outside what GOP legislators would consider. For them, it’s equally unserious.
“This year they plan to spend only 3.45% more than in the previous annum, below the radical anti-government starvation diet prescribed by the infamous Taxpayer Bill of Rights,” Jones wrote.
So the Republicans who run both chambers of the #NCGA dawdled for weeks and now announce, as if they’re arriving home from Yalta, that they’ve managed to come to an agreement **exclusively within their own party** on a state budget which is DOA with @NC_Governor. #ncpol
— Carolina Forward (@ForwardCarolina) June 8, 2021
Of course, the most ironic and insane take on the state budget framework agreed to by Republicans comes from the highly partisan teachers’ union.
“Advocates for public schools spoke Saturday pushing for more funding for schools in the state budget. North Carolina Association of Educators held an event calling on lawmakers to do more,” WRAL reported June 12.
“Our lawmakers need to prioritize our students in the budget process — they have not put out a budget plan,” said Kristen Beller, president of the Wake County chapter of NCAE.
Well, duh. No kidding. Lawmakers have not released a spending plan and have not said what level of funding education will receive. So why is the teacher’s union protesting a budget that hasn’t been released? There is an answer here. The teacher’s union is carrying the water for North Carolina’s far-left and opposing tax cuts. Always.
“Advocates said they want students prioritized, instead of a focus on eliminating corporate taxes by state lawmakers,” read WRAL’s story.
So, the headline and story do not match the actual story. The NCAE is not protesting funding levels for education, because they don’t know what that is yet. They are protesting the possibility of tax cuts. On the state budget, the teachers’ union is the textbook example of hypocrisy and political ineptitude.
Remember the NCAE encouraged Cooper to veto the 2019 state budget. They fought hard to keep legislative Democrats in line on the veto override. The end result was less education funding. While non-education state workers received raises, the NCAE cost teachers nearly a 5% raise, one they would still be cashing in on today through the permanent higher salaries.
The Republicans’ effort to cut taxes is already dividing Democrats. Earlier this month, eight Democrats in the North Carolina Senate voted in favor of a Republican-led tax reform package. House Bill 334 would raise the standard deduction from $21,500 to $25,500 for joint filers, which would take about a quarter of a million of the lowest-income North Carolinians entirely off the tax rolls. It also reduces North Carolina’s flat income tax rate for remaining taxpayers from 5.25% to 4.99% and raises the per-child tax deduction by $500. Most difficult for Democrats to swallow, the plan would also phase out the state’s corporate income tax over the next seven years.
Eight Democrat senators voted in favor of the tax relief package including Senators Sydney Batch, D-Wake; Ben Clark, D-Cumberland; Sarah Crawford, D-Franklin; Don Davis, D-Pitt; Kirk deViere, D-Cumberland; Michael Garnett, D-Guilford; Paul Lowe, D-Forsyth; and Joyce Waddell, D-Mecklenburg.
Those eight run the gamut from the more conservative end of the Democrat caucus to the more liberal, although all eight come from urban areas such as Wake, Guilford, Cumberland, Mecklenburg, and Forsyth — all home to the state’s largest corporations. All those same areas will be heavily impacted by the upcoming legislative redistricting.
Highlighting the divide, despite the fact that a third of the Senate Democrats voted for the tax-cutting package, the Senate Democrats’ Twitter account tweeted comments from Sen. Jay Chaudhuri, D-Wake, who spoke in opposition to the tax relief and reform.
In the end, we’re squandering our long-term economic growth potential because we’ve elected to pursue more tax cuts rather than rebuild our schools, rebuild our infrastructure and ultimately rebuild our economy,” @jay_chaudhuri said. https://t.co/og8V93igOM
— NC Senate Democrats (@NCSenateDems) June 9, 2021
What is next?
If all goes as planned, the state House and state Senate will pass their detailed spending plans for the next two years over the next couple of weeks, with final passage likely in mid-July.
In discussions with political observers, I asked a simple question. Does the fact the state has an “April surprise” of revenue, as first reported by CJ, make it easier or harder to pass a state budget? They said “yes.” It can both complicate and add ease to the process moving forward.
Who are the players?
Republicans wanted to reach an agreement on overall spending levels before revenue numbers were released. The Senate Republicans, with a smaller number of members to please, wanted to spend slightly less than the House. Both wanted to spend nearly a billion dollars less than Cooper. They reached an agreement that limits funding increases to the corresponding increases in population and inflation. Despite the recent surge in revenue, this deal appears to be holding.
So, does this mean all the additional revenue will be saved? Not necessarily. Republicans have shown willingness to increase some spending on capital and infrastructure projects, using some of the surplus “one-time money” on one-time expenses while limiting long-term spending obligations. Infrastructure and capital spending, especially in certain places, is one carrot GOP lawmakers have to offer Democrats. But will it be enough for legislative Democrats to support a Republican budget?
Meanwhile, as reported by WNCN, legislative Republicans are likely to increase and accelerate their tax-cutting plans, perhaps ending the corporate tax faster than planned and increasing tax cuts for individuals.
Cooper has expressed extreme dissatisfaction with GOP plans to cut personal income and business taxes, as the GOP is planning to do, and the overall spending passed by the legislature will fall far short of what he wants. Cooper has yet to sign a state budget into law and there is no reason to believe he will this time, either.
However, Cooper and the teachers’ union made a serious political miscalculation in 2019. At the urging of the NCAE, Cooper vetoed the 2019 Republican budget. Both believed Republicans could be forced into significantly higher spending or pay — a serious political price — for failing to enact a full budget into law. Neither happened. Overall, in 2020 Republicans gained legislative seats, and the seats they did lose were all affected by court-inspired changes to certain political district lines. The budget issues were a non-factor in the 2020 elections.
In the end, Cooper got less spending than he would have had and NCAE cost their members roughly a 5% raise. Will they make the same mistake again?
He could choose to let the budget become law without his signature, but that is unlikely. It is a safer bet that he will once again veto the Republican-authored budget.
Legislative Democrats have many reasons to support a GOP-authored budget plan. The simple fact is if they desire more spending, voting for the budget is likely their one and only route. The GOP will negotiate with legislative Democrats and offer increased capital funding for certain favored projects, such as North Carolina’s Historically Black Colleges and Universities.
Helping to enact a GOP budget guarantees a higher level of spending from which they can build future budgets.
Many of the legislative Democrats are nearing the end of their time in the General Assembly. With legislative redistricting set for later this year, some Democratic districts, especially in the northeastern part of North Carolina, will have to be merged due to shrinking population numbers. Many members on both sides of the aisle often opt to retire at the end of the decade, rather than run and perhaps represent a significantly reconfigured district. Some legislative Democrats could end up in a slightly more favorable new district if they play ball with Republicans.
Democrats won’t be happy with a GOP budget. They are not supposed to be. But higher spending, critical investments in Democrat-favored projects, and perhaps a slightly easier path in future elections are on the table for Democratic House and Senate members.
Will they walk away again?
Legislative Democrats have shown little willingness to cross a governor of their own party. They would have to do so this time. There are real, tangible benefits to their districts and their voters if they do so, but will they?
This is hard to predict. Cooper is known for imposing his will on the legislative Democrats, at times threatening them with well-funded primary challenges.
Only two Democrats are needed in the state Senate to override a governor’s budget veto. Only three in the state House. While the fundamental question has not changed for the handful of these unknown Democrats, the surge in taxpayer receipts may make teaming with Republicans more difficult.
However, there is one calculation that looms large. Democrats gained nothing out of blocking a Republican budget two years ago. State workers received raises through a smaller appropriation bill, but teachers never did. Democrats gained nothing politically out of keeping a GOP budget from going into law.
Current spending levels will continue if no new budget is enacted. Republicans would likely pass another round of mini-budgets to increase funding for any growth in school enrollment and a few other key items.
With the GOP in charge of redistricting and a midterm election that historically should be favorable to Republicans, Democrats will likely gain nothing politically again should they again block a Republican budget. Republicans have a better than even chance of gaining veto-proof margins beginning in early 2023 and could enact GOP plans without any Democrat input.
So, Democrats on Jones Street will be faced with this choice: Stand with the governor on a veto of the budget, or work with the GOP to get the best deal they can.
Your guess is as good as mine.