Why Fiscal Responsibility Matters
The State of North Carolina recently released the latest financial report for April 2020. For fiscal year 2020 and the month of April specifically, tax revenue was $2.48 billion, down 35% by more than $1.3 billion compared to April 2019. Thanks to the legislature’s fiscally responsible approach in recent years, North Carolina is in a good position to address the challenges from COVID-19.
Building up the state’s savings began in 2011 with a focus on the anticipated natural disasters like Hurricanes Matthew and Florence, and other economic downturns. Since 2016, North Carolina has spent more than $1.4 billion of its savings to respond to those disasters, and yet, we still have a robust remainder of savings.
In 2017, North Carolina ranked in the top five of states with a high budget surplus by percentage. North Carolina had a 17.66% surplus, only behind Nevada, Hawaii, and Idaho. North Carolina was the only State in the southeast to place in the top 5. This position did not happen by accident. A booming economy, led by private sector job growth, enabled the state to prepare.
In 2019, North Carolina corporate tax collections were up 42% over the previous year and exceeded expectations by $75 million. Franchise tax collections exceeded the budget forecast by more than $56 million.
“The powerful economic results produced revenue surpluses for five consecutive years – North Carolina’s tax code and appropriations process resulted in an additional $643 million to the surplus,” according Speaker Tim Moore.
Major reforms to how the General Assembly appropriates funding for the state budget also has fueled North Carolina’s run of revenue surpluses and record rainy day reserves. In fiscal year 2010-11 the state’s savings reserves was $296 million. Since then the General Assembly built up the fund to nearly $1.17 billion.
At the start of 2020, the North Carolina budget surplus continued to surge. Before COVID-19 hit North Carolina analysts predicted another significant budget surplus. Now, nonpartisan fiscal staff at the General Assembly estimates that the state will have a multibillion-dollar shortfall. Thankfully, Senior House Appropriations Committee co-chair Rep. Jason Saine said, “The purpose of this and all budgets is to keep the economy of North Carolina fiscally sound.”
With Governor Cooper shutting down the state’s economy to address COVID-19, in just one month the state budget went from a massive surplus to a large estimated deficit. Now, faced with a multi-billion dollar shortfall, North Carolina’s Rainy Day Fund, coupled with a more than $2.4 billion unreserved cash balance, will provide a safety net for the state.
North Carolina is far better off now, thanks to previous surpluses and bolstered rainy day funds, to aid in the mitigation of COVID-19 impacts. In fact, North Carolina is positioned better than many other states. For example, the latest projections for Maryland’s budget for fiscal year 2020 show the coronavirus having a significant impact, estimated at $4 billion by the end of 2021. Furthermore, our neighboring state Virginia, estimates a loss of $3 billion by the end of 2021. Lastly, California is expected to see a downfall of $32 billion by the end of 2021.
Addressing the need to tap into these rainy day funds, Rep. McGrady reminded his colleagues two years ago, “We need to remember that a situation like Hurricane Florence is why the rainy day fund was fully funded. Legislators need to be willing to fund whatever legitimate needs arise from disasters.”
While the multibillion shortfall could have been a devastating blow to North Carolina, thankfully the previous surpluses and rainy day funds have helped mitigate the damage and provide hope for a strong recovery in North Carolina.