Economists in the Office of State Budget and Management and the General Assembly’s Fiscal Research Division released an updated consensus revenue forecast Wednesday anticipating an additional $3.25 billion in state revenues for FY 2022-23, putting total state General Fund revenue collections at $33.76 billion.
“These increased funds are needed desperately to pay our teachers more, fund our schools, provide quality child care for parents in our workforce and to pay for the tax cuts for working families that we put in place last year,” Governor Roy Cooper said in a news release. “I hope we can negotiate a bipartisan budget that makes these investments without more tax breaks for the wealthiest among us.”
“Today’s consensus revenue forecast confirms that North Carolina’s tax policies are fueling economic growth,” said Senate Leader Phil Berger,(R-Rockingham). “The surplus is a significant increase over the current fiscal year’s budget.”
The revised consensus forecast for FY 2022-23 anticipates overcollections of $3.25B (10.7%) relative to certified revenues of $30.51B, putting total state General Fund revenue collections at $33.76B.
The revised forecast anticipates a total of $67.35 billion for the next biennium, with $33.71 billion in FY 2023-24 and $33.65 billion in FY 2024-45.
The primary drivers of the anticipated surplus are smaller-than-expected decline in individual income tax collections, especially due to larger-than-expected tax payments from pass-through businesses electing to be taxed at the entity level; persistently high corporate profits, particularly among large multi-national corporations; resilient consumer spending despite longer-lasting inflation in goods and services subject to sales tax; and higher-than-expected investment returns on the General Fund balance.
“Although recession risks remain uncomfortably high, the economic outlook underlying this forecast assumes the economy will avoid an outright downturn but will experience what has recently been termed a “slow-cession”, whereby economic growth comes to a near standstill without slipping into reverse for any extended period,” Emma Turner, Ph.D. and Chief Economist of the Fiscal Research Division wrote in summary of the report.
Despite the excess revenue, Berger cautioned against lawmakers jumping the gun on spending increases and called for more taxpayer relief, Carolina Journal reported.
“While this year’s surplus is welcomed news, we need to be cautious as we prepare the budget,” said Berger. “We must continue to prioritize responsible spending, addressing our state’s workforce needs, and providing additional tax relief to our citizens.”
“Revenues for the current fiscal year are well ahead of the pace predicted in May of last year, a sign both of the sharp increase in newly-created money circulating through the economy and North Carolina’s low-tax environment,” said Brian Balfour of the John Locke Foundation.
“Legislators would be wise to set aside most, if not all, of this surplus in anticipation of the upcoming economic downturn,” Balfour said. “Fiscal Research is projecting revenue to fall the next two years, meaning the state will need to rely on a healthy savings reserve to draw from in order to avoid tax increases to finance state government.”
“Today’s revenue forecast demonstrates that North Carolina has the capacity to provide every child a sound basic education, deliver greater financial security to families struggling with low-wage work, and ensure that communities have the infrastructure to support health and well-being for all NC residents,” said Executive Director Alexandra Sirota of the NC Budget & Tax Center.
“Our state legislative leaders can and should choose a path that focuses on the well-being of all, not just the wealthiest few. That is the path that will put us closer to being a North Carolina where every person in every zip code can thrive,” Sirota said. “Further efforts to divert dollars to already substantial reserves or to the pockets of profitable corporations and the wealthy few through more tax cuts will only block North Carolinians from the well-being that every person in this state deserves.”
A detailed analysis from the Office of State Budget Management and the Fiscal Research Division will be released on Friday.