After months of budget negotiations, legislators in Alabama and North Carolina limped to the budget finish line last week. Legislators left Montgomery and Raleigh with budget agreements that represent missed opportunities, a disregard for the near-future revenue needs, and lessons about punting difficult governing decisions down the road.
Alabama: Throughout the legislative session (and two special sessions) Alabama’s Gov. Bentley proposed revenue raising packages to close a significant general fund gap. His proposals were designed to help set the state on a path toward fiscal sustainability and plug the state’s $200 million short fall while ensuring vital services that improve the quality of life for all Alabamians were protected. Yet conservative lawmakers refused to compromise or put forward a plan free of damaging spending cuts. Ultimately, the legislature passed a cigarette excise tax of 25 cents per pack and approved a permanent shift of some use tax revenue from the Education Trust Fund to the General Fund. All told the tax hikes raised about $164 million so the state still resorted to some cuts to balance its books.
Kimble Forrester with Alabama Arise offers a thoughtful summary of learned lessons from this year’s lengthy budget debate. He appreciates that a budget deal was reached before the start of the state’s fiscal year on October 1, but cautions that lawmakers missed an opportunity. From his editorial in The Huntsville Times:
“Avoiding disastrous cuts to Medicaid and corrections is commendable, but why stop short of level funding for other services that have endured years of cuts?“
Clearly lawmakers didn’t go far enough to sure up the state’s coffers in anticipation of future needs, but some good may have come out of the budget debate. Forrester says that at least two lessons were learned:
1.) "There's growing support for cutting taxes at lower incomes and raising taxes at higher incomes." 2.) “Momentum is growing to modernize Alabama's upside-down tax system." Let’s hope lawmakers take these lessons to heart and come back next session read to continue on a path toward tax fairness and sustainability.
North Carolina: Lawmakers in North Carolina also finally crossed the budgetfinish line. While the drawn out budget negotiations resulted in a deal that mostly walked back any significant spending cut threats for the time being (teachers’ assistants and drivers education were spared), the next time lawmakers put together a 2 year spending deal they will have $1 billion less revenue available thanks to delayed tax cuts included in the final package. Most significantly, the budget reduces the state’s personal income tax rate from 5.75 to 5.499% starting in 2017 and loosens the revenue target needed to reduce the rate for profitable corporations to 3%. Regrettably current lawmakers are able to tout that they balanced the state’s budget while also cutting taxes, but these tax cuts aren’t actually being paid for in the current budget.
In her letter urging Governor McCrory to veto the budget last week (he regrettably signed it into law on Friday), Alexandra Sirota of the NC Budget and Tax Center argues:
“A compromise budget shouldn’t compromise North Carolina’s future. This budget does not reflect the need for the state to serve as a partner in economic development and economic opportunity for all North Carolinians.”
It’s worth noting that these tax cuts cumulatively cost $1 billion, on top of the $1billion in tax cuts the legislature passed in 2013. Sadly, the only lesson North Carolina lawmakers seem to be learning is how to dig their budget hole deeper.