State Revenue Figures Up
North Carolina is having a better financial year than expected, thanks to job growth and additional tax revenues to the state.
Economists in the Office of State Budget and Management and the General Assembly’s Fiscal Research Division released an updated consensus revenue forecast Wednesday. They anticipate an additional $3.25 billion in state revenues for FY 2022-23, putting total state General Fund revenue collections at $33.76 billion.
The revised consensus forecast for FY 2022-23 anticipates overcollections of $3.25B (10.7 percent) 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 two years, with $33.71 billion in FY 2023-24 and $33.65 billion in FY 2024-45.
According to the OSBM, reasons for the additional revenues include stronger individual and corporate tax collections than originally anticipated; strong consumer spending, despite rising prices and inflation; and higher than anticipated investment income for the state General Fund earned through higher interest rates.
Democrats immediately called for additional taxes on wealthy North Carolinians and businesses, while Republicans urged more fiscal responsibility.
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 told lawmakers.
“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,” said Gov. Roy Cooper in a press release. “I hope we can negotiate a bipartisan budget that makes these investments without more tax breaks for the wealthiest among us.”
Republican State Sen. Phil Berger pointed to the state’s tax-friendlier polices as proof the state can benefit better from lower overall taxes that attract workers, new busine ss and investments.
“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.”
Berger discouraged state officials from going on a spending spree in the next budget, or adding to the tax burden for North Carolinians.
“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.”
Fiscal and O.S.B.M. are expected to revise their projections again in May depending on whether there is an “April Surprise.” April revenue may differ significantly from expectations due to recent policy changes, according to Turner.
“This forecast anticipates a period of stagnant growth to endure for a significant portion of 2023, followed by a period of slower-than-average growth over the remainder of the biennium,” said Turner. “Inflation is expected to slow compared to recent peaks while still remaining above the Federal Reserve’s 2 percent target well into 2024.”