Perdue cheers over-collections but lawmakers say there's no extra money

Posted June 28, 2012

— North Carolina collected $117 million more in taxes than expected over the last three months, according to reports from the legislature's fiscal staff. 

Gov. Bev Perdue, who has been pushing lawmakers to spend more on education, sent a news release today urging legislators to spend that money. 

“I am committed to ensuring that a portion of this revenue source, along with other funds, be dedicated to schools, jobs, probation and parole officers and other urgent needs," Perdue said. "I just spoke to Speaker Tillis and President Pro Tem Berger and asked them to work with me in a bi-partisan way to reach an agreement that will allow an amended budget to become law by July 1.”

However, lawmakers say Perdue should not be trying to spend that $117 million.

"The picture is no rosier than it has been," said Sen. Pete Brunstetter, R-Forsyth. 

Sen. Bob Rucho said that using the money Perdue had identified would create a whole in next year's budget. The video attached to this post contains Rucho's remarks along with input from Barry Boardman of the legislature's fiscal research division. 

Sen. Rucho on tax collections

That's because the "extra" money appears to be a result of businesses failing to take advantage of a new tax credit then an actual uptick in revenue.

"It's not extra money," Berger said.

Here's a more full, if pretty technical, explanation from legislative economist Barry Boardman, which he sent to top legislative leaders Thursday:

The primary reason for the increase in collections is due to taxpayer behavior (timing of payment adjustments). Predominately, the timing of when taxpayers will begin to take advantage of the new business income exemption. In June, there was no evidence taxpayers had begun to reduce their estimated tax payments in anticipation of a lower tax liability for the 2012 tax year. The April consensus forecast projected that taxpayers would begin to make adjustments to their estimated payments starting in June. Additionally, refunds in May and June were lower than expected, which may also be related to taxpayer timing (those refunds sometimes show up in July or August). Finally, a sizable, one-time tax settlement was finalized in June and contributed to over-collections ($24 million).

Regarding the business exemption, it is typical for taxpayers to make adjustments to their estimated payments when a tax credit, exemption, or deduction is enacted. Since this exemption is for business income it may be more difficult for taxpayers to estimate their tax year liability and make adjustments. This would explain, at least in part, why we did not see the typical adjustments we observe with other income tax changes. The newness of the business exemption could also be playing a role in why we have yet to see any adjustments in estimated tax payments.

The timing of when taxpayers take advantage of tax law changes are a matter of accounting rather than adjustments related to economic conditions. Below is a table that shows this accounting by using the original fiscal impacts we expected and the newly revised numbers based on the Apr/June experience. The shift in when the exemption is taken results in an over-collection in FY 1112, but a reduction in personal income tax collections in FY 1213. In other words, they cancel each other out with respect to the FY 2012-13 budget.

What all that boils down to, Brunstetter said, is that if the legislature tried to use extra money they would be creating a shortfall in the budget that is sitting on Perdue's desk. 

Meanwhile, lawmakers are waiting to see what Perdue will do with the budget. She has until Sunday at midnight to sign or veto the bill before it takes effect without her signature. 


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  • COPs eye Jun 29, 2012

    bev is just clueless

  • oldaltar Jun 28, 2012

    During the recent budget debates,Senate Republicans used a procedural gimmick in order to dodge a vote on closing a tax loophole for NC's wealthiest residents. This $3,500 tax break was originally sold to the public as a "small business tax cut." But the tax loophole that Republicans maneuvered to keep in place applies to all businesses that are not corporations. Millionaire business owners qualify. Wealthy corporate lawyers qualify. Many members of the NC House and Senate qualify. Any business, no matter how large, qualifies so long as it is not a corporation. What's the cost to NC of this fat cat tax cut? It will cost our state $336 million in 2013 - a year in which our public schools are facing a $500 million funding gap.GOP leaders knew full well what they were doing.