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NC budget proposal stockpiles cash to tackle inflation

The roughly $2 billion in spending to address rising costs and prepare for an economic downturn represents a sizable share of the $27.9 billion budget.

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By
Bryan Anderson, WRAL state government reporter,
and
Laura Leslie, WRAL capitol bureau chief
RALEIGH, N.C. — A sizable chunk of North Carolina’s newly introduced budget goes toward addressing inflation.

The budget puts aside $1 billion into a new State Inflationary Reserve to brace for a possible recession and hundreds of millions of dollars to protect against expected cost overruns on state projects as labor and materials costs surge.

Lawmakers consider the increased spending unusually high compared to past years but say it’s necessary to prepare for economic headwinds.

Included are $250 million reserved from the State Capital and Infrastructure Fund for increased construction costs for capital projects and $135 million from the state Highway Fund to maintain existing transportation contracts. The additional transportation money is the result of “cost escalation for materials and supplies in the construction programs,” according to a committee report presented to lawmakers on Wednesday.

State Rep. Donny Lambeth, a Forsyth County Republican, said he thinks about $2 billion of the budget goes toward addressing inflation when factoring in other initiatives, including disbursements for local governments and water and sewer projects. The $2 billion estimate represents 7.2% of the proposed $27.9 billion budget for the upcoming fiscal year

“If you go back and look at some of the prior budgets, you’ll actually see some decreases in line items because cost was actually going down,” Lambeth said. “And, in this budget, it’s just the opposite. And not just a minor amount of increases—a significant amount of increases. We all should be worried about what’s going on in the economy because it does have an impact on not only the household incomes but on state and local revenues.”

Prices for nonresidential construction inputs — such as lumber, concrete products, steel, plumbing fixtures and other materials — have risen 21.9% in the past year, according to an Associated Builders and Contractors analysis of U.S. Bureau of Labor Statistics Producer Price Index data. The analysis was released June 14.

“Inflationary pressures show no signs of abating,” ABC Chief Economist Anirban Basu said in a statement. “For months, economists and others have been expecting inflation to peak and then subside. Instead, the Russia-Ukraine war has disturbed markets, driving energy prices higher. Those elevated energy prices are now circulating across the economy, affecting manufacturing and distribution.”

North Carolina Democratic Gov. Roy Cooper hasn’t weighed in on the budget proposal.

Republican Senate leader Phil Berger said he and his colleagues have tried to adopt budgets over the past decade that accounted for population growth and rising costs of goods and services.

“Over the previous years, we’ve been looking at a number that’s between 3% and 4.5%,” Berger said of past inflation levels. “This year, that number was better than 7%. We’ve seen significant upward pressures on the state budget as a result of inflation. One of the easiest things to point to that illustrates the problem is the cost of fuel.”

Indeed, several commodities became increasingly expensive earlier this year, though prices in recent months have dropped from some materials. From mid-August to mid-January, the price of lumber nearly tripled. Crude oil doubled from December to early March. Aluminum prices went up by 50% between early November and early March. Land prices are also up throughout the state.

“We don’t know where the end of it is, which is why it’s extremely important that we sock some money away just to make sure,” Berger said.

Some feel left out of the budget as inflation outpaces proposed raises for teachers and state employees. The budget calls for a 3.5% pay raise for most state employees and 4.2% average pay increase for educators, which is less than half the 8.6% rate of inflation from May 2021 to May 2022.

“The irony is the legislature wants to save because there’s inflation and we might hit a recession,” said Adris Watkins, executive director of the State Employees Association of North Carolina. “But this budget doesn’t allow the employees to save money for themselves [and] take care of themselves when times get bad.”

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