State budget fears evaporate as stimulus bolsters NC economy

Strong numbers mask reality, though, for low-income families and the service industry, much of which was decimated.

Posted 8:28 p.m. Feb 11, 2021 — Updated 8:48 p.m. Feb 11, 2021

Travis Fain

, WRAL statehouse reporter

RALEIGH, N.C. — Economists' best estimate on how much tax revenue state government will bring in over the next two years – a measure that speaks to the strength of the economy as well as how much money there is to pay teachers and state employees – shows a much stronger picture than once feared.

Instead of the coronavirus pandemic blowing a $5 billion hole in the state budget, prognosticators now expect a fairly normal year revenue-wise.

Federal stimulus programs mitigated concerns of a massive economic dropoff that would have had a lingering effect on state revenues, according to a consensus revenue forecast released Thursday with notes from economists for both the legislative and executive branches.

But the solid numbers belie the economic hardship of people working lower-wage jobs, according to the analysis. Legislative economists said most of the state's tax revenue is generated by middle- and upper-income households.

Many of those people were able to work from home, while the service industry is full of businesses that have closed or are just hanging on, the note states.

"Despite the very real economic damage in these sectors, the overall drop in tax revenue was much smaller than one would expect under a typical economic downturn," legislative economists wrote.

Economists said federal relief programs dumped an estimated $18 billion into North Carolina households and some $12.5 billion to state businesses. They said sales tax collections actually increased, in part because consumers switched form spending on services, which aren't generally taxed, to goods, which are.

All this means lawmakers, who will soon get into the meat of their annual budgeting process, can expect to have about $27.4 billion to work with in the state's general fund for fiscal 2021-22, which begins July 1, and another $28.5 billion for the 2022-23 fiscal year.

The state also has healthy budget reserves, with more than $4 billion at the bottom lines of various accounts.

House Speaker Tim Moore's office said in a release announcing the new forecast that solid fiscal management from the General Assembly's Republican majority helped build a business-friendly economy, and he noted that Forbes magazine ranks North Carolina as the No. 1 state for business.

"Today's revenue forecast represents promises kept for North Carolina to prepare for economic and natural disasters with a pro-growth tax code and responsible budgets that invest in shared priorities," Moore, R-Cleveland, said in the release.

Gov. Roy Cooper used the new forecast to pitch his plan to help people struggling through the pandemic, in part by approving small-business stimulus programs he called for last week and a boost in state unemployment benefits. He also called for teacher bonuses in that package.

Legislative budget writers are considering those requests, House Appropriations Co-Chairman Donny Lambeth said Thursday, before meeting with state economists to go over the forecast in detail.

They've also got requests in hand from a number of industries, including the North Carolina Restaurant & Lodging Association, which called this week for a $300 million fund to help restaurants, bars and hotels that lost business during the pandemic, at least partly due to mandatory closures and occupancy limits Cooper put in place by executive order.

Lambeth, R-Forsyth, said that sort of dedicated funding is unlikely "any time soon," but he noted Congress is working on a new stimulus package that may send more federal money North Carolina's way.

Lambeth also said budget writers will discuss Cooper's proposal for teacher bonuses, but that will probably be resolved as part of larger budget talks that are still weeks away.

"Whether we will fund it ... I don't know today," he said.

The new revenue forecast is built on a number of assumptions, including that coronavirus infection rates will continue to decline as more people get vaccinated and that Congress will pass another round of stimulus that again extends unemployment benefits and provides new stimulus checks to families this spring.

It also includes a caveat, as described by Cooper's budget office: "Due to heightened uncertainty regarding the impact of federal stimulus measures on the state’s tax bases, anticipated revenues could be significantly lower or higher, even using the above economic assumptions."

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