Legislative leaders hail budget surplus

That extra padding will be welcome news for lawmakers holding their first budget hearings next week, although Democratic Gov. Roy Cooper and Republican legislative leaders will likely be divided on how to handle the surplus.

"Growing revenue projections are welcome news and give us an opportunity to invest in our future with better schools and a stronger middle class, while also making sure those hit hard by Hurricane Matthew aren't left behind," Cooper said in a statement.

Authors of the forecast cautioned that both recent changes to North Carolina's tax code as well as potential changes to federal tax laws make projecting a figure more difficult. That said, the authors write, both sales and personal income tax collections are expected to exceed projections.

"The anticipated revenue surplus is predominately the result of stronger-than-expected wage growth increasing both Personal Income tax and Sales tax collections," the report says.

The surplus for the current fiscal year, which ends June 30, produces what lawmakers call "one-time money," which can be spent on buildings or other discrete purchases but not on recurring needs such as salaries.

For next year's budget, the most important part of the report are the pages that project continued revenue growth over the next two years. That recurring revenue will give lawmakers more money for salaries and other budget items that must be paid every year. However, that forecast could be curtailed by further cuts to various taxes, and lawmakers have already filed bills this year for new exemptions on real estate purchases and heavy equipment owned by businesses.

"The State’s overall economic activity is expected to outpace the nation as a whole," the report concludes.

During last year's gubernatorial campaign, Cooper argued that the state should halt further corporate income tax cuts and begin plowing surpluses into education spending and aid for areas affected by Hurricane Matthew.

Republican legislative leaders, who have been in charge of passing the state's budgets since 2011, say the state can both cut taxes as well as raise teacher salaries and meet the needs arising from hurricane damage. GOP leaders on Thursday trumpeted the surplus number as proof their policies are working and that Cooper should endorse further tax-cutting measures.

"Even as the majority of other states face revenue shortfalls and budget crunches, Republican state leaders' tax cuts and disciplined spending have generated a $552 million revenue surplus for North Carolina – making us one of just four states in the country expecting surpluses," Senate President Pro Tem Phil Berger said in a statement. "We hope Gov. Cooper will rethink his pledge to block job-creating future tax cuts for families and small businesses and instead partner with legislative Republicans to stay the course on spending taxpayer money wisely and continuing our state’s record of success."

Cooper and lawmakers are not totally at loggerheads. Cooper has said he wants to raise teacher pay further, and Berger, R-Rockingham, has pledged to raise the state average to $55,000 per year. But there will likely be big differences in the approach.

Meanwhile, House leaders, including Appropriations Chairman Rep. Nelson Dollar, R-Wake, put forward legislation this week that would require the state to sock away a portion of its annual surplus into the rainy day fund. He also hailed the surplus as proof GOP policies over the past six years had worked.

"North Carolina must sustain its commitment to creating opportunity and commercial growth through a commonsense, conservative approach to state government. This considerable revenue surplus reflects the significant impact our reforms have had on wage gains, job creation and tax collections for our state," Dollar said in a statement.