Tax changes could jeopardize teacher raises

Tax cuts that state lawmakers passed last year have trimmed the amount of revenue North Carolina is collecting to the point where promised raises for teachers are at risk.

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RALEIGH, N.C. — Tax cuts that state lawmakers passed last year have trimmed the amount of revenue North Carolina is collecting to the point where promised raises for teachers are at risk.

When lawmakers wrote the two-year budget last summer, they left about $360 million unspent for this year, which they planned to use for proposed raises for beginning teachers. That cushion might not be there when the new fiscal year starts in July, however.

Lawmakers likely will have to use $200 million or so to cover another shortfall in the Medicaid budget, and the General Assembly's Fiscal Research Division has issued a gloomy forecast for tax collections.

Although collections through the end of March were $12.1 million above target, personal income tax is coming in $221 million below forecasts, according to the Fiscal Research Division. Also, fewer corporate tax returns to date don't bode well for the amount of tax money coming in from businesses over the next few months.

The revenue squeeze is the result of tax cuts included in last year's overhaul of the state tax system already taking effect, while other changes meant to offset the impact of the cuts, such as the elimination of several deductions, won't be felt until people file their 2014 tax returns next year.

"It's frustrating," said Sen. Jerry Tillman, R-Randolph. "I still think we need to do and will do something for teachers, but it's all going to depend on the money. We can't do it if we don't have the money."

Lawmakers are used to having more money to work with in the second year of the budget cycle because they try to underestimate in their budgeting. Tillman, the Senate's chief budget-writer for education, said no one foresaw the lag between tax cuts and new revenue.

At this point, he said, it depends on the so-called "April surprise," the collections and refunds on April 15 that can change the entire budget outlook – for better or worse.

"We will know much more by the end of April, and let's hope for the best because the teachers definitely need a raise," he said. "We're trying our best to find the money."

Legislative leaders said they are committed to a plan Gov. Pat McCrory outlined in February that would raise starting salaries for North Carolina public school teachers by almost 14 percent over the next two years.

The $176 million plan would lift the base pay for new teachers from $30,800 to $35,000 by the 2015-16 school year, including a $2,200 raise this fall followed by another $2,000 next year.

Tillman said restoring pay bumps for teachers in the process of earning master's degrees will cost another $20 million.

Anna Roberts, a spokeswoman for House Speaker Thom Tillis, said she believes the plan will still work within the budget as it stands.

"As we’ve said all along, raises beyond the plan we announced in February are contingent on Medicaid cost overruns and revenues," Roberts said. "The budget projection information is still preliminary, and there’s still a lot of data unaccounted for."

McCrory spokesman Josh Ellis said the governor still plans to include teacher raises in his budget proposal.

Neither Ellis, Roberts nor Shelly Carver, a spokeswoman for Senate President Pro Tem Phil Berger, would say how teacher raises would be funded if the expected revenue doesn't materialize.


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