Through Tax Cuts

The 2011-2013 N.C. State Budget is Offering Our State Real Solutions

As the Great Recession was deepening throughout the nation in spring of 2009, North Carolina state budget writers found themselves facing an enormous budget hole. Some estimates pegged the budget gap for the Fiscal Year (FY) 2009-10 state budget at $4.6 billion.1

But to get in a hole that deep, one needs to have been digging for a long time. Indeed, an examination of long-term budgetary trends shows that North Carolina’s state budget had been on a crash course for disaster for decades. From 1979 to 2009, the state budget more than tripled – even after adjusting for inflation. Indeed, inflation-adjusted expenditures grew at a rate three times the pace of state population growth during that time.

In spite of billions of dollars in federal “stimulus” funds sent to help bail out the state budget, North Carolina legislators approved the largest tax increase in state history – more than $1 billion in annual new taxes – in 2009. And even though most states faced similar budget crises, North Carolina stood out among regional states with such a dramatic tax hike.  While North Carolina imposed higher sales, income and corporate taxes on its citizens, no other southeastern state resorted to raising even one of those taxes in 2009. Only one other southeastern state, Florida, imposed new taxes anywhere near the dollar amount of tax hikes North Carolina legislators introduced in that year.

Now move ahead to the spring of 2011, when the North Carolina General Assembly – under new leadership – faced a continued budget crisis. Because of the short-sighted reliance on temporary tax and federal stimulus funds utilized by the previous leadership, budget writers were handed a daunting $3.1 billion budget gap for the FY 2011-12 budget.2

Even with an empty “rainy day fund” (depleted in 2009), the General Assembly balanced the state 2011-13 budget without raising taxes. As North Carolina’s economy continues to struggle, the budget will return more than $2 billion to North Carolina’s families.3

Budget writers also managed to include nearly half a billion dollars in small business tax relief.4

Furthermore, the new legislative leaders not only added no new state debt, they cancelled nearly a quarter of a billion dollars of previously approved but not yet issued state debt. Compare this fiscally responsible act to the previous decade, in which per capita state debt more than doubled.

Lower taxes…Reduced debt…Help for small businesses…Real Solutions for North Carolina.


1“General Fund Outlook,” a presentation by Fiscal Research. May 2009. Available at:
“http://www.ncleg.net/fiscalresearch/generalfund_outlook/generalfund_outlook_pdfs/2009%20Outlooks/Revised%20Revenue%20and%20Budget%20Outlook%20FER%2020090505v2.pdf
2SOURCE: “North Carolina’s FY 2011-12 Budget Gap,” Fiscal Brief presented by Fiscal Research Division of the North Carolina General Assembly, Dec. 2010. This preliminary estimate projected a FY 2011-12 budget gap at $3.7 billion. Available at: http://www.ncleg.net/fiscalresearch/frd_reports/FRD_Reports_PDFs/Fiscal_Briefs/Fiscal%20Brief_%20FY%202011-12%20Budget%20Gap.pdf

Also see: A Feb. 2011 memo from Fiscal Research updated the budget gap estimate based on revised revenue projections. Memo available online here: http://www.ncleg.net/FiscalResearch/generalfund_outlook/generalfund_outlook_pdfs/2011%20Outlooks/Consensus%20Revenue%20Report%20February%202011.pdf
The new revenue projections were $600 million higher than the Dec. 2010 report, thus lowering the expected FY 2011-12 budget gap to $3.1 billion.

3The “temporary” sales, income and corporate taxes were estimated to cost $1.2 billion in FY 2010-11. Using that as a baseline, it is safe to estimate that if these taxes would have continued through the FY 2011-13 biennium, it would have cost taxpayers well over $2 billion over the course of those two years. Source: Joint Conference Committee Report on SB 202
http://www.ncleg.net/sessions/2009/budget/2009/JointConferenceCommitteeReport_SB202_2009_08_03.pdf
4The “Small business tax relief package” is projected to save small business $135 million in 2011-12 and $335 million in 2012-13. Estimates available at: http://www.ncleg.net/sessions/2011/budget/2011/MoneyReport-5-31-11.pdf