State government economists further upgraded North Carolina’s revenue picture Wednesday, affirming that Gov. Pat McCrory and the legislature should have a slight surplus this fiscal year and a little more to work with when adjusting the two-year budget later this spring.
McCrory’s budget office and the legislature’s Fiscal Research Division now predict the state will have $237 million more than planned when they drew up a $21.7 billion spending plan for the year ending June 30. That’s higher than a $120 million surplus counted through last December.
Strong individual income tax collections are contributing to the revenue growth and more than canceling out sales tax collections that are weaker than expected, General Assembly staff economist Barry Boardman wrote to legislative leaders.
The two agencies also now agree the revenue upgrade will mean McCrory has $179 million to spend or save when he proposes adjustments to the second year of the approved budget starting July 1. McCrory plans to unveil that proposal in late April, about the time the General Assembly convenes its regular work session.
In a news release, McCrory credits the surplus to “historic tax reform, innovative job creation policies and a tight rein on government spending.”
A 2013 tax overhaul cut income tax rates, increased standard deductions and broadened slightly goods and services subject to the sales tax base. Republicans in charge of state government say the lower rates have stimulated the economy, resulting in more jobs that generate taxes. Democrats say the tax cuts have benefited the highest wage earners disproportionately.
The new figures, which consensus projections, could be adjusted upward or downward based on sometimes volatile April 15 final tax return filings and estimated tax payments for April and June. Wednesday’s forecast “cautiously has not projected any significant swings” from those collections, Boardman wrote. The April 15 figures usually have been released in early May.
Lawmakers had a revenue surplus last year as well. More revenue collections could help lawmakers boost funding for things like teacher pay, sock away more in the savings reserve, or both.
The report to legislators projects individual income tax revenues will be almost $430 million higher than anticipated for this year, while sales tax collections will be nearly $200 million lower than predicted. Corporate income taxes also are expected to be below expectations because of a large one-time refund, Boardman wrote.