A year ago, the sky was falling in North Carolina — fiscally speaking, I mean.
During the latter part of 2014, liberal editorialists and Democratic operatives repeatedly predicted that the state budget would experience revenue shortfalls by the end of the fiscal year in June 2015. Some said the resulting budget deficits would be $300 million to $400 million. Others pegged the potential gap at well over $1 billion. They blamed Gov. Pat McCrory and the GOP-controlled General Assembly for cutting taxes too much — indeed, some even claimed that Republicans had intentionally engineered a deficit as an excuse for cutting more programs.
As we now know, the Left’s predictions were wildly, ridiculously off the mark. North Carolina didn’t end up with a revenue shortfall or budget deficit. In fact, General Fund revenues for the 2014-15 fiscal year exceeded expectations by some $446 million. Combined with unspent funds reverting to the state treasury, this created a budget surplus of more than $860 million.
Rather than having to scramble to fill a fiscal hole this summer, McCrory and state lawmakers were able to fund core functions, enact some additional tax relief, and deposit most of the budget surplus, $600 million, into state reserves.
Why were North Carolina liberals so very wrong about taxes and the state budget? The immediate problem was that they extrapolated what would happen over the course of a year from data collected for only the first two to four months of the year. Through October 2014, revenues were indeed short of projections.
State revenues and expenditures aren’t evenly distributed across the fiscal year. Lots of sales tax revenue comes in during the Christmas shopping season. A disproportionate amount of personal income tax revenues arrives around the April 15 filing deadline.
These are widely understood fiscal facts. In truth, many of the liberal politicians and editorialists who predicted doom and gloom last fall are very familiar with the budget process. They ought to have known better. In my view, they simply wanted to see doom and gloom. They thought the dramatic tax cuts and other conservative policies enacted by Republicans in Raleigh were bad ideas, destined to fail, and were willing to jump to premature conclusions — particularly because one of the architects of those policies, Thom Tillis, was on the ballot as the GOP nominee for U.S. Senate.
Well, here we are in the late fall of 2015, with the same preliminary data available for the 2015-16 fiscal year. Through October, General Fund revenues are running nearly $400 million above what they were this time last year, and about a percentage point above the consensus revenue forecast for this year.
Where are all the front-page stories and triumphant editorials about how the state is on track to run a comfortable budget surplus for 2015-16? They haven’t happened. I wish it were because all the Chicken Littles in politics and the media had learned their lessons after embarrassing themselves last year. I suspect, however, that good news is simply less useful to them.
I don’t think anyone should jump to conclusions, be they Democrats or Republicans. It really is just too early to declare victory or defeat. No one knows how well retailers will do this Christmas, or what turn the national economy will take in 2016. While it is quite possible that North Carolina will run another budget surplus, I wouldn’t count on it.
Fortunately, we don’t have to. Thanks to the fiscal discipline of the past five years, the state has built up some $1.5 billion in rainy-day reserves, contingency funds, and other cash accounts. If things do take a turn for the worse, McCrory and the legislature won’t have to scramble to balance the budget. And if things continue to go well, they’ll have the fiscal space to address other needs during the 2016 session.
Fiscal discipline may not be exciting. But it’s a welcome respite from the recent past — unless, of course, what you really want is some bad news to clobber state Republicans with.
John Locke Foundation chairman John Hood is the author of Catalyst: Jim Martin and the Rise of North Carolina Republicans.