Despite revenue downgrade, North Carolina anticipates nearly $1B more in cash
RALEIGH, N.C. (AP) — North Carolina officials downgraded a projected state revenue surplus through mid-2025 by $430 million on Friday, citing lower than anticipated April 15 individual income tax payments due to recent business tax changes. Still, the state expects nearly $1 billion more to enter its coffers.
Last month, economists working for Democratic Gov. Roy Cooper’s administration and at the Republican-controlled legislature predicted formally that collections would exceed revenue budgeted for the year ending June 30 by $413 million. And that jump, they determined, would lead to another $1 billion more received in the fiscal year starting July 1 than projected in the current two-year state budget.
Now the consensus forecast indicates that the overage for this fiscal year will now be $188 million, with another $799 million expected next year, the Office of State Budget and Management and the legislature’s Fiscal Research Division said.
The economists had warned that a forecast revision might be necessary if April collections, which are usually the most volatile, deviated significantly from estimates. That’s what happened, according to the agencies. Personal income tax refunds were higher than anticipated and final payments were lower than expected, as a 2022 tax change that let certain corporations and partnerships pay state taxes, rather than owners or shareholders, for favored tax treatment led to some duplicate payments.
“Fortunately, this adjustment is a one-time event,” a state budget office memo said, adding that “despite this downward revision, the economic outlook for North Carolina remains unchanged, with no effect on the state’s long-term growth.”
It’s unclear if the lower overcollections will make legislators more cautious about additional spending or a potential income tax rebate as the General Assembly now meets to adjust the budget’s second year. The additional monies are a small percentage compared with the nearly $31 billion that the state currently plans to spend next year.
The April forecast served as the basis for Cooper to present his budget adjustment proposal last month. It also gave Republicans confidence that there were funds to advance a measure that would set aside another $463 million to help children seeking scholarships to attend private schools and to eliminate the waitlist.
That bill needs only one House vote to send the measure to Cooper, who is strongly opposed to the larger Opportunity Scholarship program. The legislature agreed last year to remove family income limits on receiving the scholarships, resulting in a massive increase in applications. Cooper has called for a moratorium on Opportunity Scholarships while expanding public school funding.
Republican budget-writers also are considering requests from the business community and advocates for children to address the upcoming loss of federal money for grants designed to help child care centers remain open during the COVID-19 pandemic.
Senate leader Phil Berger told reporters Thursday that GOP leaders were considering whether it makes sense to provide widespread tax rebates this year. Giving even $500 to every household, for example, could cost billions.
“We’re looking at it, but I don’t think there’d be an interest in doing it unless the amount we could send out would be an amount that would make a difference,” he said.