Republican lawmakers have been dismissive of the state鈥檚 official revenue projections that show a shortfall starting next year. They argue that economic growth will mean there鈥檚 plenty of money and no need to pause scheduled corporate and personal income tax cuts.
But State Budget Director Kristin Walker鈥檚 economic models tell a different story. Her team of economists have run the numbers of various revenue scenarios 鈥� and she says all of them lead to a 鈥渇iscal cliff.鈥� That鈥檚 because even if North Carolina has a booming economy, higher tax revenue will hit another amount that 鈥渢riggers鈥� an additional tax rate cut.
Walker joined the 吉彩网网站 Politics Podcast this week to explain the revenue forecast as well as highlights of Gov. Josh Stein鈥檚 budget recommendations, which include pausing the tax cuts.
How did your office develop this revenue forecast, and what's causing revenue to drop over time here in North Carolina?
鈥淭he revenue forecast for the next biennium is a consensus process. It's done between economists in my office and economists over at the legislature in the Fiscal Research Division, and those economists come together and come up with those numbers for what we'll have to spend in the next year.
鈥淎nd when they did that this year, they actually determined that we will have about 2.5% less revenue in the second year of the biennium than in the first. That is a situation that I have not seen in the last 15 years.
鈥淭hey saw that it's not economic conditions that are going to cause that lower revenue, it's actually our tax structure. So the way the tax cuts work, we're going to have less revenue in that second year because of the way the General Assembly structured the revenue system.鈥�
What's your response to Senate leader Phil Berger鈥檚 view on this, that we'll have adequate revenue regardless, and the rainy day fund would be adequate to resolve any sort of shortfalls that you see over time?
鈥淩evenue is adequate when your expenditures don't exceed it, right? You can increase revenue and you can freeze the tax cuts, or you can lower expenditures so you can balance your budget.
鈥淚 don't know which one Sen. Berger has in mind, but if he's not looking to increase revenue in some way, he's going to have to look to lower expenditures, because that's what the forecast is showing us.
鈥淚 would strongly caution against using the rainy day fund to fix a recurring problem.鈥�
Do you have a broad sense for what level of budget cuts we鈥檙e talking about? What does that look like in practice?
鈥淲hen we compare (population growth and inflation calculations) with the revenue forecast, we're looking at about a $3.5 billion shortfall three years from now. That equates to about a little more than 10% on our overall state budget.鈥�
Is there any scenario in your revenue modeling where the current tax cut schedule would ultimately keep revenues adequate enough to avoid those budget cuts?
鈥淚t would have to grow over and above what they're already predicting the economy to grow, by 4.5% every year 鈥� year over year over year. You鈥檇 have to have a tremendous amount of growth in your economy, and you would have to also not have high inflation, and that's just not something any of the economists are thinking is likely at all.鈥�
Walker also discussed Stein鈥檚 budget recommendations for teacher and state employee raises, his proposal for a government efficiency 鈥淚mpact Center,鈥� and a disagreement with State Treasurer Brad Briner over how to fund the state retirement system.
Listen to the full conversation here.
