A Good, but Highly Uncertain and Unstable, Budget Surprise

NC collected $457 million more than expected, but state’s economist attributes it to delayed tax deadline

Nonpartisan fiscal staff: “This amount would not be recurring and it may put negative pressure on the 2020–21 forecast”

Senate’s chief budget writer: “To spend this money, which may disappear next month, would be reckless and irresponsible”

Raleigh, N.C. — The state’s nonpartisan fiscal experts informed lawmakers this afternoon about an unexpected and highly unstable tax “overcollection” of $457 million.

According to the state’s nonpartisan budget staff, “Most of the over collection was due to a lower-than-expected shift in income tax payments due to the movement of the payment deadline from April 15 to July 15…This amount would not be recurring and it may put negative pressure on the 2020–21 [revenue] forecast.”

In other words, the state’s nonpartisan fiscal experts expected more people to pay their taxes after April 15 this year because the tax deadline was extended by three months. But fewer people ended up paying later, which means the state collected some money last year that economists predicted would actually come in this year.

This does not mean the state has more money to spend. It means the state likely took in some money last year that it won’t take in this year.

Sen. Harry Brown (R-Onslow), the Senate’s chief budget writer, said, “Beware of budget gimmicks from Gov. Cooper and Democrats. If and when Gov. Cooper submits his budget proposal, which is about four months late, he may try to use this ‘extra’ money. That would be outrageously irresponsible, reckless, and negligent. That same ‘spend now, pray later’ strategy resulted in teacher firings and salary cuts during the last recession.”

Read the full report the state’s nonpartisan fiscal experts shared with legislators below:

“We wanted to make you aware that the State over-collected on its projected revenue undercollections at the end of FY 2019–20. In other words, every though revenues were down in FY 2019–20, the State collected more than was projected relative to the May 2020 Revenue Forecast. Without a revised consensus revenue forecast, the overcollections have added $457 million to the estimated FY 2020–21 year-end unappropriated balance.

“Obviously, the $457 million estimate is a substantial increase over the June 2020 estimated unappropriated balance. However, we believe that there are multiple considerations to contemplate about this revision:

“Tax Shift — Barry Boardman has estimated that most of the FY 2019–20 over collections was due to a lower than expected shift in income tax payments due to the movement of the payment deadline from April 15th to July 15th. As we understand it, this amount would not be recurring and it may put negative pressure on the FY 2020–21 forecast. The FY 2020–21 forecast included approximately $1 billion in one-time revenue due to this shift.

“Structural Budget Challenges — Most of the items funded in this session’s appropriations bills funded recurring program needs on a one-time basis, primarily from fund balances or the CRF. Any additional appropriations from a one-time source for recurring types of programs would exacerbate what we believe to be a $2-$3 billion structural imbalance.

“Overall Revenue Uncertainty — As Barry explained last week, “we are still facing significant economic uncertainty along with new uncertainty about federal policy and the Fiscal Research Division does not expect to have the information necessary to issue a revised, line-item forecast until late September.” The $457 million estimated unappropriated balance is predicated on the accuracy of the revenue forecast in a time of unprecedented economic tumult. We would advise to treat this estimate with caution, considering these unusual circumstances.”