September 20 , 2002

IN THIS ISSUE:
• Legislature Passes a Budget!
• Local Sales Tax Option Bill Goes to Floor on Monday
• NC Budget and Tax Center Analysis of Local Option Sales Tax
• NEW HEALTH CARE HELP WEB SITE FOR CONSUMERS

LEGISLATURE FINALLY PASSES A BUDGET!

On Friday morning at 8 am sharp, the House voted for the Budget (Senate Bill 1115) agreement 69 to 50 and the Senate soon followed with final approval. This means that almost three full months into the budget year, the legislature has finally and painfully passed the spending plan for state government. Overall the budget is much better than the cuts previously passed by the Senate, but not quite as good as the House budget. For example in Health and Human Services the Senate proposal cut $263 million, the House proposal cut $162 million and the final compromise was $175 million in cuts. But its not as simple as these budget totals, and there are still winners and losers in the end, with many more losers than we had hoped.

Revenue was still the primary sticking point. This budget did not include Golden Leaf funds or one of the corporate tax loopholes closed by the House, both of which provided the House with more money to work with. The final budget also only uses $25 million of the $120 million in Hurrican Floyd funds that had previously been escrowed to help with the budget crisis, but only if necessary. The majority of that money will remain available to redevelop the still devastated east. The budget did not include the regressive lottery, as did Easley's budget proposal, nor did it include an additional half-cent sales tax option for local governments which had been part of the Senate plan. It is very good that these regressive measures that tax the most the people who have the least did not pass. But before the ink was even dry on the budget signatures, the House Finance committee met and approved a local sales tax bill. (see below)

The problem continues to be that legislators did not raise enough money to meet the needs of the state in an ongoing and reliable way. While they did raise some new moneys, they also relied heavily on one time funds that will not be available next year and made about $1 billion in cuts. At this time it looks like next year there will be about $1.5 billion deficit to fill.

In the coming weeks I will provide you with much more detail on the impact of the budget and revenue package, plus details of the funding and cuts.

In response to the House and Senate passing the budget on Second Reading (this is the vote where most debate normally takes place) the Governor issued this statement, "This is a good budget that makes the critical investments in education that will ensure that North Carolina remains competitive in the global economy. The legislators that voted for this budget should be commended.

"Once the budget passes tomorrow, it will be time to focus on the challenges of economic development and industrial recruiting packages still pending in the Legislature. We must also direct our attention to the bill securing a steady stream of revenue for our local governments that is currently being considered in conference," Easley concluded.

Presumably the Governor is referring to a business incentives bill that will be taken up by the Senate on Tuesday Morning. The NC Economic Stimulus and Job Creation Act (House Bill 1734) allows a small committee to hand out up to $15 million per years to companies to encourage them to create new jobs in North Carolina. This is a new program on top of other business incentive programs and it includes few protections to guarantee that businesses in fact create the new positions for which they get the funds.

The Governor is also referring to legislation that would allow local governments to implement an addition half-cent sales tax...

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LOCAL OPTION SALES TAX BILL GOES TO FLOOR ON MONDAY NIGHT

Without a pause after passing the budget for a final vote, the House and Senate each called Finance Committee meetings where they approved Senate Bill 1292 Local Sales Tax Acceleration. THe bill is scheduled to be voted upon on the floor of the House and Senate on Monday night. To curb the amount of the state deficit, the Governor and legislature have withheld over $300 million in payments that normally have gone to local governments. Local governments have been complaining that they need this money to pay for essential services and without it, county commissioners cut their budgets. This bill would allow counties to raise their local sales tax by one-half-cent per dollar starting on December 1st. This would not reimburse the counties for the full amount that was withheld from the state, but it would give them back some money.

There are many severe problems with raising the sales tax, however, and the legislature should not do it. Local governments do need additional funding and some of them can raise it by increasing their property taxes. Others must have state help, but the sales tax is not the way to go. The NC Budget and Tax Center has written a succinct piece below on the issues surrounding the local sales tax option and some of the better methods for raising adequate funding for county programs. Once again, the legislature has artificially limited its choices by refusing to consider progressive, reliable tax increases that would not only get us through this recession, but would help adequately fund state and local government for years to come.

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NC Budget and Tax Center Analysis of Local Option Sales Tax:
prepared by: Elaine Mejia, Sr. Fiscal Policy Analyst

First, the sales tax is fiercely regressive and this move to increase local sales taxes would make the tax system more unfair for low and moderate income people:

• In general, the sales tax is the most regressive tax in North Carolina's state and local tax system. It is important to keep in mind that any regressive tax changes in North Carolina would be layered on top of a tax system that already burdens the lowest 20% of taxpayers more heavily than any other income category and places the smallest burden, as a % of income, on the those with the top 20% of incomes.

• As a % of income, the proposed additional 1/2 cent local sales tax would hit the bottom 20% of taxpayers 6 times harder than the top 1% of taxpayers and would hit the middle 20% of taxpayers 4 times harder than the top 1%.

Second, some local governments could raise the property tax to generate the revenue to replace the lost reimbursements.

• The property tax is considered to be mildly regressive. The local property tax in North Carolina is relatively low compared to the nation and our neighbors (39th lowest in the nation as a % of personal income as of the last US Census ranking). On the contrary, North Carolina ranks 19th in the nation in the LOCAL sales tax as a % of personal income. These figures compare only local taxes among states since North Carolina has no state property tax.

• The property tax (according to the most recent data available) hits the bottom 20% of taxpayers 2 times harder than the top 1% and hits the middle 20% 1.5 times harder than the top 1%.

Third, the best option would be to generate state revenue through a more progressive tax option and share this revenue with local governments.

• Taking reimbursements from local governments without any additional revenue to replace those reimbursements could mean real cuts at the local level in important areas such as health and human services and public education. However, looking only towards the regressive option of a local sales tax increase to replace the lost revenue would make an already inequitable tax system more unfair.

• Furthermore, such a move also exacerbates inequities between poorer and richer counties since poor counties have much smaller tax bases from which to generate sales and property tax revenue. Looking to progressive statewide revenue sources, like closing the bank tax loophole, reinstating the corporate income tax rate, or a temporary surcharge on the personal income tax, would raise the revenue needed in a fairer way.

Ideally, the state would take over the local Medicaid cost share, a very comparable share to the reimbursement amounts. This move would also benefit the low wealth counties who can least afford to generate tax revenue to handle their burgeoning Medicaid rolls or to replace reimbursements.

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NEW HEALTH CARE HELP WEB SITE FOR CONSUMERS

The National Health Law Program (NHeLP) has officially launched HealthCareCoach.com:

Dedicated to helping consumers get the most out of their health care, HealthCareCoach.com features hundreds of articles with information about everything from keeping health care costs down and coping with emergencies to dealing with denied claims and what people can do when they lose coverage. In addition to lots of helpful facts and information, visitors will also find links to many other useful web sites as well as an opportunity to voice their opinions on national health care issues.

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