What to do with an extra $3 billion

North Carolina will finish the current budget year with $3.25 billion – 10.7% – more revenue than it budgeted for the year, state economists reported last month.

The consensus report from economists for the General Assembly and the Governor’s Office attributed the additional funds to a smaller-than-expected decline in individual income taxes, strong corporate profits, strong consumer spending, and better-than-expected investment returns on the state’s General Fund.

Anticipating a “slow-cession” this year, the economists forecast slight declines of 0.2% in state revenues in each of the next two years.¹

So what’s a legislature to do with an extra $3 billion?

It doesn’t need to stash more money in reserves – with a surplus of $6.5 billion last year, legislators put $4.1 billion into reserves.² And it doesn’t need to cut taxes – people and businesses are already coming to North Carolina in droves.

AS THE NO. 1-RANKED state for business, North Carolina needs to keep up with the growth those new businesses will bring to the state and invest in the very workforce that helps attract them – from pre-school through grad school.

Currently, North Carolina ranks last in the nation – yes, behind Mississippi and Alabama – for the percentage of its economy it devotes to public education.³

Surely we can do better.

Workers with children need quality child care to prep those burgeoning young brains for reading, learning and taking on tomorrow’s challenges. Yet pay for child-care instructors remains abysmally low.⁴ The state should expand its subsidies for both child-care workers and for parents.

North Carolina has a severe K-12 teacher shortage – the state started this school year with 4,400 teaching vacancies, and it has seen a 43% decrease since 2010 in enrollment in the UNC System’s colleges of education.⁵

North Carolina ranks 38th in the country in teacher pay.⁶ And legislators gave teachers an average raise of 4.2% last year at the same time inflation raged at 8.6%.⁷ 

State officials are developing a new system to license and pay teachers, and teachers have criticized the plan for a lack of clarity. Even though it may be the best opportunity to substantially increase teacher pay, that plan will need to be piloted in more than one county before it takes shape in at least two years.

But we – and more importantly, our children – can’t afford to wait two years to improve teacher pay and the supply of teachers in this state.

The Public School Forum of North Carolina says it will take a 24.5% increase to raise North Carolina teachers’ pay to the national average and match the pay of similarly educated professionals.⁸ 

Prudent budgeting dictates that officials should not use one-time revenue to pay recurring expenses. 

BUT A FORWARD-THINKING LEGISLATURE could use surplus funds to award state employees and teachers at every level bonuses to at least keep up with inflation as a new plan is developed.

Anything less amounts to a pay cut.

In its budget request to the legislature, the UNC System explains how inflation eats away a worker’s purchasing power: 

An employee who made $70,000 in 2019 would make $74,707 this year after raises approved by the legislature. But to keep the same purchasing power, given inflation over the past four years, that employee would need to make $82,695 this year. So she’s seen a $7,988 reduction in real earnings.

As of December, 48% of University System employees made less than $70,000. 

In addition to raises commensurate with other state employees, the UNC System also asks for special funds – as the legislature granted last year – to match salaries in high-demand fields.

It also requests funds for increased operating costs – UNC schools have seen a $15 million increase in utility costs alone in the past year, for example.

“While institutions nationwide have raised tuition to cover such costs, the UNC System has kept resident undergraduate tuition flat since 2017-18, prioritizing our commitment to an affordable college education for the students and families of North Carolina,” its legislative agenda says.⁹ 

THEN THERE’S LEANDRO. In a case over funds for public schools that began in 1994, the NC Supreme Court in November ordered officials to bypass the General Assembly and spend hundreds of millions of dollars to comply with a plan developed by parties in the case.

As a generation of children passed through our schools, it was the third time the Court has ruled that North Carolina students have been denied their constitutional right to an opportunity for “a sound basic education.” 

Overall, the plan calls for $5.6 billion more in state spending through 2028.

The Court returned the case to a trial court to determine the amount due for two years of the plan after adoption of a 2022-23 state budget. A state analyst determined in December that the budget still falls $677.8 million short of the plan’s requirements.¹⁰

After the 2022 elections, the Supreme Court now has a 5-2 Republican majority. And Republican legislative leaders and the state controller have asked the court to reconsider the case,¹¹ though nothing has occurred to merit a change in the ruling.

And just as with the $3 billion surplus, the question remains: At what point will state legislators step up to uphold our state constitution’s promise to North Carolina’s children?

¹ https://www.osbm.nc.gov/media/3175/open, Feb. 15, 2023.
² https://ncbudget.org/missing-the-mark-for-north-carolina-2022-23-state-budget-fails-to-address-the-many-effects-of-inflation/. 
³ https://www.newsobserver.com/opinion/article271576127.html. 
⁴ https://www.higheredworks.org/2022/09/early-childhood-do-what-it-takes/. 
⁵ https://www.newsobserver.com/news/local/education/article264526776.html. 
⁶ https://www.newsobserver.com/news/local/education/article271836277.html. 
⁷ https://www.higheredworks.org/2022/07/a-pay-cut/. 
⁸ https://www.ncforum.org/topissues/. 
⁹ https://www.northcarolina.edu/apps/bog/doc.php?id=67237&code=bog, p. 9.
¹⁰ https://www.wral.com/affidavit-nc-still-677-8m-short-of-leandro-education-plan/20641247/.
¹¹ https://www.wral.com/nc-lawmakers-controller-want-leandro-back-in-front-of-the-state-supreme-court/20714115/.