North Carolina Surplus, Budget Impasse Mean Lots Of Cash Unspent

North Carolina state government coffers are more flush than in recent memory as 2020 begins as tax collections again are beating projections and hundreds of millions of dollars aren't being spent due to a lengthy budget impasse.

Legislative analysts and Gov. Roy Cooper's state budget office both agree state revenues were about $290 million ahead of expectations as of Dec. 31, halfway through the fiscal year. Most of the overage — $224 million — has been attributed to higher than anticipated individual income tax collections, State Budget Director Charlie Perusse said in an email this week.

Perusse said the overcollections so far are 2.5% above formal projections. They were already upgraded in September, after last year's revenue surplus unexpectedly soared to nearly $900 million. That was the highest surplus since the mid-2000s.

The state's financial accounts also are higher this year because a full two-year state budget has never been finalized. Cooper, a Democrat, vetoed the spending plan of Republican legislators last June. Cooper and GOP leaders did agree on and approve several noncontroversial spending measures. State law directs the government to keep operating at previous-year levels when there's no completed budget.

The state would have spent $24 billion this year had the GOP budget been enacted. But lingering disagreements over school construction, teacher pay and overhauling Medicaid means cash that the GOP earmarked for these initiatives isn't being spent. That has contributed to a cash glut.

The State Controller's Office, which keeps the state's books and manages state payroll, reported the state's total unreserved cash balance — money that isn't already earmarked for something — was $2.15 billion, or double the total from 12 months ago.

Hundreds of millions of dollars currently unused would have gone through the Republican budget to pay for construction expenses for K-12 schools, University of North Carolina and community college system campuses and government buildings. Cooper criticized the pay-as-you-go financial plan for schools.

Cooper said this week that the statewide bond issue he wants for K-12 construction is affordable and would better ensure projects are completed. But Senate leader Phil Berger's office said on Thursday that paying projects upfront makes good financial sense and avoids decades of debt payments.

While the second half of the fiscal year is usually more volatile, the state, for now, is on track to collect more than it takes in for the sixth year in a row. Higher individual income tax collections are usually a sign of strong job growth, since much of that money comes from workers' paychecks. The state unemployment rate in December was 3.7%, the lowest in a year.

The overcollections also likely will reaffirm other competing policy positions by Republican legislators on one side and Cooper and fellow Democrats on the other as the legislature returns to work in late April. Cooper wants more robust teacher raises and education spending than what Republicans offered. Republicans could justify further tax cuts with another surplus, which they contribute in part to their economic policies.