Prosperity Watch Issue 27

Prosperity Watch Issue 27, No. 1: Education and health care make up largest share of state budget, most at risk from tax cuts

As lawmakers continue to debate big tax cuts and spending reductions in the FY2013-15 North Carolina state budget, it’s worth taking a step back and reminding ourselves what public investments our tax revenues support—and what investments would be most at risk if revenues were to be dramatically reduced. At the most basic level, tax revenues support investments intended to benefit the common good of state residents and which the private market cannot or will not provide—investments like educating our children, training our workforce, building our roads, providing public safety, protecting our drinking water from pollution, and making sure all of our state’s residents have access to basic primary healthcare.

Unfortunately, recently proposed tax cuts place these investments in serious jeopardy by reducing the amount of revenue available to meet the common needs of our rapidly growing state.  As seen in the following figure, the two areas which make up the overwhelming majority of our state budget is Elementary and Postsecondary Education (55 percent) and Health and Human Services (22 percent). Given that these investments account for more than three-fourths of the total budget, it would be hard to protect these areas from additional cuts beyond what they have already experienced in recent years.

Prosperity Watch Issue 27, No. 2: Doubling of student loan interest rate increases cost of postsecondary education for North Carolina students and families

On July 1, 2013 Congress allowed the interest rate on subsidized Stafford loans to double from 3.4 to 6.8 percent and, unless lawmakers act, the higher rate will remain permanently. Consequently, thousands of North Carolina students and families that rely on Stafford loans to help pay for college will see the cost of their postsecondary education increase. Compounding these new costs for families, tuition costs are almost double what they were ten years ago—forcing students and their families to carry a much heavier financial burden in order to complete college than ever before.

North Carolina has long valued higher education, with tuition at its public colleges and universities historically among the lowest compared to other southern states. Since 2002, however, the cumulative average tuition within the UNC System has increased by nearly 80 percent when adjusted for inflation while state support for the UNC system has been cut significantly in recent years. For FY 2013, state funding for the UNC system is nearly 10 percent below inflation-adjusted levels for FY 2008.

 

Continued increases in tuition are likely to compel students to take on greater levels of student loan debt to help pay for their education or not purse a postsecondary education at all. For 2011, the average debt for college seniors who graduated from 4-year public and private (non-profit) institutions in North Carolina was $20,800, according to the Project on Student Debt. While this student loan debt level was the lowest among any other state in the South, a doubling of the Stafford loan interest rate means that a student with this debt load could end up paying more than double in interest costs.

Reducing the interest rate on Stafford loans makes the pursuit of a postsecondary education less costly for students and their families that rely on such loans, allowing college graduates to pay off their student debt and participate more fully in the economy much more quickly. As a result, income that would have gone towards paying additional interest on student loans would become available to purchase a home and car, and to put towards retirement savings. Low tuition and low interest on student loans make economic and financial sense.

Prosperity Watch Issue 27, No. 3: Most North Carolina counties lag statewide working population rate

On the surface, North Carolina’s labor market appears to recovering—the unemployment rate has dropped below 9 percent over the past three months, and employment growth has remained steady over much of the last year. Unfortunately, much of this improvement is concentrated in just a few areas of the state—notably the four major metros of Charlotte, Durham, Raleigh, and Asheville—while much of the rest of North Carolina continues to struggle.

An obvious area of concern on this front involves the wide differences in the opportunity to find work found across many of these counties. Looking at the working population rate of each county (the percentage of all residents over the age of 16 that are employed), it becomes clear that some counties are lagging significantly behind others. A lower working population rate implies that fewer people in the county have jobs, while a higher rate implies more people are employed—providing a clear and accurate picture of labor market conditions at the county level.

Although state’s average working population rate is 55.9 percent of all residents over the age of 16, just 30 counties have better than the statewide average, almost all of which are concentrated along major Interstate corridors and in urban areas (see Figure).  Conversely, 70 counties have working population rates below the statewide average, and most of these are concentrated in rural communities, with the deepest levels of distress in Northeastern North Carolina.

Many of these counties have fewer than five workers employed for every ten people in the county—a dangerous symptom that jobs just aren’t available in three quarters of our state’s counties. Given that there are three unemployed people for every available job opening in North Carolina, many of low-employment counties likely have even fewer job openings, and more unemployed workers competing for them.

As a result, ensuring job creation occurs in all communities across the state—especially the most distressed—is a critical challenge facing state lawmakers.

Prosperity Watch Issue 27, No. 4: Final Budget Continues to Put North Carolina on a Path to Mediocrity

On July 21, the state House and Senate leadership released the final state budget for FY2013-15. Although the plan proposes increasing overall spending by 2 percent from levels needed to maintain current services, it continues to cut several specific key investments and keeps overall state spending at a 40-year historic low, well below pre-recession levels of investment. This is in part due to legislators’ decision to reduce available revenues by more than $524 million over the biennium through a series of tax cuts that will be signed by the Governor today.

By the numbers, the final $20.6 billion budget increases overall spending by 1.9 percent over the base budget—the amount of spending necessary to keep providing services at current levels (see the chart below).  Most of this increase is driven by an 8.2 percent increase in the Health and Human Services area of the budget (largely due to increases in the Medicaid program) and a 3.5 percent increase in the Natural and Economic Resources area of the budget.

Aside from these increases, however, the final budget will make deep reductions in Public Education (1.5 percent), Community Colleges (1.6 percent), and the UNC System (4.7 percent). Unfortunately, these spending cuts come on top of historic disinvestment in these areas—spending is already significantly lower than the spending levels in place prior to the Great Recession in FY2008. Specifically, the final budget will enact funding levels that are down 6.4 percent for Public Education over the past five years, down .05 percent for Community Colleges, and down 9.7 percent for the UNC System.  Taken together, overall spending across the entire state budget would drop by 8.3 percent from pre-recession levels under the final budget.


 
The final budget fails to catch up—let alone keep up—with the needs of children, working families, and communities.