The March General Fund Monthly Report from the Office of the State Controller is out. Hats off to the staff there for turning the report around so quickly to provide critical information to decision makers.
Sales tax revenues are lower than the prior year for the first time since October. Other revenue sources continue their trends from the rest of the year, with corporate income taxes running ahead and personal income taxes running slightly behind their performance in FY2018-19. There is little evidence in tax revenues for the month of the economy’s sudden stop in the last two weeks of the month, in part because consumers were stocking up for the shutdown.
Government spending also continued apace, so the unreserved balance in the General Fund shrank by $500 million, to $1.7 billion at the end of March from $2.2 billion at the end of February. With no April revenue bump from final tax payments for 2019 and expectations of lower tax revenues at least until December, it is imperative for Gov. Cooper to reduce spending the rest of this fiscal year. But his budget director testified to the House Continuity of State Operations Working Group that the government has not instituted any “hiring or other restrictions.”
The General Assembly’s Fiscal Reseach Division testified that delaying income taxes until July will leave state government $2 billion short this year. Unless Congress provides greater discretion to states for the money they receive from the Coronavirus Relief Fund in the CARES Act, North Carolina’s will be able to use little of the promised $2 billion for actual relief of its fiscal burden, nor will local counties and municipalities across the state from their collective $2 billion share. Even as states continue to push for more flexibility from Congress, Gov. Cooper needs to slow spending wherever possible, and not just shorten the allotment schedule, to put state government in the best condition to get through the long months ahead.