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Federal Monies Cause Bloated Budget

Formal budget negotiations between representatives from the North Carolina House and Senate have begun in what is known as the “Conference Committee.”  This year’s budget is not like the rest, for several reasons.  While this budget breaks records in page length, voluminous policy (non-fiscal content, usually concerning rules or transfers of power), and capital spending, a key item lawmakers must deal with is how to allocate a budget bloated with federal monies.

In March 2021 President Biden signed the $1.9 trillion American Rescue Plan Act (ARPA).  North Carolina state government will receive $3.6 billion with additional funding going to localities. This is in addition to the December 2020 Covid relief package and the March 2020 CARES Act funds, which allotted a total of $1.6 billion and $3.6 billion to North Carolina state government, respectively. These additional funds are being allocated separately and are not included in the General Fund spending totals.

States’ ability to leverage ARPA funds to lower taxes are severely limited, and states are prohibited from using the federal dollars to shore up their pension funds.

North Carolina has fared relatively well during the pandemic.  Unless the federal funds (taxpayer dollars) are going to aid businesses affected by government-mandated lockdowns (this is separate from the money in the House or Senate budgets), there is reason to be skeptical of such handouts.

How do we know this money was not necessary?  We must look at state revenues.

Did state revenues decline?  Actually, state revenue dipped modestly in 2020 due to Gov. Roy Cooper’s lockdowns but then jumped back up to 24% above the pre-covid FY 2018-2019 figures in FY 2020-21.  Population marginally decreased over the same period.

This influx in revenue, combined with years of spending restraint, resulted in more than $6 billion in surplus revenue. Combining that with the billions in federal relief funds for K-12 continuing to sit unspent and nearly $2 billion in the state’s Rainy Day Fund, North Carolina has little need for the additional federal funds that inevitably come with strings attached.

Even so, the money from Washington continues to pour in.  In education, we know that federal funds have not gone to recoup students’ learning losses and still sit mostly unspent.  Teachers’ unions fight to not let a crisis go to waste as they use Covid relief to benefit their members rather than students.

Washington is already in debt.  They shouldn’t be sending billions to states that don’t really need it – especially when that money may not be spent wisely or in a timely manner.  North Carolina’s near decade of responsible budgeting under conservative leadership has allowed the state to weather the economic downturn without an overindulgence of federal funds. The best course of action remains to give the unneeded funds back.

Paige Terryberry / Fiscal Policy Analyst