Category: Public Service
On Sunday, May 10, the News & Observer covered the recent North Carolina budget surplus in their special ‘Under the Dome’ Sunday Section. Former state budget director Art Pope (Chairman and CEO of Variety Wholesalers and Chairman of the John William Pope Foundation) provided his thoughts.
April surprise – budget gains as tax rates cut
Former state budget director Art Pope says tax cuts are aimed at long-term growth, not a one-year budget surplus.
Ethan Hyman | J. Andrew Curliss
The people who watch the state budget like to talk at this time of year about the April “surprise,” the moment (usually in May) when April tax collections are counted and weighed against the official forecast in an exercise that produces certainty about the state of the state’s finances.
The new numbers, if off too much, can lead to scrambling across state government in the final weeks of the budget year, which closes on June 30. It can also alter how lawmakers approach writing the next budget, a process already underway for the spending plan that takes effect on July 1.
But the news last week that North Carolina will have a $400 million surplus in the current budget year – and about $600 million more for the next – generated responses from Republicans and Democrats that weren’t much of a surprise.
Republicans who are in charge were giddy, emphasizing that the sky isn’t falling and their policies are working.
Democrats furrowed their brows, saying the extra money came from middle-class folks who need a break.
There was some truth – and shading – from both sides.
This year’s final forecast was especially viewed through partisan lenses: It’s a measure of the Republican-led tax overhaul, which passed in 2013 but was in effect for the 2014 tax year.
The overhaul included the elimination of a tiered income tax system with rates as high as 7.75 percent in favor of a flat, 5.8 percent income tax on all. (It’s at 5.75 percent for the current year.) Corporate tax rates were reduced. The standard deduction and a child tax credit were increased. But it wasn’t just tax cuts or breaks. Lawmakers broadened what is taxed (extending the sales tax to capture certain items and services) and eliminated certain deductions and exemptions that had lowered many taxpayers’ tax bills.
At one point in the tax overhaul debate, mortgage interest and charitable deductions were on the chopping block. Those survived. A deduction for high medical expenses didn’t. An exemption on $50,000 in business income also went away.
How all those changes would shake out has been a major focus of the state’s political, government and business communities – and added plenty of uncertainty for the budget forecasters.
Views on surplus
In reacting to the news of a surplus, some Republicans pointed to the tax cuts. The speaker of the House, Tim Moore, said in a statement: “The lower, flat personal income tax rate has spurred economic growth and job creation that in turn has provided North Carolina with a budget surplus.”
One of this budget’s key architects was Art Pope, a Raleigh businessman and supporter of Republican causes who was state budget director until last fall. He’s watched closely even after returning to private life.
“Let me just clarify or emphasize one thing right now,” Pope told Dome in an interview after the surplus was announced.
“There was never any expectation that tax cuts would pay for themselves during the very next fiscal year, or the next two fiscal years,” he said. “In the long term Gov. (Pat) McCrory and the legislature believes – and I believe – that reducing taxes will allow for more economic growth as people keep more of their hard-earned dollars and as businesses and employers keep more of their hard-earned dollars and reinvest them.”
But the surplus is not because of the tax cuts, Pope said.
“I was never in a single meeting where we said if we reduce the corporate tax rate or the personal tax rate by X percent then next year revenue will grow by Y percent,” Pope said. “There never was any prediction there. Long term, yes. Short term, or the fiscal year, no.”
And that, Pope said, “is not what happened.”
Democrats have expressed concern that seniors who lost a medical deduction and small business owners who lost the income exemption fueled the surplus.
The Senate’s Democratic leader, Dan Blue, described the surplus in a statement as a “so-called budget surplus.”
“Seniors, small businesses and middle-class families across North Carolina got slammed on Tax Day,” Blue said.
But the forecasters had long ago made assumptions about those changes and the effect on the budget. To use a cliche, those changes – which affected millions in tax receipts – were already “baked in.”
What happened, according to interviews with economists, forecasters and legislative staffers, was that personal incomes were more robust than anticipated. The economy is good, here and in other states. More people are working – the state added 50,000 jobs in 2014 – and paying taxes. A state report notes that capital gains from stock and real estate sales were a part of the growth.
Forecasters had been cautious all along, predicting a shortfall as recently as February. But as tax returns came in, that melted away.
The result in context
It is worth noting that the forecast for an extra $400 million is on a $21 billion budget – a miss of about 2 percent.
Pope said it’s now clear that predictions by Democrats in 2013 of dire results, of major shortfalls below what was budgeted and would hamstring the state, were wrong.
He said he believes, on the broad scale, that the surplus is most likely a result of how people’s paychecks were handled. For 2014, the state reset the tables that determine how much tax money is withheld from taxpayers’ check.
The new withholding schedules were set up with a goal of seeing a pure balance – aiming for an outcome of no refunds and no one writing a check to the state on April 15. Workers saw a bit more in their paychecks each week as a result, and received much less money in refunds in the tax season that ended on April 15.
In previous years, the state had been issuing lots of refunds.
“Good public policy and fairness to taxpayers is not to ask them to give free loans to the government by overpaying their taxes,” Pope said.
Then, personal incomes performed better than expected, and that meant more tax money for the state.
“The surplus is really just a function of a forecast that was pretty close to predicting how this would all shake out,” Pope said. “And it happened to be off – on the good side – by a little bit.”
UNDERSTANDING A SURPLUS
State officials announced a $400 million surplus for the current budget year, which ends June 30. Dome breaks it down.
A consensus of legislative and administration staff says the surplus is the result of:
▪ Caution: All previous forecasts were “very cautious,” and left room for a positive change.
▪ Growth: April payments to the state were up 15 percent to 20 percent, well above expectations. The increase was driven by business income, often paid as personal income tax, and gains from stock and real estate.
▪ Refund decline: More accurate withholding tables (see related story) reduced refunds to taxpayers. Refunds were down much more than an expected 35 percent, yielding about $357 million in additional income tax collections than were forecast.
Steep refund decline
The refund decline, tied to the withholding tables change, was a big driver. Officials say the dropoff in refunds was “more than double the biggest year-over-year decline” going back 25 years.
No. refunds issued: 2.3 million
Refunds amount: $1.2 billion
No. refunds issued: 1.8 million (down 22 percent)
Refunds amount: $591.1 million (down 51 percent)
Tax overhaul changes
Some paid more in income taxes as a result of the 2013 tax overhaul. The majority paid less. Here’s how 2014 tax season shaped up for taxpayers:
Taxes decreased: 55 percent to 60 percent
Taxes increased: 30 percent to 35 percent
Little or no change: 10 percent to 15 percent
The updated forecast shows a budget for 2014-15 that misses the original forecast by about 2 percent. Here’s how much the forecast missed in recent budget years, which run from July 1 to June 30:
2014-15: +1.9% (May forecast)
Sources: General Assembly Fiscal Research Division, Office of State Budget and Management, N.C. Department of Revenue
Read more here: http://www.newsobserver.com/news/politics-government/politics-columns-blogs/under-the-dome/article20578353.html#storylink=cpy
On August 6, 2014, North Carolina Governor Pat McCrory announced that Art Pope will step down as state budget director. Pope served as state budget director since January 2013, staying on for one additional year at the governor’s request.
Press Release from the Governor’s Office:
Governor Introduces New State Budget Director – August 6, 2014
Raleigh, N.C. – Governor Pat McCrory announced today that Art Pope will step down as state budget director. Pope, who has served as budget director since January 2013, will return to the private sector.
“Art Pope has been an invaluable public servant for the people of North Carolina,” Governor McCrory said. “His knowledge and leadership helped produce historic tax reform while producing two balanced budgets that put North Carolina back on the road to prosperity. He has dedicated much of his life to the betterment of North Carolina and it has been a privilege to have him at my side.”
Pope’s public service began in 1985 as Special Counsel for Governor Jim Martin. He was later appointed the State Goals and Policy Board, which was given the task of evaluating balancing the state’s capital needs for public school facilities, prisons and road construction.
Pope previously served in North Carolina House for more than 7 years. As a legislator, Pope served on both the Finance and Appropriations committees, where was one the primary sponsors of legislation to create the state’s “Rainy Day Fund.”
Governor McCrory announced that Lee H. Roberts will succeed Pope as the state’s new budget director.
“Lee has a terrific sense of fiscal sensibility and responsibility, and I’m excited to have him join our team,” said Governor McCrory. “North Carolina state government will thrive under his oversight. His experience in the global marketplace will provide a useful and original perspective, and his leadership skills will further our administration’s goal of thoughtful, deliberate stewardship of taxpayer dollars.”
Roberts has extensive experience in financial management. He recently served as managing director of Piedmont Community Bank Holdings in Raleigh. He was the executive vice president and chief operating officer of VantageSouth Bancshares, a bank holding company.
He also founded a real estate investment and advisory firm, Coley Capital, LLC. He has worked for Morgan Stanley & Co., Cherokee Investment Partners and as an associate with Akin, Gump, Strauss, Hauer & Feld LLP.
Roberts received his undergraduate degree in political science from Duke University. He graduated cum laude from Georgetown University, where he received his J.D.
Governor McCrory appointed Roberts to the North Carolina Banking Commission in 2013. He also serves on the Board of Trustees for the Ravenscroft School, is the vice president of the Duke Alumni Association and is involved in many other area organizations.
The editorial page of the Raleigh News & Observer writes that Deputy Budget Director Art Pope raised “proper questions” about the University of North Carolina system’s proposed $2.8 billion budget for the 2014-2015 fiscal year:
A stern cautionary note from state budget director Art Pope to the University of North Carolina system comes down to this: This is my second memo about the state budget. You guys must not have gotten the first one.
Pope has sent UNC system officials back to the budget drawing board, and because he is viewed as the top adviser to Gov. Pat McCrory and the most influential person in the executive branch, the message will be received.
Pope told university officials in a Feb. 28 memo that they’re asking for too much money. He noted that to satisfy the university system’s request for a budget increase of $288 million, or 11.3 percent, the state would have to make “major reductions” in other agencies, including the court system and public schools. He noted the state also has a major obligation with Medicaid, the health care system for the poor and disabled.
The university system is seeking the money as the legislature readies to convene this spring to adjust the second year of its two-year budget.
[It's] fair and appropriate for Pope to question the UNC system’s budget request. Peter Hans, chairman of the UNC system’s Board of Governors, gave exactly the right response in saying he and the board “welcome tough questions about how the university proposes to spend public dollars.” He said Pope was “doing what taxpayers should expect him to do.”
Responding to false statements recently made in a syndicated column, Pope Foundation Executive Vice President David Riggs corrected the record in this letter to the editor in The News & Observer:
The Aug. 20 Other Opinion piece “The massacre of the N.C. model” by Bloomberg’s Al Hunt contained false statements about Art Pope and the John William Pope Foundation.
Hunt wrote, “Pope has given to the Republican Party through his political action committee, foundations and personal contributions.” This is unequivocally false. Art Pope is a proud Republican, but he does not have his own political action committee. His personal contributions to the Republican Party do not come close to $1 million, even over his lifetime.
The Pope Foundation, a charitable organization, has never contributed anything to the Republican Party. By reprinting Hunt’s false statement that the Pope Foundation contributed to the Republican Party, you falsely accused the foundation of a major violation of the IRS Code and campaign finance laws.
The Pope Foundation has given millions of dollars to charities, including humanitarian, arts, education and public policy nonprofits. Humanitarian charity helps those in immediate need, treating the symptoms of poverty. The Pope Foundation’s support for public policy groups and those empowering individuals has the long-term goal of curing the underlying causes of poverty.
Publishing the false and defamatory statement that the Pope Foundation gives to the Republican Party was a disservice both to your readers and to the charities supported by the Pope Foundation.
EXECUTIVE VICE PRESIDENT, JOHN WILLIAM POPE FOUNDATION
In response to a June 15 editorial in the Raleigh News & Observer, Art Pope contributed this letter to the editor:
Contrary to The News & Observer’s over-the-top editorial, “Democracy undone,” on June 15, democracy worked in regard to ending a program to give public dollars to political campaigns.
As state budget director, I was asked in a joint conversation with a legislator and a liberal lobbyist for Common Cause about an amendment to the budget bill to use a fee on attorneys to finance judicial political campaigns. As have all state budget directors, under Republican and Democratic governors, I supported the governor’s budget and explained that the North Carolina courts have held using compulsory attorney fees for political campaigns to be unconstitutional, since such a law “compels political speech and violates their guarantees of free speech in the United States and North Carolina Constitutions.” (El-Khouri et al. v. State of North Carolina et al.)
The News & Observer called this routine event “scary,” repeating almost verbatim an attack by Chris Kromm, of the Institute for Southern Studies. What Common Cause and Kromm have in common is that they are members of the left-wing Blueprint NC coalition. Blueprint NC and its progressive allies have no interest in a reasoned debate and instead have launched a campaign to “eviscerate” and “cripple” elected Republican leaders, including using – in their words – relentless earned media efforts: operatives with relationships to statewide media; private investigators and investigative reporting; and an op-ed program.
Enter The News & Observer as the “statewide media” carrying out Blueprint NC’s attacks. The News & Observer tried to further justify its attack on me because, heaven forbid, I am also a donor to Republicans and conservative organizations. This attack is particularly hypocritical, given that Blueprint NC and its major members receive millions of dollars from the liberal Reynolds Foundation, run by former Democratic state Sen. Leslie Winner, with numerous Democratic Party donors and activists on its board.
Their attack also conveniently left out my longtime record as a former legislator for bipartisan judicial reform by ending the election of judges entirely and replacing it with appointment by the governor and confirmation by the legislature, when there was Democratic legislative majority.
The News & Observer repeating unfounded attacks by Blueprint NC members to eviscerate our elected government and shut down those they disagree with, is truly democracy undone.