Category: Fiscal Issues


Charlotte Business Journal: An Interview with Art Pope

In a August 10, 2016 interview with Charlotte Business Journal’s Erik Spanberg, businessman Art Pope discussed a variety of issues facing North Carolina including HB2, Medicaid expansion, tax policy and the UNC system.   The entire interview can be found below or online with Charlotte Business Journal. Art Pope: Charlotte to blame for any HB2 economic losses Charlotte Business Journal: August 10, 2016 | Erik Spanberg A hero to Republicans and a bogeyman to Democrats, Art Pope remains a lightning rod in North Carolina politics. Pope, the 60-year-old CEO of Henderson-based Variety Wholesalers, a privately held company that runs 270 discount stores, most recently served as state budget director under Gov. Pat McCrory in 2013 and 2014. McCrory, a Republican and former seven-term Charlotte mayor, counts Pope among his political allies. And it was Pope who helped back the coalition that led to GOP majorities in both chambers of the General Assembly during the 2010 midterms, the first time in a century Republicans wielded so much clout in state politics. Two years later, McCrory became governor, breaking a 20-year drought in that office. The previous Republican governor — another Charlottean, Jim Martin — hired Pope as his special counsel in 1985. Pope has funded and contributed to various state and national Republican and right-leaning causes and counts himself as a longtime friend of the Koch brothers. This week, he spoke to me about McCrory’s re-election bid and the impact of House Bill 2, the law that overrode a local ordinance extending nondiscrimination protections and rights to gay and transgender people. He didn’t rule out a return to public service, but said he’s happy running his family business. As for rumors Pope aspires to run the UNC System, he dismissed them as far-fetched. A former four-term state lawmaker known for libertarian leanings and for being a budget and policy wonk, Pope discussed everything from what he sees as the danger of corporate incentives to the beauty of highway bonds. Below are excerpts from our conversation, edited for clarity: What, if any, impact, do you see as a result of HB2? First of all, the issue is not just House Bill 2. The original issue was a Charlotte city ordinance which sought to govern and have local laws applied to local businesses for employment and public accommodation that were different from not only North Carolina law, but from the United States Congress-enacted protections, such as Title IX. What House Bill 2 made clear is that there was going to be a uniform law governing employment and public accommodation and it had equal protection language that protected individual citizens consistent with the federal equal protection clauses, the federal statutes. It made it clear that municipalities did not have the right to pass local laws, which probably could not have been enforced under the North Carolina constitution even without House Bill 2 being passed. But it all started with the Charlotte ordinance. Before the Charlotte ordinance, North Carolina didn’t have any controversy over discrimination against (the) LGBT community or the use of bathrooms. The North Carolina General Assembly did pass a law, though. The Human Rights Campaign, an LGBT advocacy group, sought to make an issue of it and gathered allies to attack North Carolina’s reputation, even though, again, North Carolina’s law was consistent with the federal law and most other states. So what’s hurt North Carolina’s reputation — and it has had some economic impact — is a smear campaign being conducted by Human Rights Campaign, encouraged by the Democratic party, to encourage boycotts of North Carolina. That’s unfortunate. What, if anything, do you think should be done, needs to be done, to repair that damage? Well, the Charlotte ordinance overreached and House Bill 2 overreacted. So there were changes that needed to be done to House Bill 2 to try and reach a solution. Because there are some genuine concerns by the LGBT community that could and should have been addressed. And some of the overreach in House Bill 2 could have been corrected. One overreach was removing the state’s law that allowed an individual employee to sue their employer for discharge in violation of public policy, but it really had nothing to do about LGBT issues. It’s more of a plaintiff’s attorneys versus defense attorneys issue. That part did get restored. There were efforts by many, and I was one of those, to try and reach one solution to rescind the Charlotte ordinance, then repeal House Bill 2 and go back to the status quo where there were no issues. The Human Rights Campaign and Mayor Jennifer Roberts of Charlotte vehemently opposed that. They wanted the repeal of House Bill 2 in its entirety or nothing and, unfortunately, that meant they ended up with nothing after the General Assembly adjourned(last month). A couple of other changes, which were discussed, and at points in time did have legislation being proposed to discuss, was to change the term biological sex in North Carolina’s equal protection clause to simply sex (and) more closely mirror the federal statues. And let the issue of whether sex means the same thing as gender or not be litigated out in the courts. (Federal interpretations of sex have, under the Obama administration, included gender identity.) Another solution was if you have transgender individuals using bathrooms, to go ahead and try and define it better because the Charlotte ordinance had no definition of it. So define it … as a medical definition, which states like Utah and Connecticut have adopted, which would have (addressed) a lot of the concern about any biological male using the excuse of identifying as a female to go into a women’s bathroom. That was a legitimate concern that could have been addressed. And whether or not to have that done by certification or driver’s license rather than by the change on your birth certificate. But, given how complex these legal issues are — part of the proposal also was to have a blue-ribbon study commission to address these issues in a calm and reasoned manner and hear from all sides of the debate. Those were proposed solutions but unfortunately the Human Rights Campaign and, according to WBTV news, Roy Cooper himself lobbied against those changes, against those solutions, and discouraged Democrats from participating in a bipartisan bill at the end of the session. So those changes were dropped and nothing passed. So, Roy Cooper and Human Rights Campaign have a political issue for an election year rather than a solution that addressed real concerns by all sides. What did you think of the suggestion by the Charlotte Chamber to let the cities and towns have the authority to pass local ordinances? Totally apart from the LGBT issues and the original Charlotte ordinance controversy, I think it is best for businesses and employers in North Carolina to operate under one single uniform state law. … Having 100 counties and however many municipalities all having different employment laws, public accommodation laws for businesses and people to try and figure out what the law is wouldn’t be very good for the North Carolina economy and is not a very good justice system. One uniform state law would be best in all regards. What did you think about the NBA decision to remove the 2017 All-Star Game from Charlotte and what do you think the ultimate impact of that decision will be? It’s unfortunate. The NBA is entitled, like any businesses or individual, to lobby for what they think is good public policy. I think it’s unfortunate, if not outright wrong, that the NBA engages in a boycott if it doesn’t get its way. It’s also hypocritical. Using the Human Rights Campaign’s list of states that have laws enact their agenda, that provide the LGBT protection they are seeking, only 12 NBA franchises are in states where the LGBT agenda has been enacted. Four of those are in California. So 16 (NBA franchises) are not in compliance. (Editor’s note: There are 30 NBA teams.) There’s been discussion that the NBA All-Star Game that’s not going to be held in Charlotte will be held in New Orleans instead. Well, New Orleans and the state of Louisiana do not have the LGBT agenda enacted into law. And it is absolutely correct that the NBA is a hypocrite when they have exhibition games in China, which does have a horrific human-rights record, including the imprisonment of those who are identified as homosexual. So it’s purely politics — very disappointing that the NBA chooses to play that way. I’m concerned and fearful that now people are going to respond in turn and start boycotting the NBA and their advertisers. I think public policy issues should be debated in public policy debates and campaigns and legislatures, not be forced through economic boycotts. What do you think of Donald Trump? I do not support Donald Trump or Hillary Clinton for president. You have known the Kochs for a long time and one of the things they have been supportive of in the past couple of years is sentencing reform in criminal justice. Do you share that viewpoint? I very much support criminal justice reform and sentencing reform. And in fact, I’ve discussed (that issue) with the Kochs and the organization they work with. North Carolina is actually a leader of the nation in that. It’s called the Community Justice Investment Act, where the state legislature and — started by Gov. (Bev) Perdue and continued by Gov. McCrory — have tried to divert offenders for misdemeanors and even low-level felonies, where there’s no violence involved, into alternative sentencing, probation and parole. But to ensure that those who are on probation do not pose a further threat, they actually beefed up funding for supervision by probation. The overall effect has been that our prison population has dramatically dropped. We’ve been able to close prisons and save money for the North Carolina taxpayers and put those (funds) to higher and better uses, like education. There’s been no increase in crime and, better yet, those individuals who are on probation can be self-supporting, and support their families, rather than being a burden on their family and a burden on the taxpayer. Within our own company, we have revised our application process so those who have committed misdemeanors or even low-level felonies that have served their time and are good citizens now will not be put at a disadvantage for employment opportunities. Let me ask you about what has happened with the economy and, particularly, tax policy in North Carolina since the Republican majority came in in 2011. In North Carolina, there have been a number of income tax cuts both for corporations and for individuals. And there have been surpluses. In Kansas, which has cut taxes fairly aggressively under Republican leadership, they have had a number of budget problems with deficits. Why is it proving to be much less troublesome or much more successful in North Carolina than in Kansas? Well, first of all, being a fiscal conservative means you have balanced budgets. And for Gov. McCrory, when I served as his state budget director, he was very concerned that tax cuts not lead to budget shortfalls the way we had in 2001 and in 1991 and in 1982 and numerous times beforehand. So a good deal of work by the fiscal research staff in the General Assembly, by the state budget office and the executive branch and negotiation between legislators and the governor (all contributed). We wanted to do responsible tax reform that simplified the tax code, lowered the rate, but still had sufficient revenue coming in to fund state services. And we did that. On one point, we did on the corporate rate reductions — because there was concern that the overall tax reduction may be too much — we put in a trigger so only if state revenues achieve a certain level would the corporate income tax rate go down. And in the end, I’m glad to say that the state revenue did grow as the economy grew. We reached those triggers, so the corporate rates continue to go down. But at the same time the corporate rate went down, the personal income tax rate went down, revenue has in fact grown. We have generated budget surpluses both from excess revenue collections in recent years but also from managing the budget well, so more money reverted from the state agencies that saved and returned into the general fund rather than having a spend-it-or-lose-it mentality. So a lot of work went in to make sure we did the budgeting and the estimates on the tax revenue right overall. Kansas, as I understand it, just very aggressively passed cuts. Tax cuts cost more than they thought, but they did not control their level of spending. So they collected less revenue, spent more and that’s a classic case for a budget shortfall. I’m sure you’ve heard this critique on the left. There have been those who have said that while it is prudent to build up your rainy-day fund, the balance has gotten out of whack and some of these surpluses should be put towards infrastructure, education and social programs. What is the appropriate balance? I was one of the authors and proponents of a rainy day fund when I was in the state legislature back in 1990, 1991, and it was adopted in 1991 by bipartisan support in response to the 1991 shortfall. The goal back then was to increase at least 5% of the general fund. Thank goodness we did have a rainy-day fund — we had a literal horrible rainy day with Hurricane Fran and then Hurricane Floyd where the rainy-day fund was used. It was also for economic disasters. And, again, thank goodness we had a rainy-day fund at the end of the Great Recession in 2008 and 2009. The rainy-day fund was then back to zero. Once the economy is recovering, then yes, you should build back up your rainy-day fund for the next natural disaster or economic disaster. The way the rainy-day fund is built up is what’s now end-of-the-year surpluses have been prudently set aside for that. I’m glad to say it’s a positive that we had achieved 5% of the general fund, and this year, we were able to (reach) 7.5%. Local governments generally keep one-twelfth, or about 8% of their funds in a reserve, so the state government should reach that same level. And believe me, if we ever have a natural disaster, a humanitarian disaster or an economic recession again, I think everyone, including even the left, liberal progressives, will be glad the rainy-day fund was there. Why do you think Pat McCrory should be elected for a second term as governor? I think he’s earned it by helping and serving the people of North Carolina (with) much-needed regulatory reform, tax reform, (which) benefited all the citizens of North Carolina, helped our economy grow faster than the rest of the country and, at the same time, increased key long-term investments, including funding in public education and still having leftover reserves, building the rainy-day fund. He’s done all of the above. Roy Cooper, his opponent, has been critical in a number of areas, but particularly on Medicaid expansion. He has said expanding Medicaid would help people and create tens of thousands of jobs. Where do you think that argument breaks down? First off, is the assumption that Medicaid expansion is needed in North Carolina. What Medicaid expansion at this point in time means (is) people who are individuals who are working, do not have children and often already have private health insurance need to go on Medicaid. Those who are poor, women and children, they’re already eligible for Medicaid. Second is (to assume that) you’ll get healthier, better results from Medicaid expansion for those individuals. That is very well disputed from other states who have had pilot programs where they had some individuals who are eligible for state-level, Medicaid-like programs but other people in the same circumstance did not have healthier outcomes. Third, is that there’s no cost to Medicaid expansion (because the federal government pledged to pay 100% of those costs for the first three years after the Affordable Care Act passed and at least 90% afterwards). Right now, our (federal) government’s in debt and growing in debt, so to expand Medicaid, especially when it supplants private insurance and people who choose not to have insurance, we’re increasing the national debt, which means the debt we’re leaving our children. So it may, quote, be free to the states, but it’s in fact increasing the debt to our children. But, finally, it’s not free to the state. From the very beginning, even the first year, there still would have been a 5% cost to the state for the administration. Then the federal share was to decrease and the state share was to increase (over the years) so that we would have an overall growing Medicaid budget, which is one of the fastest-growing items in the state. And Gov. McCrory was open to the consideration of Medicaid expansion with reforms if they could get waivers and exceptions from the Obama administration. Just as other governors sought those waivers, like Gov. (Mike) Pence in Indiana, but the Obama administration was not giving waivers, so there was no opportunity to reform it. So Gov. McCrory and the General Assembly’s policies were, first, let’s reform Medicaid that already exists in North Carolina before we consider an expansion. Originally, the hope was with a Republican president and a Republican Congress then you could get waivers so the state can do Medicaid or provide health services in a more cost-effective manner. On the issue of incentives, last year there was some disagreement between the administration and legislative leadership on the appropriate level of incentives. How is North Carolina doing right now with incentives? Both Gov. McCrory and the General Assembly have been far more cautious about the use of incentives than prior administrations and prior legislators. I think Gov. McCrory has said, “I’m not going to give away the farm.” And very often times, businesses who already plan to come to North Carolina will try and milk us for all the incentives and grants and taxpayer money they can get. I call it crony capitalism and corporate welfare. And it’s really not a cause and effect because they’re already coming here. Or some times they’re using North Carolina as the bait. They’re really planning to go to Georgia or South Carolina already, but they’ll say, “Well, we’re going to go to North Carolina,” when they really didn’t intend to. And then the news media write North Carolina lost something (and the other state) already had them. So you’ve seen a reduction and elimination of some specialized tax credits in incentives, and I think you’ve seen a more prudent use of what’s called the Job Development Investment Grants. Some incentives that were clearly a loss to the state, such as the film incentives, have been completely reformed to a flat grant program. So I think you’ve seen a tremendous improvement. But the good news is, even with a reduction in the level of incentives, you’ve seen North Carolina have one of the fastest-growing economies in the country because of our overall quality of life, our investments in education, our better tax climate, our better regulatory climate — those benefit all employers including those who have been in North Carolina for decades creating new jobs rather than just rewarding the out-of-state company with the highest-paid and best lawyers and lobbyists getting a special deal for themselves at the expense of the taxpayers and the other employers and companies in North Carolina. Why do you think North Carolina has, so far, been unable to attract a major auto manufacturer and how important is that? One, I don’t think it’s important. I’d rather have broad-based growth. It’d be great to have an automobile manufacturer — I’m not going to discourage it — but I’d rather have broad-based, diverse growth, which is what North Carolina has right now. In specific cases, it’s things totally beyond the control of politicians, of government. Volvo primarily chose South Carolina because of the port of Charleston, its proximity to the sea lanes, which Wilmington does not have. Wilmington has hard rock that limits the depth of its channel which Charleston didn’t have, so (Charleston was) able to deepen and widen their channel over time. I think it was Toyota that chose to locate in Texas because Dallas-Fort Worth had direct air connections to Japan, which Raleigh, Durham and Charlotte did not have. So you have to look at the individual factors. Most businesses choose their locations based on proximity to the quality of the workforce, which North Carolina has, quality of education, but also (proximity) to their customers and suppliers and logistics. The logistics for Volvo were in South Carolina and the port of Charleston, and logistics for Toyota was going to be the international airport, which Dallas-Fort Worth had and North Carolina did not. In the past year, Gov. McCrory wanted to include about $1 billion worth of road projects in the bond package that ultimately passed this spring — but without the roads money included and instead focusing only on education, parks and non-transportation infrastructure. The legislature preferred a pay-as-you-go funding approach. Which would do you think would be better? Actually, I have a personal record on that. When I was in the legislature in 1989 and we had legislation for the Highway Trust Fund, I sent forth an amendment for a $1 billion bond component for the Highway Trust Fund. The reason I proposed that then and the reason I think Gov. McCrory is correct in wanting bond funding for highways this past year is that you should pay for highways as they are used. So rather than asking this year’s taxpayers to pay up front for new highways, take out a bond that’s repaid over the 20, 30 years that a highway is used, then the users in the future will be paying back that bond. It is cheaper to have a bond and pay the low interest rates that state government bonds get than pay as you go. It would have allowed us to do more construction and more acquisition, early, at a lower cost. One aspect of higher education I wanted to ask you about: Because of the three centers that were closed at UNC and former UNC System President Tom Ross being forced out, there is a feeling on the left that Republicans had some sort of vendetta or opposition to what was happening in Chapel Hill. What can you say to people who subscribe to that theory? The motivation by the left of the Democratic Party is to create a wedge issue so people will vote against Republicans, even if there’s no truth to it or it’s a highly biased, distorted truth. It was under Gov. Perdue’s administration and the 2009-11 budget passed by the Democrat majority that reduced the university spending on centers by one-third. But there was no outcry when that was done because it would have been Democrats and liberals criticizing their own Democratic governor and their own Democratic majority. In Gov. McCrory’s budget in 2014, we did propose a much more modest reduction in the spending on education centers and left it to the university to review which of those centers should be funded and which are not. Some of the centers were very much integrated into the academic mission of the university; others had no relationship to it. And, by the way, Gene Nichols’ poverty center, which was a political entity to start with by (former U.S. Senator and Democratic presidential candidate) John Edwards, was not on that list because it no longer received public funding, though it had earlier on. For the overall university funding — and it was out of necessity of the Great Recession — that the biggest reduction in university funding came under Gov. Perdue and the budget enacted by the Democrat majority in 2009-10. … There’s been no sharp reduction under Gov. McCrory. Instead, overall spending has increased; it’s just not true that there’s ill will towards the university leading to harmful budget cuts. That’s just not true. There has been a lot of speculation about you becoming UNC president — what’s your interest? I’ve laughed at that. I have no interest in it. Tom Ross and I are personal friends. We disagree on budgeting policy; that’s to be expected. When I first heard my name on a blog or a talk radio show being mentioned for university president, I told Tom, I have absolutely no interest in it. I find it amusing. I care very much about the university. I’ve been a big supporter, and through our foundation, of North Carolina State University, Chapel Hill, other universities, but I have plenty to do right now without seeking to be president of the university myself. Erik Spanberg covers government, sports business, hospitality and airlines for the Charlotte Business Journal.
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The Tax-Cut Payoff in Carolina

  Wall Street Journal Columnist Stephen Moore: Even with lower rates, tax revenues have increased 6% this year, and the state has a $400 million budget surplus. Published June 3, 2015  - Source: Wall Street Journal Four years ago North Carolina’s unemployment rate was above 10% and the state still bore the effects of its battering in the recession. Many rural towns faced jobless rates of more than 20%. But in 2013 a combination of the biggest tax-rate reductions in the state’s history and a gutsy but controversial unemployment-insurance reform supercharged the state’s economy and has even helped finance budget surpluses. As Wells Fargo’s Economics Group recently put it: “North Carolina’s economy has shifted into high gear. Hiring has picked up across nearly every industry.” The tax cut slashed the state’s top personal income-tax rate to 5.75%, near the regional average, from 7.75%, which had been the highest in the South. The corporate tax rate was cut to 5% from 6.9%. The estate tax was eliminated. Next came the novel tough-love unemployment-insurance reforms. The state became the first in the nation to reject “free” federal payments for extended unemployment benefits and reduce the weeks of benefits to 20 from 26. The maximum weekly dollar amount of payments, $535, which had been among the highest in the nation, was trimmed to a maximum of $350 a week. As a result, tens of thousands of Carolinians left the unemployment rolls. In an interview at the governor’s mansion, Gov. Pat McCrory tells me that when he took office in January 2013 he looked at the data and knew “we couldn’t stay on the course we were on. We had the highest unemployment benefits and yet at the same time businesses were routinely complaining they couldn’t find workers until benefits ran out. We heard a lot of stories of workers waiting until benefits ran out before going back to work.” In sum, the state was paying people not to work. While these measures were passing the legislature, the state capital boiled over with rancorous political rallies, called Moral Mondays, designed to block the “cruel” GOP agenda. Rev. William Barber II, one of the protest organizers, lambasted Republicans for making the Tar Heel State a “crucible of extremism and injustice.” The national media piled on with claims that the Republican agenda cut taxes for the rich while slashing benefits for the poor. Then a funny thing happened. After a few months, the unemployment rate started to decline rapidly and job growth climbed. Not just a little. Nearly 200,000 jobs have been added since 2013 and the unemployment rate has fallen to 5.5% from 7.9%. There is a debate about how many of North Carolina’s unemployed got jobs and how many dropped out of the workforce or moved to another state. But the job market is vastly improved and people didn’t go hungry in the streets. On the Tax Foundation index of business conditions, North Carolina has been catapulted to 16th from a dismal 44th since 2013. The most recent news will make many other governors jealous. The state didn’t take the extra federal benefits—which require repayments later to the feds—and it cut the weekly benefits. So the state government has been able to pay back $2.8 billion in unemployment-insurance money owed to the feds, and it now has a trust-fund surplus. This means it will be able to provide employers with at least $500 million in cuts from the state and federal unemployment tax on payroll over 18 months. This comes at a time when other states are having to raise payroll taxes to pay off the loans for the rich benefits they doled out in the recession and its aftermath. The lesson: Handouts from the feds are never free. An even bigger surprise—even to supporters—is the tax cut’s impact on revenue. Even with lower rates, tax revenues are up about 6% this year according to the state budget office. On May 6, Gov. McCrory announced that the state has a budget surplus of $400 million while many other states are scrambling to fill gaps. This is the opposite of what has happened in Kansas, where jobs have been created but revenues have fallen since the top personal income-tax rate was cut from 6.45% in 2012 to 4.6% today and the income tax for small business owners who file as individuals has been eliminated. North Carolina’s former budget director, Art Pope, says one difference between the two states is that “we cut spending too. Kansas didn’t.” The story gets better. Because North Carolina built in a trigger mechanism that applies excess revenues to corporate-rate cuts, the business tax has fallen to 5% from 6.9%, and next year it drops to 4%. You won’t hear much about this in national news media, where the preferred story line is that tax cuts don’t work because they were followed by budget deficits in Kansas. In North Carolina, policies to reduce taxes and stop paying people for not working have created jobs and surpluses. Mr. Pope says: “I wish people criticizing Kansas would look at what’s happened here.” Mr. Moore is a senior fellow at the Heritage Foundation.  
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Art Pope says tax cuts are aimed at long-term growth, not a one-year budget surplus

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. Fiscal memo 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. 2014 No. refunds issued: 2.3 million Refunds amount: $1.2 billion 2015 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 forecast 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) 2013-14: –2.2% 2012-13: +2.2% 2011-12: +2.0% 2010-11: +0.9% 2009-10: –1.6% Sources: General Assembly Fiscal Research Division, Office of State Budget and Management, N.C. Department of Revenue Read more here:  
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N&O Editorial: Art Pope Raised ‘Proper Questions’ About UNC’s Budget Request

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.”  
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[VIDEO] N.C. Budget Chief Art Pope Discusses Spending Plan

Categories: Fiscal Issues, Videos
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