On Tuesday, the NC Senate voted not to concur with the House’s changes to S 257 – the 2025 Appropriations Act. The vote was a formality as Senate leaders had already signaled fundamental differences of opinion with their House counterparts over spending and tax provisions in the legislation. A key difference relates to individual income taxes, which bring in about 54 percent of the state’s roughly $34 billion in annual revenue.
The Senate would accelerate reductions in the individual income tax rate which stands at 4.25% currently and is scheduled under existing law to decrease in future years under a schedule in GS 105-153.7 if certain annual state revenue triggers are reached. Ultimately, years from now the Senate sees the rate having a floor of 1.99%, compared to a maximum permissible floor of 2.49% under existing law. Meanwhile, the House would keep the maximum floor of 2.49% and increase the trigger amount of annual revenue that must be reached in each year to trigger further decreases in the individual income tax rate.
For example, in fiscal years 2025-2026, the trigger amount of state revenue would move from $33.042 billion to $36.306 billion and the trigger for fiscal year 2026-2027 would change from $34.100 billion to $37.725 billion under the House plan.
Part of the House’s worry seems to be centered on lesser year-over-year increases in overcollections. The trend in recent years had been annual overcollections of $1 billion or more, but anticipated overcollections for fiscal year 2024-2025 are now coming in at $364 million. Pair that issue with numerous funding requests by units of government, potential pay raises or bonuses for state employees to try to better match with inflation or attract applicants, and continued hurricane recovery needs in western NC amid limited federal funding. The budget and tax negotiations between the two chambers are shaping up to be complex.
Remember the state is required to have a balanced budget and the fiscal year begins on July 1. If a budget is not enacted in time, a statute in North Carolina – GS 143C-5-4 – provides a fail-safe to keep spending levels flat, or to reduce expenditures if projected revenues are insufficient. This buys time for the House and Senate to appoint conference committee members to negotiate over the budget. However, it also sets up a possible scenario under which legislators could opt to leave Raleigh and choose not return until months later such as during the fall. Under the NC Constitution, the House and Senate can adjourn to any future date, and any chamber can adjourn on its own motion for a period not in excess of three days. The two chambers could simply choose for maximum flexibility to remain in session using techniques like skeleton, non-voting sessions in which a handful show up to procedurally gavel in and out, but no legislation would move. A breakthrough in the negotiations over the budget remains possible but could be elusive in the near term.
Author: sdbrownlow
Student of Design