Preliminary Thoughts on Perdue’s Budget Plan

Gov. Perdue unveiled her budget plan for the coming budget year. Some highlights include:

• Roughly 3,000 state workers will be let go. Plus, another 6,000 positions will be eliminated – positions that are currently vacant anyway, so no one will actually lose their job. This is a good move, especially in light of the fact that the state employee ranks grew by 35,000from 2001 to 2009 (while NC’s private sector lost 50,000 jobs). Another 1,000 state workers would receive buyouts for early retirement. This may help the budget now, but in future years this will put additional pressure on the state’s pension system.
• Tax changes: Perdue’s budget calls for a reduction of the corporate tax rate from 6.9% to 4.9% .It also extends 3/4 of the 1 cent “temporary” sales tax – costing taxpayers $826 million next year (it will be really fun to see how her liberal base reacts to her wanting to reduce the tax rates on evil corporations while keeping the progressive sales tax rate high).
  • She also calls for an unemployment insurance tax credit for small businesses for the next budget year. As far as “tax cuts” go, this is a terrible idea. A tax credit is not a tax rate reduction – the true form of tax cuts that incentivize more job growth . Also, the temporary nature of the credit will make it pretty ineffective as employers make hiring decisions typically with a more long-term perspective and a one-year credit will have little impact on hiring decisions. It is also curious to credit unemployment insurance given the fact that NC already has had to borrow more than $2.5 billion from the federal government to cover state unemployment insurance benefits. Handing out credits will just ensure that the UI tax will need to be raised that much higher in order to pay back this loan. Employers who understand this expected higher tax burden will be even less likely to hire workers.
• Perdue claims her budget will not lay off a single state-funded k-12 teacher or assistant teacher. Her budget would, however, cut some non-classroom personnel.
• She creates a program to provide fully-paid two-year college degrees or two years of career training to high school students who meet academic criteria.
• Perdue’s budget spends $75 million for repair work on state university and government buildings
• Proposed savings include:
  • $142 million from eliminating 68 “nonessential programs”
  • $442 million from reducing another 71 programs
  • $78 million from reorganizing and consolidating state agencies and functions that eliminate 488 middle management and administrative positions

Be sure to check back as we will provide a more detailed analysis soon.