Building a Stronger North Carolina. A Companion Guide to Community Conversations Happening Across the State. United Way of North Carolina

Building a Stronger North Carolina A Companion Guide to Community Conversations Happening Across the State BROUGHT TO YOU BY: United Way of North Carolina AND THE NC Budget & Tax Center A PROJECT OF THE NORTH CAROLINA JUSTICE CENTER

BUILDING A STRONGER NORTH CAROLINA TABLE OF CONTENTS Fast Facts on the Economy...4 Fast Facts on the State Budget...4 North Carolina s Slow Economic Recovery...5 State Budget Stagnates Despite Increased Demand...6 Looking Ahead to 2013...7 The Impacts of Federal Budget and Tax Decisions...9 on North Carolina Ten Ways to Get Engaged...11 Resources...12 APPENDIX. State Budget Cuts in Detail...15 2

A Companion Guide to Community Conversations 2 0 1 2 Dear Friend, Thank you for joining us as we crisscross the state engaging local communities in a very important conversation about the future of North Carolina. Each year the United Way of North Carolina and the NC Budget and Tax Center, a project of the NC Justice Center, join forces to bring to you important information on budget and policy changes from the recent state legislative session. Hearing your feedback and learning about the needs of your local communities helps to guide our work for the coming year. Last year we created the first Companion Guide to accompany our presentations and to leave behind for you to use and share. We received wonderful feedback on the guide and hope you will see improvements this year that enable you to better utilize this tool. This year you will find fast facts on the economy and the state budget in addition to details of important policy discussions in progress. As always, we welcome your feedback on both the guide and the legislative briefing. Thank you again for adding your voice to ours as we seek to improve lives across North Carolina. Best Wishes, Jill Cox Government Relations and Communications Director, United Way of North Carolina jcox@unitedwaync.org Alexandra Sirota Director, Budget & Tax Center, a project of the North Carolina Justice Center alexandra@ncjustice.org 3

BUILDING A STRONGER NORTH CAROLINA n ECONOMY FAST FACTS Four years after the start of the Great Recession, North Carolina s economy continues to struggle. Job creation is slow and economic hardship continues to rise. North Carolina s job deficit: Number of unemployed workers per job vacancy: 3 to 1 Percent of unemployed workers out of work for more than 26 weeks: 46% Percent of North Carolinians living in poverty: 17.5% Ratio of income between top fifth and bottom fifth: 7.9 Impact on the economy: significant n BUDGET FAST FACTS The current state budget is a revised version of the second year of the two-year budget passed by the General Assembly in 2011. The spending cuts made in 2011 are still in place, and those cuts mean North Carolina is investing significantly less in communities across the state than it did before the Great Recession. While the budget passed in 2012 restored some funding to public schools, Medicaid, and the UNC system, spending on these vital public structures and programs remains lower than before the Great Recession began and does not meet demand. Furthermore, this decrease in investments means North Carolina is not building the foundation necessary for future growth and opportunity. Current (FY2012-13) North Carolina state budget: $20.2 billion FY2008-2009 North Carolina state budget adjusted for inflation: $22.7 billion Permanent, multi-year cuts made to North Carolina s budget in 2011: $1.7 billion Current spending levels compared to levels in FY2008-09 (the budget year right before the Great Recession): -11.4% Total revenue raised: $0 Impacts on North Carolinians: Long-lasting 4

A Companion Guide to Community Conversations 2 0 1 2 n NORTH CAROLINA S SLOW ECONOMIC RECOVERY EMPLOYMENT AND LABOR MARKET CHALLENGES North Carolina s jobs deficit as of September 2012 is 558,000. This is the number of jobs needed to bring North Carolina back to pre-recession employment levels and keep up with growth in the working-age population. Failure to make progress in closing this jobs deficit has meant a lack of job openings for those out of work, leading to high unemployment rates and long-term unemployment. Nearly half of all people out of work have been unemployed for 26 weeks or more. POVERTY AND ECONOMIC HARDSHIP PERSIST One in five North Carolinians live in poverty, defined as an annual income of $23,021 or less for a family of four. Moreover, median household income for North Carolina is currently $4,000 lower than it was before the Great Recession. A SNAPSHOT OF CHANGE SINCE THE GREAT RECESSION BEGAN: 30,000 more students enrolled in community colleges 550,000 more North Carolinians receiving food stamps 200,000 more Medicaid beneficiaries 315,000 more North Carolina residents 33,000 more K-12 students in North Carolina s public schools Prior to the recession, demographic shifts were driving increased demand for public investments in education, health, safety, and infrastructure. Economic hardship has only increased those demands. 5

BUILDING A STRONGER NORTH CAROLINA n STATE BUDGET STAGNATES DESPITE INCREASED DEMAND 2011 STATE BUDGET CUTS DEFINE 2012 BUDGET A deep round of budget cuts made in 2011 greatly reduced the level of state support for core governmental functions, particularly education and health and human services. But today a year and a half into this budget families and community across North Carolina are feeling the impact of severely reduced spending on K-12 public schools, postsecondary education, child development services, medical assistance, and other key services. State legislators faced a $2.4 billion budget gap in 2011, which deepened to $2.5 billion as a result of business tax cuts. They closed the gap with $1.7 billion in permanent (recurring) budget cuts as well as one-time money. This diminished state budget formed the starting point for negotiations over the 2012 budget. BUDGET ADJUSTMENTS FOR 2012 State spending fell so sharply in 2011 that the adjustments made in the 2012 budget look modest. However, the magnitude of North Carolina s divestment in long-standing public structures is clear when current state investments are compared to levels immediately before the Great Recession. NEW SPENDING IN THE 2012-13 STATE BUDGET State legislators partially restored spending in several important areas of the 2012 budget where cuts had been particularly severe in 2011. Three areas of the budget K-12 education, Medicaid, and the UNC system received increased funding over the continuation budget. Legislators cut funding for Medicaid by $356 million, or 10.7%, in 2011, and they restored $194 million of that funding in 2012 54% of last year s cut. Legislators cut funding for K-12 education by $459 million, or 5.8%, in 2011, and they restored $62 million of that funding in 2012 13.5% of last year s cut. Legislators cut funding for the UNC System by $365 million, or 12.6%, in 2011, and they restored $24 million of that funding in 2012 6.6% of last year s cut. STATE REVENUE OUTLOOK Two months into the current fiscal year, state economists reported that net state revenue collections were $26 million below target. This was due in large part to weak sales tax collections, which were $37 million, or 4%, below target in late September. Economists pointed to slow employment growth and an unsteady economic recovery as the reasons for lower-than-anticipated collections. 6

A Companion Guide to Community Conversations 2 0 1 2 Due mostly to one-time payments and legal settlements, North Carolina corporate income tax collections are up, offsetting some of the decline in sales tax revenues due to the expiration of the temporary sales tax increase. Additionally, most of last year s end-of-year budget surplus ($392 million) was due to taxpayers being slow in taking advantage of a new $50,000 business tax exemption created by the General Assembly in 2011. However, those taxpayers are now claiming the tax deduction, and it is possible that 2013 s April surprise will be negative as a result. n LOOKING AHEAD TO 2013 NEW BIENNIAL BUDGET Early next year, the new governor will release a proposed two-year state budget for North Carolina, and the General Assembly will use that proposal as the framework for the revenue and spending plan that will shape the public investment landscape for the next two years and possibly beyond. As yet, it remains difficult to determine whether the state will experience another shortfall, as revenue appears to be coming in as projected and baseline spending has been so diminished. However, it will be important to monitor revenue modernization proposals and the impact of past tax policy decisions, such as the business tax exemption, for their impact on availability. REVENUE MODERNIZATION North Carolina s revenue system was originally created in 1939 in response to the Great Depression. A broad range of stakeholders have worked to develop plans to align the revenue system with the current economy, in which people purchase more services that aren t taxed than they do goods that are, and in which income inequality is growing. The system continues to fail to achieve adequacy and consistently asks more from low- and middle-income households than from the richest North Carolinians in terms of their tax contributions as a share of their incomes. Our current tax system is comprised of three primary pillars including the personal income tax, the corporate income tax, and the sales tax. These three pillars reflect best practices in taxation. Proposals to modernize the tax system are considering the elimination of the personal and corporate income taxes. Removing any of the three pillars leaves an unbalanced and inadequate revenue system and may result in shifting the burden to those least able to pay. Creating a modern revenue system that is reflective of our changing economy will be critical as North Carolina moves forward. Increased reliance on the sales tax to raise revenue will require greater contributions from the majority of North Carolinians, while the top 20% will see a decline in their annual contributions as a share of their incomes. 7

BUILDING A STRONGER NORTH CAROLINA Shifting Reliance Towards Sales Tax Would Ask More of Low-Income North Carolinians +8.0% +6.0% +4.0% +2.0% - -2.0% -4.0% -6.0% Lowest 20% Second 20% Middle 20% Fourth 20% Next 15% MEDICAID EXPANSION As a result of the implementation of the federal Affordable Care Act (ACA), the states may expand their Medicaid programs to ensure more North Carolinians have access to health care. The Medicaid expansion is projected to extend health insurance coverage to 488,867 North Carolinians in 2014. The first year of the expansion alone is expected to reduce the number of uninsured persons in North Carolina by 64%, from 1.3 million in 2013 to 475,185 in 2014. More than 95% of new enrollees in Medicaid under the expansion are expected to be previously uninsured. Extending health benefits to low-income people has a powerful anti-poverty effect. The implications of an insured and healthier population on workforce participation and economic growth are encouraging. Next 4% Top 1% UNEMPLOYMENT INSURANCE FINANCING Unemployment insurance benefits help families avoid financial disaster and support the broader economy. Households receiving unemployment benefits spend these dollars immediately and locally, supporting demand for goods and services in their communities. Research shows that $350 in weekly unemployment insurance payments generates $700 in economic activity. The legislature must develop a strategy to pay back money borrowed from the federal government to prop up the North Carolina unemployment insurance system. With a state-wide unemployment rate that is outpacing the nation by more than a full percentage point, limiting benefits to offset the payback could undermine economic growth in North Carolina. 8

A Companion Guide to Community Conversations 2 0 1 2 n FEDERAL BUDGET AND TAX DECISIONS THE FEDERAL DEFICIT The federal budget deficit is the amount of money the federal government spends minus the amount of money it takes in for a given year. In 2012, the gap between federal revenues and federal spending is projected to equal $1.32 trillion, down from $1.37 trillion in 2010, which was one of the largest deficits since the end of World War II. These deficits have been driven almost entirely by three key factors tax cuts originally enacted under President George W. Bush and extended under President Barack Obama; the wars in Iraq and Afghanistan and the Global War on Terror; and the lingering effects of the Great Recession of 2007-2009. While much of the public focus has been on the recent growth in the deficit, the real threat to the economy is the gap between spending and revenues will continue to expand, which the Center on Budget and Policy Priorities projects will reach unsustainable levels over the next few decades. This long-term fiscal problem is what Congress must address, along with the short-term problems of continued high unemployment and a slow recovery. SEQUESTRATION Last summer, an agreement by Congressional leaders and President Obama to raise the federal debt limit led to enactment of the Budget Control Act (BCA). That law will reduce the deficit by nearly $1 trillion over the next decade by placing binding caps on discretionary spending the 40% of the federal budget that is controlled by the annual appropriations process. The BCA also created a bipartisan and bicameral super-committee to come up with a plan to reduce the federal deficit by an additional $1.2 trillion over the next decade. The BCA included a provision to impose automatic, across-the-board spending cuts or sequestration starting in 2013 if the super-committee did not succeed. 9

BUILDING A STRONGER NORTH CAROLINA Unfortunately, despite the threat of sequestration, the super-committee failed to reach an agreement, so the first round of cuts totally $109 billion -- will go into effect in January 2013 unless Congress acts to replace them. Nearly $55 billion will be cut from Pentagon programs, and $55 billion will be cut from many domestic programs including Head Start, education, medical and scientific research, and research and economic development. According to a Senate Appropriations subcommittee report, all states will feel the results of sequestration as overall funding of programs is expected to drop by 8% to 9%. The effects in North Carolina would be as follows: Nearly 450 Head Start jobs across the state will be lost, leaving more than 2,100 fewer children served at a time when the legislature has already cut pre-k programs. 4,000 parents will lose child-care subsidies, putting their jobs at risk. 6,000 teachers will lose their jobs and 51,000 students will be impacted. 11,000 fewer workers will be trained for future job opportunities. Altogether, sequestration cuts would shrink the state s economy by almost $3 billion over the next decade. BUSH TAX CUTS These tax cuts enacted in 2001 and 2003 and extended in 2010 are a significant factor in the growth of the federal deficit. The cuts are set to expire at the end of 2012, but Congress has so far been unable to reach any agreement on further extension of these cuts. There is bipartisan agreement that the tax cuts benefitting the middle class should be extended for at least one year, but there are a number of areas of disagreement. In July, the Senate and the House passed two very different tax bills that would have had very different consequences for North Carolina households. The Senate bill would continue tax cuts on income under $250,000, including Revenue Matters in Federal Budget Deficit Decisions $50,000 $40,000 $30,000 $20,000 $10,000 0 $16,480 Tax cuts under each plan Senate plan $48,540 $670 $500 House plan Richest 1% (Avg income: ~$1 million) Bottom 60% (Avg income: $25,630) improvements to tax credits that help lowerincome working families. The House would continue tax breaks that benefit upper-income earners while ending tax-credit improvements. 10

A Companion Guide to Community Conversations 2 0 1 2 n TEN WAYS TO GET ENGAGED Advocacy is the process of exercising our individual or collective power to influence policy and policymakers. To create lasting changes, people can use their voices in a multitude of ways, some of which are straightforward while others require more effort. Today you learned about budgetary, economic and programmatic issues impacting communities across North Carolina. We hope you will feel compelled to act on something you learned. Please consider taking one of these steps in the next week. Become a reliable source of information. Get educated about the issues you care about. Learn about the legislative process and how policymakers work impacts your issues. Find out who is supporting or opposing your position and why. Call your elected official to bring attention to your issue or concern. Before you call, consider what you would like to convey and how you can express it concisely. Expect to talk to a staff member, but don t worry this does not limit the effectiveness of your call. Get to know the staff members of your elected officials. They serve as advisors to the policymakers and can highlight your concern and the need for change. Visit your local policymaker. Be sure to schedule an appointment first. Establish your talking points ahead of time, and be sure that you are respectful in all that you say and do. Write a personal letter or e-mail to your policymaker. Be sure to be specific about your concern and include a statistic to two about your issue, if possible. Never use a threatening tone. If sending a letter to a U.S. Senator or Congressman, do not use regular mail; use a fax number or email address. Invite your local elected official to an event at your facility. Give them a tour of your facility to help them understand the impact their decisions have on the work you do and those you serve. Write a letter to the editor of your local newspaper. While every letter may not be published, editors pay attention to well-written letters. This is especially true when there are many letters written on the same topic. Published letters do influence elected officials. Join forces with others. Add your voice to an existing coalition or gather people or groups that share your views to create a coalition. There is power in numbers. Host a community event. Provide education and opportunities for action in order to engage others in the issue you care about. Always say thank you. Acknowledging a policymaker s efforts is a critical step in creating a lasting relationship. 11

BUILDING A STRONGER NORTH CAROLINA n RESOURCES 2012 Building a Stronger North Carolina legislative briefing series materials are available online at http://www.unitedwaync.org/tools-resources WHO REPRESENTS ME? Find out who your state legislators are by visiting the NC General Assembly website. You can also hear audio from the chambers and send email to legislators. State House http://www.ncga.state.nc.us/house/house.html State Senate http://www.ncga.state.nc.us/senate/senate.html Find out who your U.S. Congressperson and Senators are by visiting the following websites: Representative: http://www.house.gov Senators: http://senate.gov Follow news from the governor s office at: www.governor.state.nc.us/default.asp HOW CAN I FIND HELP IN MY LOCAL COMMUNITY? Dial 211. Every wondered who to call for help? It s a great question considering North Carolina has more than 20,000 nonprofits providing every form of service. Spearheaded by United Way of North Carolina, NC 211 provides an easy-to-remember number that connects people to services and programs across our state. Information at both the NC211.org website and our call center is available in many languages every day, all day. Help starts with 211. Call or click for assistance with food, housing, utilities, child care services, credit counseling, crisis intervention, senior services, health care and disaster services. For community planners, 211 can also provide an analysis of local needs vs. available services to help determine gaps in services and to direct local investments where they are needed most. HOW CAN I LEARN MORE ABOUT POLICY ISSUES? Visit www.ncjustice.org to sign up for regular email alerts and publications about policy issues you care about. The NC Budget and Tax Center produces timely, credible analysis on budget, tax and economic issues. Follow on Twitter @ncjustice and @ncbudgetandtax. Get involved in Together NC, a coalition of more than 130 advocacy groups, service providers, and professional associations calling on state leaders to maintain and expand public investments in education, health and infrastructure by taking a 12

A Companion Guide to Community Conversations 2 0 1 2 balanced approach to our state budget. Find out more at www.togethernc.org or follow on Twitter @togethernc. Follow United Way of North Carolina s advocacy work around education, income and access to services online at www.unitedwaync.org/advocate or sign up for updates at http://capwiz.com/unitedway/go/unitedwaync. The Center for Lobbying in the Public Interest (CLPI) is a national, nonprofit organization that helps charitable organizations increase their effectiveness and impact through advocacy. http://www.clpi.org DATA AND INFORMATION SOURCES 2010 Census Data -- View 2010 Census statistics for local areas down to the block level. Statistics include population counts, age, sex, race, ethnicity and household information. http://2010.census.gov/2010census/ National Association of Counties Find various information about the county in which you live. http://www.naco.org/counties/counties/state.cfm?state=nc National League of Cities Find out information about the city in which you live. www.nlc.org National Conference of State Legislatures - NCSL provides research, technical assistance and opportunities for policymakers to exchange ideas on the most pressing state issues. www.ncsl.org North Carolina Newspapers by County Find out what s happening in other parts of the state visit United Way of North Carolina s CapWiz site and click on media. http://capwiz.com/unitedway/go/unitedwaync Low Income Housing Coalition is a private, nonprofit membership organization working for decent, safe and affordable housing that promotes selfdetermination and stable communities for low-income North Carolinians. http://www.nclihc.org Covenant with North Carolina's Children - www.nccovenant.org National Institute of Mental Health - www.nimh.nih.gov National Center for Health Statistics - www.cdc.gov/nchs/default.htm US Department of Health and Human Services - www.os.dhhs.gov US Department of Labor - www.dol.gov US Bureau of Labor Statistics - www.bls.gov 13

BUILDING A STRONGER NORTH CAROLINA EDUCATION RESOURCES Early Childhood Education Resources There are only 2,000 days between the time a baby is born and when that child shows up for the first day of kindergarten. Experiences during these 2,000 days have a lasting impact on later learning, health and success. http://www.first2000days.org/ Education reports and statistics including school report cards, disaggregated data, dropout reporting, facts and figures and school crime data. http://www.ncpublicschools.org/data/reports/ Graduation Rates http://www.publicschools.org/graduationrates Teacher Working Conditions Survey results by question by school http://www.ncteachingconditons.org/reports State Board of Education -- education reform materials for parents that explains the State Board of Education's and Department of Public Instruction's strategies and key activities to improve curriculum, assessments, teacher effectiveness, and the new accountability system. http://www.ncpublicschools.org/ready/parents/ You can access these and other resources links from United Way of North Carolina s website at www.unitedwaync.org and click on advocacy and system support. 14

BTC Reports APPENDIX: Selected Cuts in Detail North Carolina Budget & Tax Center l P.O. Box 28068 l Raleigh, NC l 27611-8068 l www.ncjustice.org

North Carolina Budget & Tax Center l P.O. Box 28068 l Raleigh, NC l 27611-8068 l www.ncjustice.org

T H E B U D G E T A N D TA X C E N T E R I S A P R OJ E CT O F T H E O P P O R T U N I T Y A N D P R O S P E R I T Y F O R A L L 224 S. Dawson Street P.O. Box 28068 Raleigh, NC 27611 919/856-2570 voice 919/856-2175 fax www.ncjustice.org U N I T E D WAY O F N O RT H C A R O L I N A 875 Walnut Street Suite 150-B Cary, NC 27511 919/834-5200 voice www.unitedwaync.org info@unitedwaync.org C O PY R I G H T 2 0 1 2 NO PORTION OF THIS DOCUMENT MAY BE REPRODUCED WITHOUT PERMISSION.