(The Center Square) — The General Assembly Fiscal Research Division revised North Carolina's revenue consensus forecast, adding $6.2 billion to the 2021-23 biennial budget.
General Fund revenue collections are now expected to total $32.65 billion in fiscal year 2021-22 and $30.71 billion in fiscal year 2022-23, a increase of about $4.2 billion and $1.9 billion, respectively.
"Broad measure of employment and economic activity demonstrate that the state’s economy has recovered from the depths of the pandemic-induced recession more quickly than anticipated in the June 2021 forecast and is now in the expansion phase of the business cycle," according to a forecast summary from the Fiscal Research Division released on Monday.
"Based on data available at the time of the June 2021 forecast, state employment was thought to be well below pre-pandemic levels, so the state was not expected to fully recoup job losses incurred as a result of the pandemic until early in calendar year 2011," the summary read. "However, a strong, upward revision to employment data released by the federal Bureau of Labor Statistics in March 2022 meaningfully shifted our understanding of the state’s economic performance during the pandemic."
The stronger than anticipated job growth, continued widespread inflation, and strong consumer demand, along with record stock market returns and corporate profits in 2021 were major factors in the increased revenue.
Forecasters predicted slower economic growth in the upcoming fiscal year, citing an elevated risk of recession, political and fiscal policy uncertainty in Washington, DC, and questions about whether consumers will continue to spend accumulated savings, according to the summary.
"This forecast takes a conservative approach and assumes that continuing inflation and an uncertain economic outlook will significantly slow consumer demand as consumers become less willing to absorb price increases," the summary read.
The $4.2 billion in extra revenue in fiscal year 2021-22, an increase of nearly 15%, is due mostly to higher than anticipated individual income tax collections, though sales and use tax collections and corporate income tax also exceeded expectations.
The Fiscal Research Division noted that the Department of Revenue is still processing tax returns and changes in reporting requirements for certain business entities could still impact final numbers in the last two months of the fiscal year.
The $1.9 billion increase for fiscal year 2022-23, a 6.8% boost, "is due to greater than expected income growth in the current fiscal year, much of which will continue to be reflected in the upcoming fiscal year’s revenue," according to the summary.
The revised forecast predicts a 5.9% decline in revenue for fiscal year 2022-23 compared to the current fiscal year for a variety of reasons, including one-time bonus income payments in fiscal year 2021-22, surging stock prices in 2021, and corporate and individual taxpayers shifting income to the current fiscal year in response to potential federal tax increases on corporate and capital gains.
The new numbers will be used by the governor and General Assembly as they consider changes to the budget adopted in November during the short session that begins on May 18.
"Today’s forecast highlights the General Assembly’s winning formula of low taxes, reasonable regulations, and responsible spending. Our state continues to experience growth and record-breaking economic development coupled with regular revenue surpluses," House Speaker Tim Moore, R-Cleveland, and Sen. Phil Berger, R-Rockingham, said in a joint statement on Monday.
"While this is promising news, we must be cognizant of the national economy and the precarious position the Biden administration has put the American people in thanks to rising costs and runaway inflation," they said. "It is crucial that we continue on this track of responsible and disciplined spending in light of the potential for a recession as we begin the short session budget process."