Continuing progress in addressing North Carolina’s budget solvency and debt liabilities has improved the state’s fiscal health standing for 2017, according to a national study released Tuesday.
The study comes from George Mason University’s Mercatus Center, a free-market nonprofit think tank that typically leans conservative in its reports.
It ranked North Carolina 15th, up six spots from last year.
“Top-performing states tend to exhibit fiscal discipline in the form of having high levels of cash, maintaining revenues that exceed expenses, and keeping debt levels low relative to resident income,” according to the report.
“These factors can easily be threatened if a state relies too heavily on narrow tax bases and volatile revenue sources, or if pension plans are not adequately funded, leading to persistently large and growing liabilities.”
The study is focused on solvency issues in five categories: cash, budget, long term, service level and trust fund/debt liabilities. North Carolina ranked fifth for budget, seven for trust fund, eighth in long term, 17th in service level and 29th in cash.
“North Carolina’s long-run position is stronger than the average for the states ... and its fiscal position is significantly improved,” the authors said.
Republican legislative leaders cited the report as additional vindication for passing corporate and individual tax rate cuts and emphasizing building up the state’s rainy day fund to more than $1.8 billion.
“While some on the other side of the aisle are doing everything they can to discredit our conservative budgeting approach of spending restraint and middle-class tax relief, the data speaks for itself,” said Senate leader Phil Berger, R-Rockingham.
Many Democratic legislators and left-leaning advocacy groups have questioned how much middle-class tax relief was put into the 2017-19 state budgets compared with what was secured for rich North Carolinians.
Rep. Debra Conrad, R-Forsyth, was pleased to see the state classified as a “big mover,” not only overall, but within the individual categories.
“Our Republican conservative philosophy of saving, instead of just spending, has resulted in North Carolina having the largest saving reserve or rainy-day fund in the history of the state,” Conrad said.
“As a result of our tax policy, we actually were one of the few states with excess revenues collected of over $500,000, rather than a budget shortfall, so we were able to meet the need for growing services.”
Sen. Joyce Krawiec, R-Forsyth, centered on the state’s progress in addressing long-term liabilities.
“At $1,028 per capita, it is far lower than the average of $4,272 per capita,” Krawiec said. “Our strong improvement is a testament to sound fiscally responsible policies.”
The state Treasury Department reported Thursday that North Carolina has retained its “AAA” bond rating from the three major rating agencies — one of only 12 states in that scenario.
North Carolina’s rankings climb did not surprise Michael Walden, an economics professor at N.C. State University.
“North Carolina has performed the trifecta of state fiscal management in recent years — cut tax rates, increased spending but at a frugal rate and fully funded the rainy-day fund,” Walden said.
“From a purely fiscal perspective, this is what evaluators like.”
Mitch Kokai, policy analyst with Libertarian think tank John Locke Foundation, said to the extent “that all states face some fiscal challenges, North Carolina’s are not as challenging as those in other states.”
“But legislators who have been focusing over the past seven years on restraining government spending, building up savings reserves and avoiding budget shenanigans should be happy to see their work reflected in these positive rankings.”
However, all is not rosy when it comes to the state’s financial outlook.
On Monday, a nonpartisan legislative staff analysis determined that tax cuts in the 2017-19 state budgets could contribute to a more than $1 billion annual gap between revenues and projected government expenses by 2020. Republican legislative leaders downplayed the potential for the gap, saying their spending plans would limit or prevent it from occurring.
Some Democratic legislators and left-leaning advocacy groups have criticized the state for putting too much emphasize on building up the rainy-day fund over meeting current educational and health care needs.