Local Government Associations are Cautiously Optimistic about Economic Growth for FY 2014-2015

Spring means budget season for local governments in North Carolina. Budget offices start budget formulation as early as December or January, but the most intense activity around the budget comes in late spring as staff budget recommendations are formed, public hearings are held and final funding decisions for the coming year are made.  Whether within government or external to it, community economic development professionals should understand how local governments will be positioned regarding revenues in the coming year. Government revenue forecasts are based primarily on projected economic activity and resulting sales tax revenue, although there are a host of other, smaller revenue items. This post discusses the revenue outlook for 2014-15 from the perspective of several local government associations, the main issues at play, and important caveats underlying statewide forecasts. This past week Chris Nida, the Director of Research and Policy Analysis for the North Carolina League of Municipalities (NCLM) briefed members of the North Carolina Local Government Budget Association (NCLGBA) on the League’s revenue forecast for 2013-2014.  The overall view was cautiously optimistic, with most local government revenue sources expected to grow slightly.   Sales tax revenue is expected to have the highest growth, at 3.75 percent.   The exceptions were two relatively small revenue sources -- telecommunications sales tax receipts and local video programming revenue are expected to decline. What factors led to the optimistic forecast?  Positive movement across a wide variety of economic indicators.  For example, unemployment rates in NC have fallen in the past year, and the gap between North Carolina and the U.S. overall unemployment rate has narrowed.  Job growth has been positive.  Consumer confidence is higher.  Taxable sales have increased.  Even construction related taxable sales have seen growth.   Overall population has grown.  And at this time, no state legislation is anticipated that would have direct negative local government revenue consequences. Yet the overall positive outlook is tempered.  While all the indicators mentioned above are positive, they are not necessarily reflecting solid growth.  Most indicators show slower growth than last year.  Unemployment rate drops are due to some job growth but also a shrinking work force base due to discouraged workers giving up the job search process. In addition, increased economic activity is certainly not spread equally throughout the state.  For example, the League points out nearly half the population growth in North Carolina in 2013 occurred in just Wake and Mecklenburg Counties.  The NCLGBA, in a recent economic analysis, points out about 70% of job growth the past 4 years took place in the Raleigh, Durham-Chapel Hill and Charlotte metro areas.  And while general economic indicators are positive, the state is also experiencing the highest percentage ever recorded of children qualifying for free and reduced price lunch in the public school system (56%), a commonly used community level indicator of economic hardship. The North Carolina Association of County Commissioners (NCACC) also cautions the state legislature may consider reforms to the state and municipal privilege license and franchise tax systems in coming sessions, which could impact local revenues.  Most importantly, all these associations caution that individual communities will have vastly different circumstances.  The announcement of the closing of one major business in your town or county can drastically change the local economic forecast in a single day. The spring 2014 NCLM revenue projection memo can be found here. The NCACC details its spring 2014 budget guidance here. The NCLGBA April 2014 economic analysis brief can be found here (scroll down page for brief, but more recent postings may also be of interest to CED professionals.) This posting includes community level analyses for a number of larger jurisdictions. Maureen Berner is a School of Government faculty member.