NC economy improving as key tax collections arrive

RALEIGH, N.C. (AP) -- North Carolina's economy is improving slowly and steadily, the legislature's chief economist said Tuesday, but April revenue figures that are needed to prepare the two-year state budget are more uncertain than in past years due to federal and state tax changes.

State government revenues through March, or three-quarters of the fiscal year, are $110 million above the targeted amount needed to carry out the current year's $20.2 billion budget, according to a presentation for House and Senate finance committee members. Income tax collections are 1.5 percent ahead of expectations, while tax collections are below the target by a nearly identical percentage, the report from economist Barry Boardman said.

Boardman held out the possibility of a large swing in either direction as Department of Revenue workers keep opening tax return envelopes. April 15 was the due date for 2012 tax payments and for companies and individuals to make estimated payments for the first three months of 2013.

The "April surprise" is important because an unexpected surplus would give legislators more money to spend in the budget now being drawn up for July 1 through mid-2015. A shortfall would mean less money is available. April usually brings in more than $3 billion in tax collections, or twice as much any other month, Boardman said.

Boardman told legislators the April 15 collections are particularly volatile this year because of a 2011 law that allows business owners to exempt their first $50,000 of net income from income taxes. He said it's also unclear how much taxpayers shifted their incomes to the 2012 calendar year in December to avoid tax increases and changes approved by Congress in early 2013.

"We think those shifts were significant," he told lawmakers.

Boardman said the General Assembly's nonpartisan staff may know the April 15 revenue numbers by next week. The House and Senate will use the numbers to work up separate budget plans and then work out a compromise they hope Gov. Pat McCrory would sign into law before July 1.

The raw tax collections total show North Carolina's economy is improving. The amount of tax withheld from workers' paychecks and sent to the state is 5.6 percent higher through the first nine months of the fiscal year compared to the same period a year ago, Boardman's presentation said.

Although the state's unemployment rate fell in March to 9.2 percent, it remains stubbornly high and ranks among the highest in the nation.

Boardman said North Carolina's jobless rate remains high because job creation can hardly keep up with population growth and the annual arrival of college graduates entering the workforce. While the state added nearly 64,000 jobs last year, the labor force grew by 64,500 during the same period.

North Carolina's economy is "not strong enough to overcome the growth in our workforce to significantly lower our unemployment rate," he said after the meeting. Job growth won't reach that level until mid-2014, he wrote.

Across-the-board federal spending cuts initiated earlier this year could drag down North Carolina's economy this summer given the state's strong military presence, Boardman's report said.