Raleigh, North Carolina — A significant portion of North Carolina’s newly introduced budget goes toward tackling inflation.
The budget sets aside $1 billion for a new state inflationary reserve to prepare for a potential recession and hundreds of millions of dollars to protect against projected cost overruns for state projects as labor and material costs rise.
Lawmakers consider increased spending unusually high compared to recent years, but say it is necessary to prepare for economic headwinds.
Included are $250 million set aside from the State Capital and Infrastructure Fund for increased construction costs for capital projects and $135 million from the State Highway Fund to maintain existing transportation contracts. The extra transportation money is the result of “cost escalation for materials and supplies in the construction programs,” according to a commission report presented to lawmakers on Wednesday.
State Representative Donny Lambeth, a Republican in Forsyth County, said he thinks about $2 billion of the budget will go toward tackling inflation when other initiatives, including spending on local governments and water and sewage projects, are taken into account. The $2 billion estimate represents 7.2% of the proposed $27.9 billion budget for the coming fiscal year
“If you go back and look at some of the past budgets, you see some declines in line items because the costs actually fell,” Lambeth said. “And with this budget, it’s just the opposite. And not just a small amount of raises – a significant amount of raises. We should all be concerned about what’s going on in the economy because it’s impacting not only household income, but state and local revenues as well.”
Prices for non-residential construction inputs — such as wood, concrete products, steel, plumbing and other materials — are up 21.9% in the past year, according to an Associated Builders and Contractors analysis of data from the U.S. Bureau’s Producer Price Index. of Labor Statistics. The analysis was released on June 14.
“Inflationary pressures show no signs of abating,” ABC chief economist Anirban Basu said in a statement. “For months, economists and others have been expecting inflation to peak and then decline. Instead, the war between Russia and Ukraine has disrupted markets, pushing energy prices up. Those high energy prices are now circulating throughout the economy, affecting production and distribution.”
North Carolina Democratic Governor Roy Cooper has not weighed in on the budget proposal.
Republican Senate Leader Phil Berger said he and his colleagues have spent the past decade trying to pass budgets that were responsible for population growth and rising costs of goods and services.
“In recent years, we’ve looked at a figure that’s between 3% and 4.5%,” Berger said of past inflation levels. “This year, that number was better than 7%. We have seen significant upward pressure on the state budget due to inflation. One of the easiest things to point out that illustrates the problem is fuel costs.”
Indeed, several commodities became increasingly expensive earlier this year, although the prices of some materials have fallen in recent months. From mid-August to mid-January, the price of wood almost tripled. Crude oil doubled from December to early March. Aluminum prices rose by 50% between early November and early March. Land prices have also risen across the country.
“We don’t know where the end is, so it’s extremely important that we throw away some money just to be safe,” Berger said.
Some feel left out of budget as inflation exceeds proposed increases for teachers and state employees. The budget calls for a 3.5% pay increase for most state employees and an average 4.2% pay increase for educators, which is less than half of the 8.6% inflation rate from May 2021 to May 2022 .
“The irony is that the legislature wants to save because there’s inflation and we might be in a recession,” said Adris Watkins, executive director of the State Employees Association of North Carolina. “But with this budget, employees can’t save for themselves [and] take care of themselves when things go wrong.”