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RALEIGH — With fewer cars on the roads and many court proceedings delayed because of COVID-19, fewer people are paying fines and fees.

And that’s leading to budget shortfalls at several state agencies that normally reap the benefits of those fines and fees.

For example, civil penalties collections — which includes fees collected by the N.C. Department of Transportation for certain license plate violations — have dropped significantly, according to data provided by the Office of State Budget and Management.

These fees, which go to North Carolina’s school system, have dropped $30 million. The fees totaled $52.7 million from April through June of this year, compared with $82.7 million during the same months last year.

“The general revenue will be greatly depleted based on the courts being closed for several months,” said Rep. Marcia Morey, a Democrat representing Durham. “That’s a big revenue fund that (schools) are going to be losing out on.”

NCDOT, which generates all of its state revenues from fees and taxes — gas taxes, DMV fees and sales tax on vehicle purchases — took a particularly sharp blow.

The department is currently projecting a half-billion dollar loss for this coming fiscal year, lowering the anticipated total annual revenue from $4 billion to $3.5 billion, according to NCDOT Chief Operating Officer Bobby Lewis.

That’s because the number of drivers on the road has dropped rapidly since the beginning of the pandemic: The total number of miles driven on North Carolina roads was 25.3% lower this May than in May of last year.

Unstable revenue

These shortfalls have exposed the tenuous nature of North Carolina’s reliance on fines and fees as a revenue source, says a new report from the Budget & Tax Center, a progressive policy analysis group in Raleigh.

While corporate income tax revenue decreased 35% between the 2011-12 and 2017-18 fiscal years, state agencies’ fee revenue increased 26%, Budget & Tax Center reported, based on the state’s annual fee and tax collection reports.

That makes North Carolina the sixth most fee-dependent state in the country, according to an analysis from the Urban Institute and the Brookings Institution.

Instability is just one of the flaws of fee-based funding, said the report’s authors. A system of fines and fees “(asks) those with the greatest economic resources in our state — wealthy individuals and corporations — to contribute less and have asked North Carolinians with less ability to pay to contribute more,” according to the report.

Many of these fees, especially those generated through the court system, disproportionately impact poorer communities who are more likely to get them and less able to pay them.

A graduated individual income tax and higher corporate tax rates would provide a more stable revenue source, and a more equitable one, the report says.

“What we’re doing is foregoing an enormous amount of revenue that could help prepare North Carolina for something like the COVID-19 pandemic, but without that we are ill-prepared for moments like this,” said Leila Pedersen, a policy analyst at Budget & Tax Center. “We are increasingly relying on people with the least to provide for our collective well-being rather than asking everyone to pay their fair share.”

Numerous fees

The daily fees imposed on people convicted of even the most minor offenses are numerous.

At the same time, North Carolina’s public education system depends on these fees. In the 2018-19 fiscal year, schools received over $36 million in revenues generated from fines and forfeitures collected by the courts.

The share of school budgets made up of fines and forfeitures varies by county.

In Johnston County, it made up 6.7% of the projected revenues for the 2019-20 school year ($460,000 of the county’s $68,545,918 budget).

In Wake County, it was projected it made up 2.8% of the budget that year ($4.9 million of the $1,744,594,203 budget). In Durham County, it was projected at .98% ($1,530,000 of the $155,853,390 budget).

In Sampson County, the drop in revenue from these sources has already been significant. In the first three quarters of this fiscal year, the school district brought in an average of $21,049 from fines and fees per quarter. In the final quarter, that dropped to $13,460.

Much of this revenue is delayed, not gone. Fines and fees in criminal cases and traffic tickets have not been canceled during the pandemic but rather were extended for 90 days by Chief Justice Cheri Beasley in early April.

Will fees be recovered?

Morey said that the vulnerability of these mechanisms of funding during the pandemic exposes what she sees as a long-standing need to replace fines and fees with more stable and equitable funding sources. “It is an opening to reevaluate: Where do we get the revenue in this state? Is it equitable?” she said.

Morey, a member of the judiciary committee, said they have not yet discussed the budget shortfall from delayed fines and fees payments. But she said she plans to pursue the issue in her role as a member of the governor’s new Racial Equity Task Force.

The state transportation department looked at the need for broadening its revenue streams before COVID-19. Lewis says the department was already facing revenue shortfalls following Hurricane Florence, which required foregoing spending on new projects and instead tackling storm-damaged infrastructure.

In just the last three months, NCDOT’s revenue losses totaled $200 million from decreased DMV fees and gas tax collections.

“Looking at the rest of this calendar year, we will likely not be able to let through many projects at all. The projects that do come about are not what most people would define as projects at all,” said Lewis. He said the department would be able to make necessary repairs after upcoming storms, but wouldn’t be taking on larger tasks like bridge repairs.

The coronavirus has magnified issues that were already affecting the transportation department. “We were going to have declining revenue without coronavirus,” he said, as the economy shifts toward electric energy sources and away from gas. Increases to address the shortfalls averaging 8% in DMV fees were signed into law in 2015 and went into effect this month.

The department launched a new commission, the NC First Commission, in 2019 dedicated to finding ways to broaden the department’s funding sources.

In the meantime, a coronavirus relief bill signed by the governor in May would allocate $300 million of CARES Act funding to NCDOT if the U.S. Senate changes current guidance preventing funds from being used for revenue replacement.

The bill dedicates CARES Act funding to other state agencies impacted by the coronavirus, and to the Department of Public Instruction.

So far, no legislation has been introduced to replace court system revenues from fines and forfeitures with an alternative revenue stream, but legislation has been introduced to increase those fees. A bill signed into law this month increases the criminal court counsel fee from $60 to $75.

Another bill, introduced in May, proposed increasing court costs for the services, staffing, and operations of the Criminal Justice Education and Standards Commission from $2 to $3. It was referred to the appropriations committee, but did not receive a vote before the end of the legislative session.

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