2013-14 State Budget: Modest Spending Increase, Significant Legislative Changes

Nearly a month into the 2013-14 fiscal year, Gov. Pat McCrory is set to sign the state budget into law today. The budget spends a total of $20.6 billion, up about 2.5 percent from last year’s $20.18 billion budget, and would mark a 39 percent increase in the state budget over ten years.

Significant policy changes are included in the budget as well. Such policies include: a major school choice initiative, ending the current K-12 teacher tenure system in favor of short-term work contracts and merit pay, Medicaid reform, expansion of the state’s Pre-K program, ending the taxpayer funds for judicial campaigns, capping the state gas tax and a change in how nearly $1 billion of road and highway construction funds are allocated.

Education

K-12

• Total state spending comes to $7.9 billion – up roughly $400 million over last year’s appropriation
• Implements opportunity scholarships in the second year of the biennium, providing vouchers of up to $4,200 for low-income families to use toward private school tuition. Projects an $11.8 million savings in the first year of implementation
• Eliminates the Local Education Agency (LEA) adjustments that had been in place for the last several years. This “adjustment” was a reduction to LEA funding in which the local agencies had discretion over how to absorb the reductions. Instead, the budget reduces specific allotments to school districts, by reducing the number of teachers via increased class sizes and the elimination of teacher assistant positions and some instructional support personnel
• Shifts from the traditional system of teacher tenure to one based upon short-term contracts, with incentives for bonuses to be paid for more effective teachers
• Allocates an additional $10.6 million to accommodate projected enrollment increases

Community Colleges

• Increases tuition by $2.50 per credit hour for both resident and non-resident students
• Provides an additional $10 million for instructional equipment technology, bringing total allotment for this year to $59 million for this purpose

UNC System

• Includes a $25.8 million reduction due to anticipated savings from administrative, instructional and operational efficiencies
• Increases tuition for nonresident undergraduate students effective FY 2014-15. Rates will rise by 12.3% for UNC-SA, NC A&T, UNC-CH, and UNC-W and 6% for all others
• Also includes a $65.8 million “management flexibility reduction”
• Allocates $10 million for “opportunity scholarships” in FY 2014-15 for students to attend nonpublic colleges. Grants of up to $4,200 will be awarded to eligible students

Health and Human Services

• Includes a provision allowing for the state’s executive branch to develop a reform plan for the state’s Medicaid program
• Uses $12.4 million in lottery money to fund an additional 2,500 slots in the NC Pre-K (formerly More at Four) program
• Provides an additional $434 million to pay for increasing Medicaid costs. This is in addition to the $308 million already set aside in the current budget year to cover Medicaid cost overruns
• $50 million is appropriated to accommodate new Medicaid enrollees as a result of Obamacare. While North Carolina rejected the Medicaid expansion under Obamacare, the state still anticipates about 70,000 new enrollees as a result of various provisions in Obamacare related to penalties for non-coverage and outreach efforts

Natural and Economic Resources

• Allocates $600,000 to support the Energy and Mining Commission, tasked with overseeing shale gas exploration; part of the funding will also support data collection and analysis of geological samples in the state’s shale gas basins
• Increases by $800,000 funding to the state Commerce Department to “develop a comprehensive branding strategy to promote North Carolina”
• Allocates $11.3 million to create a new Rural Economic Development Division
• Eliminates state funding of operational expenditures for nonprofit groups the Biofuels Center, Community Development Initiative, Council of Governments, Institute for Minority Economic Development, Land Loss Prevention Project, NC Association of Community Development Corporations, NC Indian Economic Development Initiative, and Partnership for the Sounds
• Eliminates funding for the troubled Rural Economic Development Center, scheduled to be nearly $17 million this year
• Reduces funding to the NC Biotechnology Center by 50 percent ($8.6 million)

Justice & Public Safety

• Appropriates $2.5 million to hire additional State Highway Patrol officers
• Closes four jails and one youth custody facility for total savings of roughly $23 million
• Allocates $5.7 million in FY 2013-14 and $12 million to hire 175 additional probation officers
• Closes 3 youth detention centers for an estimate savings of roughly $4.8 million

General Government

• Closes out the NC Public Campaign Finance fund by transferring the remaining $3.5 million to general availability
• Provides a one-time increase of $1.8 million in funding for the North Carolina Symphony and The Bridge Down East, a youth facility on Harkers Island

Transportation

• Caps the state gas tax at 37.5 cents per gallon, estimated to save motorists $2.4 million this year
• Shifts $931 million in road and highway construction dollars from the current funding programs to the newly created “Strategic Prioritization Program” established to more efficiently allocate monies to projects based more closely on actual needs

State Employees and Other Funds

• Provides no pay raise for state employees, but does add five paid days off
• Increases the contribution to the state pension fund by $36 million to meet growing retiree benefit costs
• Sets aside $56 million in FY 2014-15 in a reserve fund in anticipation of continued growth in retiree benefits costs
• Increases by $33.5 million the contribution to the State Health Plan to meet greater health benefit costs for state workers and retirees
• Provides $1 million for the implementation of the Voter Information and Verification Act (voter ID)
• Creates a fund to compensate verified victims of the state’s former eugenics program at a cost of $10 million
• $232 million is set aside into the state’s Rainy Day Fund