Gov. McCrory’s First Budget Proposal Unveiled

“Changing policy through our budget.”

That’s how newly elected Governor Pat McCrory described his first state budget proposal at a press conference Wednesday morning. McCrory’s plan would increase year-over-year spending by nearly half a billion dollars while not raising taxes. Most of the policy “changes” are focused on education. Total General Fund expenditures for fiscal year 2013-14 under McCrory’s proposal would be $20.6 billion, up 2.2 percent over the current year’s authorized spending total of $20.16 billion.

In addition to not raising taxes, McCrory’s 2-year budget plan aggressively sets aside funding in the state’s savings reserve account, dedicates significant monies to repair state-owned buildings, and issues no new debt.

Education

McCrory’s budget plan allocates $7.9 billion in state funds toward K-12 education, marking a year- over-year increase of just under 1 percent.

Over the next two years, 1,800 additional teachers will be hired, largely to accommodate projected increases in the number of children attending public schools. Offsetting this increase in teachers will be a $117 million reduction in funding for teacher assistants. Remaining teacher assistants will be focused more into kindergarten and first grade classrooms. In addition, $26 million in lottery funds would go toward purchasing reading tablets for students in FY 2013-14 to “enhance digital learning opportunities.”

McCrory’s education budget also completes the phase-out of state funding for the Teaching Fellows scholarships and North Carolina Center for the Advancement of Teaching.

Disappointingly, nowhere does McCrory’s budget set aside funding for school choice initiatives.

Other education budget items of note include:

• Minor tuition increases for community college students ($1/credit hour for in-state students and $4/credit hour for out-of-state students)
• An additional $16.8 million per year to fund “higher cost” community college programs such as engineering, vocational and technology training
• An additional $14 million per year for “technical education equipment and infrastructure” for NC community colleges
• No tuition increase for in-state students in the UNC system, and a tuition increase as much as 12 percent for out-of-state students
• A $111 million “management flexibility reduction” for the UNC system
• Through the Justice & Public Safety department, allocates just over $300,000 a year for the next two years to establish the Center for Safer Schools to “provide training and technical support to educators, law enforcement agencies, and parents”

Health and Human Services

The major funding priority in McCrory’s HHS budget is shoring up North Carolina’s Medicaid program. The budget increases the line item for Medicaid by $185 million in FY 2013-14 and by $390 million the following year. The budget also sets aside $90 million a year over the next two years into a Medicaid risk reserve. These measures are intended to address the underfunding of Medicaid the state has had to regularly address over the last several years. On Medicaid spending, McCrory declares, “we simply cannot sustain this rapid growth in spending,” and adds that North Carolinians can expect separate legislation for “fundamental Medicaid reform” in the future.

The governor’s budget also allocates an additional $26 million per year to fund the NC Pre-K program (formerly More at Four). The additional funding is projected to provide services for an additional 5,000 children. Of this annual expenditure, $17 million is budgeted to come from state lottery receipts. The program is now administered through HHS. Such government-run early education programs, however, have received mixed reviews as to their effectiveness.

Economic Incentives

McCrory’s budget plan unfortunately continues the policy of targeted government privileges and taxpayer handouts to select companies. For instance, the Governor’s budget plan allocates $9 million to the One North Carolina Fund, and another $14 million to the Job Maintenance and Capital Development (JMAC) program. The Governor’s budget plan does, however, include language promising that the state Department of Commerce will develop a proposal which includes “a fundamental reorganization and creation of a public private partnership for economic development and prosperity.”

Given the governor’s aggressive use of corporate welfare and targeted government privileges thus far in his tenure, one should remain skeptical that this administration will stray very far from the cronyism practiced by previous administrations.

State Employees and Retirees

Gov. McCrory’s budget provides for a 1 percent across-the-board pay raise for teachers and state employees. The budget plan also provides a 1 percent cost of living increase for state retiree pension benefits. Also included in the budget plan is a “salary adjustment reserve” held for pay increases and bonuses for “key employees who are not receiving market wages.” How government officials are to determine “market wages” for employees performing non-market work (i.e. work not subject to market forces) is left unexplained.

Taxes

McCrory’s budget plan includes no new taxes, and repeals the state’s “death tax.” The governor stated in his press conference that “now is the wrong time to increase taxes.” Moreover, McCrory declared in his budget plan that “…the Governor supports revenue neutral personal and corporate income tax reform,” and “reform will be submitted by separate legislation” coming from the General Assembly.

Other Notable Items

• Budget plan aggressively sets aside $200 million in coming year to the state’s “rainy day fund.” This fund has been woefully neglected for decades.
• Budget would transfer $130 million to the “repair and renovations account” dedicated to fixing up state-owned buildings and facilities. Disappointingly, the budget includes no discussion of selling off under-utilized state assets.
• Transfers no money from the Highway Trust Fund to the General Fund.
• Eliminates the $65 million transfer to Golden LEAF and retains another $25 million in tobacco settlement funds. Also retains $27.5 million by eliminating transfer to Parks and Recreation Trust Fund and the $9.9 million Natural Heritage Trust Fund transfer.
• Repeals the NC Public Campaign Fund, which diverts $4.1 million to the General Fund. This is the money used for taxpayer-funded political campaigns. Also repeals the NC Political Parties Financing Fund, freeing up another $1 million to the General Fund. This is the money dedicated to the state’s major political parties via the check-off box on state tax returns. The $5.1 million obtained from these funds would be sufficient to provide voter photo ID for economic hardship cases for several years in North Carolina.
• Provides $10 million to compensate victims of the state’s eugenics program.
• Reduces state appropriations to the NC Rural Center by $10 million, the NC Biotechnology Center by $10 million and the Biofuels Center of NC by $1 million.