Teacher Pay, Corporate Welfare and Banjo Museums

The Good, the Bad, and the Ugly in the 2014-15 NC Budget.

News accounts of the recently-passed $21.1 billion General Fund budget focus primarily on the teacher pay raise provided by budget writers.

There is much more, however, included in the North Carolina budget worthy of mention. Some of it good, some bad, and some just plain ugly.

Following is a brief analysis of some noteworthy budget provisions you may not have read about elsewhere:

The Good

• The FY 2014-15 General Fund budget allocates $21.08 billion, which is $450 million more than budgeted for last fiscal year. The increase of 2.2 percent, however, is lower than the rate of population plus inflation. By comparison, in the 20 years from FY 1989 to FY 2008 the state budget saw an average annual increase of 6.52 percent. This slowed rate of growth marks improvement, and gets us closer to the ultimate goal of shrinking the state budget.
• Budget writers set aside $186 million into a “Medicaid contingency reserve” fund created to cover budget shortfalls in the program. Given the program’s recent past, this is a sensible move. Since 2011, the state has had to spend more than $2 billion in additional funds to cover Medicaid cost overruns.
• Not only does this budget include a pay raise for teachers, it also sets the stage for reforms for how teachers are paid. The budget sets aside $1 million to initiate an effort for “differential pay” for teachers. Under this initiative, local boards will be able to submit proposals to tailor their pay plans to include greater compensation for teachers who: are deemed effective on teacher evaluations, assume more leadership roles, and work in hard-to-staff subject areas or schools. While falling short of more comprehensive teacher compensation reform Civitas would prefer, this marks a step in the right direction.
• In an important first step to evaluate North Carolina’s reliance on federal funds and the strings that come attached to these funds, the budget includes a provision to evaluate federal grants to select state agencies and report on any maintenance of efforts, restrictions or other actions the agency must undertake in order to receive the federal funds. The agencies include the Departments of Labor, Commerce and Environment and Natural Resources.

The Bad

• The budget fails to set aside any funds this year into the state’s Rainy Day Fund. With a lackluster economic recovery and many predicting another economic crash on the horizon, budget writers would have been wise to set aside more funds for the near future.
• In another short-sighted move, the budget relies on $33 million in one-time, non-recurring federal funds to finance the recurring expenses in the state’s pre-K and child care subsidy programs. These are ongoing spending obligations that should not be financed with non-recurring revenue sources.
• The $56.4 million reserve for future benefit needs is eliminated, transferring these funds toward general operations. These dollars had previously been responsibly set aside to help stem the tide of unfunded state pension and retiree health benefit liabilities. A recent report, relying on more realistic financial projections, estimates North Carolina’s unfunded pension liability to be as high as $15 billion. Moreover, unfunded liabilities for state retiree health benefits total $23 billion. The more the state sets aside now for these liabilities, the less a blow they will be to taxpayers as the bills come due in coming years. Unfortunately, eliminating these reserve funds now ensures more taxpayer pain in the future.

The Ugly

• The state’s corporate welfare scheme of granting targeted tax credits to the film industry will expire at the end of this year. Budget writers, however, couldn’t leave well enough alone. They included $10 million to go into a “Film and Entertainment Grant Fund” – a.k.a. a corporate welfare slush fund designated for Hollywood cronies.
• Another $20 million of taxpayer money is devoted to a new “Job Catalyst Fund.” This new fund is simply more of the same corporate welfare conservatives opposed when the Democrats were in charge. (This appropriation is dependent upon passage of HB 1224.)
• The NC Biotech Center receives an additional $1 million in this year’s budget, bringing total taxpayer support for the Center to $13.6 million. The Center should not be receiving taxpayer dollars; instead it should raise funds from voluntary investors and supporters.
• Taxpayers will also be forking over $250,000 to help prop up the Earl Scruggs Center in Cleveland County. Scruggs was a famous banjo player. This funding is pork, plain and simple.
• The budget includes a $100,000 increase in funding for the state’s “grassroots science museums,” bringing total taxpayer support to $2.4 million. Instead of gouging taxpayers even deeper to fund these museums, state budget writers should be eliminating taxpayer support for them. The museums should be supported by voluntary patrons and donors rather than taxpayers.