Traditionally, legislators make adjustments to the biennium budget (passed in the long session) during the short session. Adjustments may be necessary due to changes in the economy and in the needs of the state. The Governor starts the process by making recommendations to the General Assembly. The General Assembly then takes his suggestions, makes their own changes, and then sends a final budget to the Governor for his approval. Ideally, this process is completed by June 31, the end of the fiscal year.
Yesterday Governor Easley delivered his Recommended Adjustments for 2006-2007 to the legislators. Although it will take weeks to digest the entire 210-page document, which outlines how the Governor proposes spending $19 billion, the following outlines some of Civitas’ initial concerns:
Supplanting regular General Fund spending with lottery proceeds
1. In the budget passed last year, $127.9 million of General Fund money was to be spent for class-size reduction. That will now be paid with lottery proceeds. Since the General Fund will now have the extra $127.9 million, it will be “redirected” to pay for teacher pay increases. (Pgs. 38 and 59 Governor Michael Easley’s Recommended Adjustments 2006-2007)
2. In the budget passed last year, $66.6 million of the General Fund was to go to More at Four. The $66.6 million will now be paid with lottery proceeds. The extra $66.6 million will now go for General Fund spending (like the Teapot Museum). (Pg. 59 Governor Michael Easley’s Recommended Adjustments 2006-2007)
Increases in spending keep escalating
The Governor’s budget is a 9.6 % increase over last year. Last year, he claimed he would veto any budget with over 5.6% increase. The final budget last year was an 8% increase. We have seen our state budget increase by over 30% in the last five years. (Pg. 7, Governor Michael Easley’s Recommended Adjustments 2006-2007)
Increases in salaries will not be able to keep up with increases in bureaucracy
He recommends an 8% increase for teachers (in addition, many get an ABC bonus) and a 4% increase for state employees. Each percent that salaries are raised for teachers and state employees costs the state $107 million. The Governor proposes adding an additional 20,257 additional employees to the state payroll, an 8.8% increase. With government bureaucracy growing like this, how can we ever afford to give decent raises and benefits? We don’t need more state employees; we need to be able to take care of the ones we’ve got. ( pg. 3, Governor Michael Easley’s Recommended Adjustments 2006-2007)
Governor’s tax cut is really an increase
Temporary tax increases that were scheduled to expire in 2001 still remain. There is no mention of the 8.25 marginal income tax rate (the highest in the south) being cut. The Governor does propose a very minor reduction, one-fourth of one percent in the sales tax rate effective October 1, 2006 (one month before the November election). The temporary sales tax that is supposed to expire is one-half cent. The Governor’s proposal only sunsets half of it. Instead of a tax cut, what we really are getting is an increase of one-fourth of one percent. ( Pg. 7, Governor Michael Easley’s Recommended Adjustments 2006-2007)
Tax cuts should be for all taxpayers
The Governor’s plan would offer additional tax cuts, but only to those he deems worthy. He will refund sales tax to professional motor sports racing teams for racing-vehicle parts and equipment, and to those in the research and development field who will get a sales tax cut for equipment used for research. Why don’t farmers, teachers, small businesses, family-owned businesses get tax breaks too? (Pg. 28, Governor Michael Easley’s Recommended Adjustments 2006-2007)
Tax cuts should be for all families
The Governor’s budget allows for an adoption tax credit totaling $3 million. Families should be encouraged to adopt children, but we believe all families with children deserve a tax break. All North Carolina families are struggling with high gas prices, striving for the best education and trying to make ends meet. All families need and deserve a tax break. (Pg. 7 & 11, Governor Michael Easley’s Recommended Adjustments 2006-2007)
Capping the gas tax is not enough
He suggests capping the gas tax at its current rate of 29.9 cents per gallon, effective July 1, 2006. Since the gas tax rate fluctuates, the exact rate that will become effective on July 1, 2006 is not known so we really don’t know if capping it at its current rate (the highest in the south, by the way) will be less or not. Further, how can capping the tax at its current rate be a tax cut, as he states in his budget? (Pg. 11, Governor Michael Easley’s Recommended Adjustments 2006-2007)
Raiding the Highway Trust Fund must stop
Apparently, the Governor has finally decided to quit robbing the Highway Trust Fund to fund General Fund needs. The statutes allow a $170 million transfer out of the Trust Fund into the General Fund, but no more. Governor Easley has taken $527 million out of the Trust Fund over the last five years. In his proposed budget, he reduces the Highway Trust Fund Transfer by $195 million to go into the General Fund. This “reduction” is money he was never authorized to take out of the Highway Trust Fund anyway. (Pg.7, &11 Governor Michael Easley’s Recommended Adjustments 2006-2007)
Fiscal responsibility should include savings and paying off debt
There are two statutory requirements to save money. $324 million has to be deposited into the Rainy Day Fund and $200 million has to be deposited into the Repair and Renovation Fund. (Pg. 11 Governor Michael Easley’s Recommended Adjustments 2006-2007). There is no statutory requirement to pay off our exorbitant debt. Our bond indebtedness is over $7 billion – 36% of General Fund revenue. Just ten years ago, it was $945 million. There are no plans in the Governor’s budget to accelerate the payment of debt and no efforts to pay it off early. At the same time, he proposes to add $329 million to the debt by borrowing additional funds for capital improvements. (Pg.6 & 197 Governor Michael Easley’s Recommended Adjustments 2006-2007). If we took the $2 billion surplus funds, paid off all the statutory requirements, did not expand any programs, did not add any programs, and used the remainder of the surplus to pay down the debt, there would be General Fund availability freed up created from the interest on the debt that would no longer have to be paid. Instead of increasing the debt, it needs to be paid down and funds need to be freed up. With less debt obligation, more money is available and taxpayers get a break.
Governor Easley proposes:
spending increases = $1,915,468,814
tax cuts* = $ 10,230,000
*reducing the sales tax by one-fourth of one percent when one-half percent was supposed to expire is a tax increase not a tax cut; capping the gas tax and discontinuing raiding the Highway Trust Fund are not tax cuts!
(pg. 7, Governor Michael Easley’s Recommended Adjustments 2006-2007)
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