Mixed Messages: Spending Priorities Don’t Reflect State’s True Needs

As legislators prepare to go into conference to finalize the FY2007-09 budget, the public is getting mixed messages about what programs are really essential to the good of the state. The governor, the House and the Senate all have different ideas about what programs are truly important, such that the three budgets show distinct differences in terms of spending priorities. Given these differences, it seems that at least some of these priorities are not really as important as their advocates claim. For example, the governor and House budgets extend the “temporary” taxes another two years. In fact, Representative Paul Luebke (D-Durham) has declared that without this extra revenue, “There’s no way to meet the educational and health care needs of the state.” But if this is true, how did the Senate manage to craft a budget that allows these taxes to expire, that increases overall spending by more than 6 percent over last year, and that reserves nearly $280 million to carry over to next year? For his part, Senate leader Marc Basnight (D-Dare) has stated that the Senate’s proposed $1.2 billion in non-voter approved debt (certifi cates of participation, or “COPs”) is critical to the future of North Carolina’s economy. “We took a big step in building a knowledge-based economy,” said Basnight in reference to the debt package, most of which is to be used for new construction and renovations in the UNC system. According to Basnight, these projects are so important that a vote of the people isn’t necessary to authorize the new debt. After all, explained Basnight, “If we don’t have places of learning, we can’t be competitive.” But if the need for this debt is so obvious, then why are the governor and the House, not to mention the state treasurer, questioning the wisdom of the Senate COPs package? By contrast, the governor’s recommended budget contains only $209 million in COPs debt over the next six years, while the House bill proposes $449 million over the next two years. Numerous other discrepancies between the three budgets make it diffi cult to discern which programs are really important and which are not.

Do we really “need” the following line items?

• $150 million for EARN scholarships … The governor says yes; the House and the Senate say not so much. The governor cites the EARN Scholarship program as one of his top priorities. He allocates $150 million for the program over the next two years, but the House only spends half that amount. The Senate splits the difference, proposing $100 million. If this scholarship program — designed to help low-income students graduate college without debt — is so crucial, why does the House think it is worth only half the funding recommended by the governor?
• $12 million for NC Kids Care … The governor and the House say yes; the Senate says let’s study the issue. The NC Kids’ Care program would extend state-subsidized health insurance to children from families with income between 200 percent and 300 percent of federal poverty level (FPL), which ranges from $41,300 to $61,950 for a family of four. The program is part of the House leadership’s agenda to respond to what they believe is a “crisis” of uninsured children in North Carolina. As Speaker of the House Joe Hackney (D-Orange) urged in his opening remarks as Speaker: “Let us dedicate ourselves to insuring children, to making health insurance affordable for families.” The depth of this commitment is indicated by the fact that the House, as well as the governor, allocates nearly $12 million over the next two years for Kids’ Care. By contrast, the Senate does not seem to feel the same sense of urgency regarding Kids’ Care. Instead, they propose a DHHS study aimed at determining the “most cost-effi cient and cost-effective method for implementing” the program. The results of the study are to be presented to the General Assembly no later than April 1, 2008. Thereafter, the Senate would allocate $2.4 million for the creation of Kids’ Care in FY2009, with the program limited to kids from families that earn between 200 percent and 225 percent of FPL.
• $2.63 billion for the UNC system … The governor and Senate say yes; the House says not so much. If expanding funding for the university system is so important, why is there such a large discrepancy in spending between the three budgets? The governor’s plan expands spending by $109 million over the baseline budget, bringing spending on the UNC system to a total of $2.63 billion. The Senate budget appropriates the same amount. Meanwhile, the House budget comes in at $2.56 billion. Thus at least $70 million of the governor’s spending is not even deemed necessary by the Democrat-controlled House.
• $37.5 million for additional education funds for class size reduction … The Senate says yes; the governor not so much; the House says no. The Senate appropriates $37.5 million for class size reduction while the governor allocates $18.9 million. This money was originally to come from state lottery revenues, but revenues came up short of projections. The House budget calls for no additional spending for class size reduction. The method of distributing funds for reducing class sizes also differs. The governor’s plan spends the money across all schools, based on a sliding scale determined by the wealth of each district. The Senate plan is more focused, with funds going to grades K-3 exclusively.
• $25 million in additional funds for community college facilities and equipment … The House says yes; the Senate and the governor say no. The House budget appropriates $25 million for FY2007-08 for a community college “facilities and equipment grant fund.” Neither the Senate nor the governor allocate money for this fund.
• $104 million to preserve vacant state jobs … The governor says yes; the Senate says only in education; the House says no. The governor would retain all jobs vacant for a six months or more in the state system, while the Senate budget would only retain vacant positions in the Education Department. If retaining these vacant positions is so important, why does the House budget eliminate all vacant positions at a total savings of $104 million?
• 700 additional state jobs … The Senate says yes; the governor says not quite so many; the House says not nearly as many. The Senate budget proposal creates nearly 700 net new government jobs while the governor’s recommended budget adds almost 570 net new jobs. By contrast, the House bill would create only 54 net new jobs. Why does the House not see the same need for more state jobs?
• $69 million for an Earned Income Tax Credit (EITC) … The House says yes; the Senate says let’s slow down; the governor says no. State Treasurer Richard Moore is among a growing group of lawmakers and special interest groups claiming an EITC is necessary to help the working poor. Asserted Moore in a recent Raleigh News & Observer article, “Our working families need attention now, the cost of health care, food and gas are on the rise. Too many families are struggling to make ends meet.” The House plan calls for almost immediate implementation of an EITC, appropriating $69 million in FY2008-09. The Senate seems to believe an EITC is a good idea, but wants to take time to properly plan for the initiative. The Senate appropriates no money over the next two years for the EITC itself, but allocates $50,000 to be used for EITC tax preparation and outreach efforts in anticipation of the program’s implementation. The Senate budget, however, does not specify an actual start date for the initiative. The governor’s recommended budget doesn’t even mention the EITC. But if an EITC is as necessary as the House claims, why doesn’t the governor or the Senate agree?

Conclusion

With Democrats controlling all three branches of state government — not to mention a projected $1.1 billion surplus — one would expect greater unanimity between the Senate, House and governor’s budgets. The three spending plans don’t agree because many of these programs are not really necessary. If lawmakers adhered to funding essential programs, as outlined by North Carolina’s Constitution, it would be easy to come to a consensus. North Carolina taxpayers have provided lawmakers with more than $1 billion in surplus revenues. Instead of trying to convince voters (and each other) of the necessity of spending this money, our elected officials should do the responsible thing by returning most of this excess revenue to the taxpayers and saving the remainder in preparation for what looks to be another economic downturn.