2008 Conference Committee Budget Proposal Summary

The 2008 Conference Committee budget proposal (HB 2436) ignores the voice of the people as it increases state debt by nearly a billion dollars without voter approval. The budget plan would also strap future budget-makers with more than $1.2 billion of committed capital spending.

The unaccountable capital spending and borrowing will place tremendous pressure on future budgets, forcing lawmakers to cut essential services or implement widely unpopular tax increases.

Following is a brief summary of the major aspects of the 2008 Conference Committee budget proposal:

Increasing State Debt Without Voter Approval

• The new budget plan would authorize $857 million in new state debt. None of the new debt would be subject to the approval of North Carolina citizens. This amount is almost $320 million more than the House Budget, and close to $200 million more than the Senate’s proposal.

• All of the debt would be issued via “special indebtedness” bonds, mostly Certificates of Participation (COPs). COPs are issued at a higher interest rate than general obligation bonds, so not only does this process ignore the voice of the people, it will cost North Carolina taxpayers millions more in interest.

• The last time North Carolina voters actually had the opportunity to vote on state-issued debt was 2000. Not one penny of state debt has been subject to voter approval during Governor Easley’s tenure. If the current budget plan is passed, the total amount of debt authorized over the last eight budgets would amount to more than $3.2 billion.

• The Civitas Institute’s May 2008 DecisionMaker poll shows that 77 percent of voters think the General Assembly should not be allowed to borrow money without voter approval.

Capital Spending Burdens Future Budgets

• More than $1.2 billion in future obligations is included in the capital budget – the amount deemed necessary to complete the projects being planned in this year’s budget.

• Future budget-makers will be hard-pressed to finance this construction binge without cutting essential services or passing unpopular tax increases.

Teacher and State Employee Pay

• State employees would receive the greater of $1,100 or a 2.75 percent salary increase.

• Public school teachers, along with UNC system professors and community college instructors would receive average pay increases of 3 percent. Teachers with less experience would receive larger pay raises.

• Public school teachers would not receive additional raises if state revenue exceeded projections.

• $90 Million for ABC bonuses

Tax Changes

• Several targeted tax breaks are included in the budget proposal, including:

• An extension of the tax credit for health insurance provided by small businesses ($8.5 million)
• The Research & Development tax credit is extended ($1 million)
• A sales tax holiday for energy efficient appliances, applied during the first weekend of November ($1.4 million)
• A property tax homestead exemption for disabled veterans

More at Four

• This largely unproven program would expand by roughly $30 million, bringing total funding to more than $170 million annually. The pre-kindergarten program has thus far received little scrutiny, with mixed results, at best.

• An attempt is made, however, to provide greater oversight over the program. An amendment is included in the Conference Committee Budget mandating a detailed cohort study be performed to better evaluate More at Four in future years.

Health Care

• The expected inflationary increase for Medicaid provider reimbursements would be cut by roughly $35 million.

• N.C. Kids Care, a program designed to provide government-run and subsidized health insurance for children from families earning up to 250 percent of the federal poverty limit (FPL) – or $53,000 for a family of four – will be delayed until July 2009 pending the federal government’s re-authorization of the SCHIP program. This move will save $7 million for FY 2008-09.

• N.C. Health Choice, another government insurance program for low-income children, will expand by $9.4 million.

Highway Trust Fund Transfer

• As in both the House and Senate budget plans, the Conference budget would begin a phase-out of the transfer of funds from the Highway Trust Fund to the General Fund. For FY 2009, the transfer would be reduced by $25 million, with plans to incrementally increase the transfer over the next three years. By FY 2010-11, the transfer will be reduced by $99 million. The money would instead be directed toward paying off specific projects including: the Triangle Expressway, the Monroe Connector/Bypass, the Mid-Currituck Bridge, and the Garden Parkway. The transfer is currently scheduled to be about $172 million.

• There is no mention, however, of ending or reducing the $17.6 million transfer from the Highway Fund.

Wasteful Spending

• $900,000 for the Hunt Horse Complex in Raleigh

• $600,000 in planning funds for the African Pavilion at the NC Zoo. This commits state government to another $24.4 million in future capital funding to complete the project.

• $2.7 million in non-voter approved debt for the NC Zoo Polar Bear Exhibit renovation and expansion.

• $4.3 million in non-voter approved debt for a “Research Oyster Hatchery”

• $12.9 million in non-voter approved debt for a Film School Production Design Facility at the NC School of the Arts

• $500,000 for “Green Industries Education and Promotion”

• $2 million for an “Oyster Sanctuary Program”

• $450,000 increase funding for the North Carolina Symphony

• $500,000 for promoting the CIAA Basketball tournament in Charlotte