Senate Budget Plan Roundup

North Carolina’s Senate Budget Proposal for fiscal year 2009-10 uses optimistic revenue estimates, federal stimulus dollars and unspecified “tax adjustments” to help bring the plan into balance. Significant changes in public education and children’s health care are also included in the plan.

High Revenue Expectations, Unspecified Tax Increases Proposed
Rosy Revenue Picture
When determining how much money will be available to spend, the Senate budget proposal projects a hopeful 1.6 percent increase in tax revenue for 2009-10 compared to current year collections. Given double-digit unemployment and continued economic stagnation, such a prediction is likely overly optimistic.

If revenues don’t live up to predicted levels, the state will be facing another budget deficit next year.

Federal “Stimulus” Dollars Help Plug Hole
The roughly $1.7 billion in federal dollars slated for North Carolina for fiscal 2009-10 are utilized to support the Senate’s planned expenditures. Almost all of the federal money goes toward propping up North Carolina’s Medicaid plan and public education budget.

Half a Billion Dollar Tax Increase – But Which Taxes?
The Senate budget plan includes a $500 million reserve for “tax rate adjustments.” No indication is yet given as to what taxes would be adjusted in the plan.

Senate Budget Proposal: Changes of Note

Public Education

• Allows for an increase of two students per class in the allowable maximum class size average. This move would save $322 million.
• Teachers would receive no across-the-board pay increase, instead an experienced-based step increase would be provided.
• No ABC bonuses would be provided in the Senate proposal. A plan would be put in place to study how to “restructure” the bonus system.
• The “More at Four” program would be transferred to the state’s Department of Health & Human Services.
• Corporate income tax collections of $60.6 million typically directed to the Public School Building Capital Fund would instead be diverted to cover public school operating costs.
• Learn and Earn funding would expand by $3.6 million to support 12 additional L&E schools.

UNC System

• The Senate Budget mandates a $75 million “management flexibility reduction” for the university system operating budget. The UNC chancellors were issued “guidelines” for implementing budget reductions that they can follow to find appropriate spending reductions.
• Expands the UNC Need-Based Student Financial Aid Program by an additional $23 million.
• Provides $1 million more in funding for the UNC School of the Arts School of Filmmaking.

Community Colleges

• Senate plan provides another $10.4 million to fully fund estimated enrollment growth. This money is in addition to the $47.7 million increase already included in the continuation budget.
• Eliminates an $18.5 million increase to state aid provided in the continuation budget.

Health & Human Services

• $920 million in federal “stimulus” funds are used to cover Medicaid obligations.
• HHS would take over More at Four from education in the Senate plan. Only $46 million is allocated for the coming year for More at Four, compared to the $86 million originally slated in the education budget – netting a $40 million reduction in planned appropriations for the program. Instead, $37 million of federal stimulus money is budgeted for “a high quality classroom childcare subsidy program.”
• The Senate budget reduces funding for Smart Start by $15 million.
• NC Health Choice would receive a bump in funding of $14.8 million; $7 million would come from the NC Kids Care program.
• Medicaid provider reimbursement rates would be frozen, rather than increased for inflationary purposes. By this move, $100 million less would be spent than if reimbursements were adjusted upward for inflation.
• Federal stimulus funds in the amount of $132 million are spent on “weatherization assistance” for low-income homes.

Natural and Economic Resources

• The Senate Budget reduces by $5 million (to $95 million) the annual appropriation to the Clean Water Management Trust Fund.
• North Carolina’s Green Business Fund – a fund that provides grants to small organizations to “encourage the growth of a green economy” – grows by $5 million with the use of federal stimulus funds.
• “Main Street Solutions” – a new program created to provide grants to smaller cities to “assist with economic development projects designed to foster job creation and entrepreneurship” – would receive $3 million.

Justice& Public Safety

• The Senate proposal closes McCain Correctional Hospital, Umstead and Guilford Correctional Centers and the Wilmington Residential Facility for Women for savings of more than $13 million.

General Government

• Reduces by 6.4 percent the operating budgets of many state historic sites and museums.
• Draws down the Voter-Owned Elections Fund by $1.5 million.

Transportation

• Redirects $84.5 million from the secondary roads program (used mostly for paving unpaved roads) to statewide maintenance programs.
• Freezes the step increase for State Highway Patrol salaries.

New Debt

• Authorizes a total of $306.6 million in new bond indebtedness – none of it approved by taxpayers.
  • $240 million for the Biomedical Research Imaging Center at UNC Chapel Hill.
  • $106.6 million to go to the state’s Repair and Renovation account – which provides general repairs and upgrades to current state-owned buildings and property.