Governor Perdue’s Budget Plan Increases Spending Again During “Great Recession”

On April 20, Governor Bev Perdue released her recommended adjustments for the fiscal year 2010-11 North Carolina state budget. Included in her recommendations are an increase in spending over the current year’s expected appropriations, the elimination of roughly 600 mostly vacant state positions, a cut to public education and public safety, and a misguided attempt to “create jobs” via credits aimed at small businesses.

Because North Carolina works on a two-year budget cycle, the governor’s proposal represents recommended changes to the second year of last year’s authorized budget bill.

(NOTE: For summaries of individual agency budget recommendations, be sure to click on the appropriate link in the box to the right)

By The Numbers
Total spending on state programs included in the Governor’s proposal comes to $20.67 billion. This includes $19.15 million in state spending itemized in the budget, $1.04 billion in federal funds replacing state funding already embedded in last year’s budget bill (but counted as cuts), and $578 million in additional federal funds mostly dedicated to cover rising Medicaid costs. Subtracting $101 million from the total to set aside into the Rainy Day Fund means the Governor’s budget amounts to $20.67 billion in real spending.

On net, the Governor’s budget recommendations include more spending expansions than reductions to the 2010-11 budget approved last year. The Governor’s budget includes $1.1 billion in recommended expansions, compared to $957 million in actual recommended reductions (not counting state reductions to be backfilled with federal funds).

Jobs Continue to Shrink, But Spending Increases
According to the most recent data, North Carolina has lost 103,069 jobs since Gov. Perdue took office in January 2009. In spite of the substantial loss in jobs resulting in fewer taxpayers, Perdue’s proposal would increase spending over the current year’s budget.

Compared to the “true” spending in this year’s budget of $20.4 billion (including federal stimulus funds), Perdue’s recommended 2010-11 budgeted expenditures increase state spending by nearly $300 million.

Moreover, due to a projected $391 million revenue shortfall, actual spending in the current year will likely be closer to $20 billion. Perdue’s budget would thus increase spending over the current year’s actual spending by $700 million, or 3.5 percent.

Finally, compared to 2008-09 actual appropriations of $19.65 billion, the Governor’s proposal would hike state spending over a two year period by more than a billion dollars – roughly 5.3% – during the “greatest recession since the Great Depression.”

Public Education and Public Safety Cut, Everything Else Increased
In a curious display of priorities, Governor Perdue’s recommendations would cut funding for K-12 education and public safety, while expanding spending on all other state agencies.

Even after factoring in nearly $55 million in federal stimulus funds, the Governor’s plan reduces funding for public education by more than $260 million – or roughly 3.5 percent – for the 2010-11budget.  Among these reductions is an additional $135 million Local Education Agency (LEA) “flexibility adjustment.” This would be in addition to the $225 million reduction enacted in last year’s budget.

Similarly, the state’s Justice and Public Safety budget is reduced by 3 percent in the Governor’s proposal.

Conversely, every other state agency’s budget would be expanded under Perdue’s plan. The agency with the largest such increase would be in Natural and Economic Resources, which would expand by 7.3%, followed by a 4.4% increase for HHS (once federal funds are included).

Small Business Relief Efforts
Claiming her “number one priority is to create jobs,” Governor Perdue provides $86 million for “several key investments” in an attempt to stimulate North Carolina’s struggling economy.

The Governor’s efforts consist of $31 million in targeted tax credits and rebates to small businesses along with $56 million in expanded expenditures on already- existing “economic development” programs.

The tax credits and rebates pale in comparison to the more than $1 billion in capital being drained from the economy due to the new taxes approved by Perdue last year. Temporary and narrowly targeted tax credits for hiring employees or investment are political gimmicks that have proven to be ineffective. A more fair and effective approach would be to implement broad-based tax rate reductions to encourage more entrepreneurial activity.

No New Taxes, But $75 Million in New Fees
The Governor avoids another round of tax increases in her plan, but proposes $75 million new Department of Motor Vehicle fees. The new fees would be dedicated to financing Perdue’s idea of a North Carolina Mobility Fund (read more about the Mobility Fund in the Transportation Summary).

Eliminates 600 Positions, Pays Back State Employees and Teachers
Perdue’s plan would call for the elimination of 600 state positions, most of which are vacant. State agencies often keep unfilled positions in their budgets in order to continue receiving state funding for them – and the agencies frequently use this extra money to finance other, unforeseen agency expenses.

The Governor also sets aside more than $123 million for a small salary step increase for teachers and to repay teachers and state employees lost wages from last year’s unpaid furlough.

Setting Up Another Crisis in 2011-12
Gov. Perdue once again refuses to implement meaningful spending reform or make tough budgetary decisions. Her reliance on more than $1.5 billion of non-recurring federal stimulus funds and $1.3 billion in temporary tax revenue to help balance the 2010-11 budget sets up North Carolina for a major state budgetary crisis in 2011-12. Absent those two significant sources of funding, state budget writers will be facing a revenue hole of $2.8 billion when they reconvene next year to craft the 2011-12 state budget.

In a nationwide survey, economists project the economy to continue to be very sluggish well into 2011. Such realities suggest slow revenue growth (if any) for FY 2011-2012. More than likely, therefore, any revenue growth will fall well short of the lost stimulus and temporary tax revenues.