N.C. House Budget Plan Spends $600 M Less Than Perdue’s Plan; Includes No New Taxes

The North Carolina State House of Representatives released their budget proposal for the coming biennium earlier this week. With a notable change in leadership in the General Assembly, and a multi-billion dollar deficit facing the state, the House spending plan is sure to receive much scrutiny.

There are a number of notable differences between the House’s budget and Gov. Perdue’s budget plan, which was released in February. There will surely be some changes as the bill is debated in the coming days, but any such changes are likely to be minimal.

Following is an overview of the House budget proposal, including several relevant differences with Perdue’s budget.

House Plan Includes $600 Million Less Spending Than Perdue

• The House budget plan appropriates $19.3 billion – compared to Perdue’s plan totaling $19.9 billion
  • Nearly $200 million of the House plan, however represents a transfer from the Highway Fund for the appropriation for the State Highway Patrol.
• A total of $19.3 billion is nearly half a billion more than the 2007 fiscal year budget
• The House plan’s spending total would mark a state spending increase of  33% from 10 years ago, and an 82% increase over the state’s budget of 15 years ago

No New Taxes, Tax Cut Package to Come

• Unlike Perdue’s budget plan, the House budget proposal includes no tax increases
  • Purdue’s plan included an increase of the state sales tax of ¾ of a cent. Her tax is estimated to cost North Carolina taxpayers $826 million
• The House also sets aside $230 million for a tax cut plan to be determined in the coming weeks
  • Lead budget writer Harold Brubaker (R-Randolph) revealed that $130 million of that reserve will be used to lower the state’s corporate tax rate. Similarly, Perdue’s plan included a reduction in the corporate tax rate from 6.9% to 4.9%
  • The other $100 million will be devoted to another tax cut or credit aimed at creating jobs, according to Brubaker

Fee Increases, Other Revenue Sources

• The House budget plan includes more than $92 million in new fees and fee increases
  • The largest fee changes include:
    • An increase of the foreclosure fee from $150 to $300, estimated to raise $8.9 million in revenue
    • A new fee for improper equipment convictions, for a total of $12 million in revenue
    • New toll fees for coastal ferries, projected to raise $5 million in revenue
• $67.5 million of tobacco settlement money intended for Golden LEAF in each of the next two years is diverted to the state’s General Fund budget. The amount represents the expected annual payment from the settlement, and does not touch Golden LEAF’s corpus of more than $630 million
• $72 million of corporate tax revenue typically earmarked for the public school construction fund is diverted to the General Fund in the House plan
• Another $16.6 million of tobacco settlement money is redirected to the General Fund. This is additional settlement payment funds normally intended for the Health & Wellness Trust Fund and the Tobacco Trust Fund. Both of these funds are targeted for elimination in the House plan, however. The rest of the funds normally directed to these funds are earmarked for cancer research, debt service and various health initiatives.
• Other sources of revenue included in the House plan include:
  • $8.4 million from the Parks & Recreation fund
  • $8 million from the Recreation/National Heritage Trust Fund

State Employees

• As in Perdue’s plan, state employees would receive no pay increase this year
• An estimated 18,500 state positions would be eliminated in the House plan – compared to roughly 10,000 in Perdue’s plan
  • About 2,500 of the positions are in the executive, legal and judicial branches, with roughly half of those positions currently vacant
  • Another 2,300 of the positions are in the UNC system, with about half of those currently vacant
  • About 1,000 positions would be from the community college system
  • Most of the remaining position reductions would be K-3 teacher assistant positions (see more under “Public Education”). Some estimates peg the number of TA positions that would be eliminated at roughly 8,500, others as high as 11,000. It is unknown how many of the TA positions are currently vacant

Public Education
House 201-12 Budget Plan: $7.2 billion
Perdue’s Budget Plan: $7.6 billion
2010-2011 Budget: $7.1 billion

• Increases spending by $56 million to fully fund projected enrollment growth
• Reduces by $42 million the allotment to Local Education Authorities (LEAs). The LEAs will have discretion as to how to absorb this reduction, are encouraged to minimize layoffs
• Reduces by $255 million funding for teacher assistants in grades K-3, a reduction of less than half the total funding for K-3 teacher assistants. The funding change reflects savings if TAs in grades 2 and 3 were eliminated. But there still remains $272 million to fund TAs, and LEAs will be allowed to assign their TAs throughout grades K-3 as they see fit
• Saves $13.3 million by eliminating the Dropout Prevention Grant Program
• Reduces by $59 million (15%) funding for noninstructional support staff
• Saves $10.8 million through a 10% reduction of central office staff in the LEAs
• Reduces More at Four funding by $16 million – or 20%. The remaining $65 million in General Fund support for More at Four is transferred to DHHS’ Division of Childhood Development for a program within its childcare subsidy program
• Reduces management funds in the Department of Public Instruction (DPI) by $6.4 million
• Eliminates funding for the Teacher Academy – a nonprofit organization offering professional development. This produces savings of $4.7 million

UNC System
House 2011-12 Budget Plan: $2.4 B
Perdue’s Budget Plan: $2.7 B
2010-11 Budget: 2.7 B

• Increases spending by $47 million to fully fund projected enrollment growth
• Saves $469 million through a management flexibility reduction. The system is instructed not to institute across the board cuts to all institutions, rather to use some discretion
• Reduces by 10% funds for the Legislative Tuition Grant program, which aids students attending private colleges. The reduction amounts to $5.8 million, leaving a $52 million appropriation remaining
• Reduces the State Contractural Scholarship Fund by 10%. This fund provides aid to needy students attending UNC schools. The reduction amounts to $4.6 million, meaning there would still be $41 million appropriated for this program
• Increases by $26 million the needs-based financial aid program. The increase is necessitated by a decrease in Escheat Fund monies available to help fund the program
• Temporarily halts the state subsidy to UNC hospitals, for a savings of $44 million
• Reduces funding for the Center for Public Television by $1.4 million, while the remaining $12 million in subsidy is provided on a non-recurring basis pending a legislative review

Community Colleges
House 2011-12 Budget Plan: $991.5 million
Perdue’s Budget Plan: $1.02 B
2010-2011 Budget: $1.06 B

• Increases spending by $34 million to fully fund projected enrollment growth
• Saves $44 million through a management flexibility reduction
• Raises tuition by $10 per credit hour for students, which translates into a $47.6 million savings to the state subsidy
• Eliminates the categorical support to the Haywood Regional High Technology Center to save $582 k. The center will still receive an appropriation for students enrolled in the center
• Eliminates the categorical support for the botanical laboratory at Fayetteville Tech Community College of $264 k. State funding for enrollment at the laboratory will remain

Health and Human Services
House 2011-12 Budget Plan: $4.47 B
Perdue’s Budget Plan: $4.72 B
2010-11 Budget:  $3.95 B

• More at Four Consolidation: $65 million. More at Four is to be consolidated within the Division of Child Development and designated as a Pre-Kindergarten program. Parent fees, such as those that apply to Smart Start and childcare subsidy programs, are to apply to participants in the Pre-Kindergarten program. The $65 million is transferred from DPI, the current administrator of More at Four.
• Smart Start Reduction: $37.6 million. Reduces Smart Start funding by 20 percent, leaving $150 million remaining in the Smart Start budget. This proposal exceeds the Governor’s recommendation of a 5 percent ($9.4 million) cut to Smart Start.
• County Department of Social Services Administrative Reduction: $3.2 million. This administrative reduction reduces the support expenditures for county Departments of Social Services from 5 to 4 percent, leaving $16.4 million available for administration. This reduction is less than the Governor’s proposed reduction to 3 percent administrative costs. Curiously, Smart Start is still permitted to operate with 8 percent administrative overhead.
• Lower Medicaid Provider Rates: $46.4 million. This provision reduces the reimbursement rates to healthcare providers from Medicaid participants by 2 percent, excepting rates paid to physicians and several other services. President Obama’s health care act eliminated the ability for states to adjust Medicaid eligibility, causing the burden for Medicaid cuts to fall on healthcare providers.
• Eliminate Medicaid Inflationary Increases: $62.8 million. This provision prohibits increases in healthcare provider reimbursement rates for the biennium budget that would rise in the event of inflation.
• Eliminate State Abortion Fund: $50K. This provision repeals the session laws associated with the state abortion fund, realizing $50,000 in savings.

General Government
House 2011-12 Budget Plan: $399.4 million
Perdue’s Budget Plan: $430.5 million
2010-11 Budget: $439.2 million

• Achieves a savings of $5.2 million in Administration through several agencies cutting over $100,000 by increasing receipt support and reducing positions
• Eliminates the Performance Audit Division, while expanding the Program Evaluation Division – for a net savings of $1.2 million
• Significant savings of $10.9 million are realized in Cultural Resources by limiting smaller museums funding and reducing state aid to local libraries
• Reduces by $9.2 million operating costs in the General Assembly, largely via eliminating vacant personnel and temporary positions
• Decreases the State Board of Elections’ budget by $2.1 million, with $1.1 million coming from transferring 12 positions and related expenditures to the State Ethics Commission

Natural and Economic Resources
House 2011-12 Budget Plan: $388 million
Perdue’s Budget Plan: $407 million
2010-11 Budget:  $468 million

• Reduces funding for the grassroots science museums by 15%, for a savings of $511 k. There remains $2.9 million in spending for this program
• Reduces by $2 million the state support for the aquariums, to be made up for with gate admissions. There still remains $7.5 million in state spending for the aquariums
• Eliminates funding for the oyster sanctuary program, for $1.5 million in savings
• Eliminates the shellfish mapping program, saving $562 k
• Eliminates funding for the Tick Control Program $139 k
• Eliminates funding for all non-match positions in the seven regional DENR offices, and reduces by 20% the General Fund support for these offices. Non-match positions are those not receiving any federal funds to match state support. These moves would generate $3.3 million in savings
• Reduces from $100 million to $10 million the appropriation to the Clean Water Management Trust Fund. Gov. Perdue’s budget called for a $50 million appropriation
• Increases spending for the One North Carolina Fund by $10 million – same as the Governor’s budget plan. The One North Carolina Fund is the governor’s discretionary corporate welfare fund
• Eliminates the $732 k appropriation to the Wine and Grape Grower’s Council
• Imposes a 15% reduction to the High Point Furniture Market, for a $121 k savings. There still remains a $685 k appropriation for the Market
• Reduces the funding to the Biotechnology Center by 10%, or $1.9 million. There remains a $17.5 million appropriation
• Reduces funding to the Rural Economic Development Center by 10%, or $2.3 million. This still leaves $20.4 million being allocated to the Rural Center

Justice and Public Safety
House 2011-2012 Budget Plan: $2.3 B
Perdue’s Budget Plan: $2.2 B
2010-2011 Budget: $2.1 B

• Eliminates 195.5 vacant positions in the judicial system, for a saving of $13 million. The positions were made vacant by a voluntary reduction on March 1
• Reduces funding to the Private Assigned Council Fund by $11.3 million
• Saves $8.2 million from closing Swannanoa and Samarkland youth detention centers
• Eliminates several executive positions by consolidating the Departments of Juvenile Justice and Deliquency Prevention, Crime Control and Public Safety, and Correction, for a savings of $1.4 million
• Reduces Corrections spending by $13 million by eliminating 235 vacant positions
• Closes four minimum custody prisons: Bladen, Cabarrus, Durham and Haywood for $5.4 million in savings
• Moves the State Highway Patrol from the Highway Fund to Crime Control and Public Safety for budgetary purposes. The $193 million appropriation for the SHP would be transferred from the Highway Fund to Crime Control and Public Safety

Transportation
House 2011-2012 Budget Plan: $2.98 B
Perdue’s Budget Plan: $2.9 B
2010-2011 Budget: $2.72 B

• Reduces General Administration spending by $4.5 million
• Saves $4 million through Highway Administration internal consolidation
• Reduces funding for secondary roads by $35 million
• Increases ferry tolls to leverage a $5 million spending reduction
• Reduces subsidy for Driver Education by $8.7 million, authorizes LEAs to charge a fee up to $75 for driver’s ed instruction. Still leaves $23 million in subsidy funding to driver’s ed program
• Transfers State Highway Patrol funding to the General Fund, where it will fall under the Department of Crime Control and Public Safety ($193 million)
• Eliminates Bicycle Committee, for $2,070 in savings
• Eliminates Keep America Beautiful transfer ($40 k)
• Eliminates funds for the Aeronautics Council ($14 k)Increases spending on system preservation for bridges by $77 million
• Increases by $77 million spending on contract road resurfacing