Senate Bill Gets Tough on Deficit

In a bold move to proactively address an historical budget shortfall expected this summer, Senator Richard Stevens (R – Wake) and two other Republican senators, introduced SB 13, also known as the Balanced Budget Act of 2011, early last week. In anticipation of a $3.7 billion shortfall, the bill empowers Gov. Perdue to hold back current year government expenditures by $400 million, and seeks to redirect millions more from various state funds to the General Fund. After being fast tracked through the senate, this budget trimming proposal came before the House early this week and passed along a partisan vote.

The bill picks off some of the “low hanging fruit”, as it was described, and focuses budget reductions on economic incentive programs. Sweethearts of the Governor and Department of Commerce such as the One North Carolina Fund and the Job Development Investment Grants (JDIG) are scheduled to receive multi-million dollar reductions. Many Democrats have challenged the reallocation of funding from these programs, citing concerns that it will impact jobs in the state. Republican House Majority Leader Skip Stam responded, “It’s a pro-jobs bill. It provides several hundred million dollars in additional availability to the General Fund and it doesn’t cost us any jobs.” Sponsor of SB 13, Senator Richard Stevens, emphasized the magnitude of the budget crisis and that difficult cuts would have to be made. “If this is hard for you,” Stevens told the House Appropriations Committee Tuesday, “you ain’t seen nothing yet.”

Additional and seemingly unfounded complaints were lodged by former House Speaker Hackney, who repined that the Governor and Secretary of Commerce were not consulted in the course of the drafting of this piece of legislation. President Pro-Tempore Berger, House Speaker Tillis, Senator Stevens, and Rep. Brubaker were reported to have consulted with the Governor and her staff prior to passing SB 13.

Specifically, the Senate bill diverts a large portion of money from the Master Settlement Agreement with the tobacco industry that appropriates to the Golden LEAF Foundation, the Health and Wellness Fund, and the Tobacco Trust Fund. The proposed diversion caused consternation among legislators from rural districts, who fear they will be disproportionately affected by cuts to programs like Golden LEAF. Representative Stam alluded to the not-so rural nature of the Golden LEAF Foundation, which extends eligibility for funding to predominately urban counties such as Wake and Mecklenburg and that Golden LEAF will have plenty of funds remaining to utilize.

The following is a list of key programs on the cutting block:

	1. Correction Enterprise Fund – $3 million This organization is designed to teach inmates trade skills and to apply them in producing a variety of goods that the state utilizes. Correction Enterprise employs 380 staff members and 2100 inmate workers at 30 locations across the state, including a warehouse in Apex and administrative offices in Raleigh.
	2. Transfer Golden LEAF funds to General Fund – $67.6 million This reduction would divert this year’s annual installment for the Golden LEAF Foundation and direct it to the General Fund. This reduction in Golden LEAF’s funding is not recurring and will not affect Golden LEAF’s funding for the next fiscal year. Golden LEAF was created in 1999 to distribute half of the funding received from a successful lawsuit between North Carolina and tobacco manufacturers, with our state receiving around $4.6 billion over the course of 25 years. The foundation’s stated purpose is to distribute grants to promote economic development in areas affected by the shrinking tobacco industry’s presence in the state.
	3. Transfer Health and Wellness Trust Funds – $11.6 million In the second move to reallocate settlement money from the famous tobacco lawsuit of the 1990s, State of North Carolina v. Phillip Morris Incorporated, et al., the senate’s bill moves to expand a previously legislated budget reduction of around $10 million to a more sizeable $22 million cut for the Health and Wellness Trust Fund (HWTF). HWTF was established in May 2001 with its key mission to “prevent, reduce, and remedy the effects of tobacco use, with a particular emphasis on youth.”
	4. Transfer Tobacco Trust Funds – $2.8 million In the third and final move to raise funds from the tobacco industry legal settlement, the senate’s bill expands another legislated budget reduction for FY10-11 from $5 million to $7.8 million, adding an additional $2.8 million to government coffers. The Tobacco Trust Fund receives 25 percent of the total legal settlement amount and is charged with improving the lives of former tobacco farmers and others displaced by the crumbling tobacco industry.
	5. Job Development Investment Grants (JDIG) – $3 million This economic incentives program gives grants to companies that relocate or expand in North Carolina. Between 2004 and 2007, JDIG promised over $200 million to a variety of companies including Google and Dell. Incentive programs such as JDIG allow politicians to hand pick which businesses they want to bring to the state.
	6. One North Carolina Fund – $5.2 million The One North Carolina Fund, formerly known as the Governor’s Industrial Recruitment Competitiveness Fund, is used to recruit hi-tech industry to locate in North Carolina. Companies can use the One North Carolina Fund to purchase equipment, as well as make structural repairs or renovations for purposes of expansion. The One North Carolina Fund requires local governments to match a grant from the fund with a certain amount out of their own pockets, which is often problematic for smaller and more rural local governments.
	7. Wildlife Resources Commission – $8 million Created in 1947, the Wildlife Resources Commission is dedicated to wise-use, conservation, and management of North Carolina’s fish and wildlife populations. The commission handles all hunting, fishing, and watercraft licenses as well as managing North Carolina’s protected and endangered wildlife species. Other responsibilities include measuring wildlife population levels, as well as implementing restrictions on hunting/fishing limits. With an original allocated budget of $21.5 million, SB 13 along with previous cuts would reduce the commission’s budget to $13.5 million. Cuts are expected to postpone boating access area renovations as well as a renovation project at one fish hatchery. The commission is also considering delaying scheduled infrastructure maintenance to cope with the cuts.
	8. Farmland Preservation Trust Fund – $1.8 million Established in 2005, the Farmland Preservation Trust Fund seeks to maintain farming, forestry, and horticulture in North Carolina. The fund supports the purchase of agricultural conservation easements, which effectively bar development on farmland, preserving it for posterity. Other services include funding public and private enterprise programs that promote family farms in NC. In 2008, the fund awarded grants totaling $7.6 million to support forty one projects. Grants are typically utilized as a funding match by the local county governments and non-profit conservation organizations to draw down federal funds and private donations to preserve farmland for purposes mentioned above. Should this money be re-allocated from the fund, The Farmland Preservation Trust Fund anticipates up to forty six applications for matching grants to be terminated, possibly losing millions of dollars in federal and private grants; a loss Republicans say is a necessary one.
	9. Aquariums Special Fund – $1.5 million The Aquariums Admissions Fund comes directly from visitor admission fees (not outside sources) to be used for the sole benefit of the Aquariums to help improve, expand, and enhance all three branches of the North Carolina Aquariums. These funds allow the North Carolina aquariums to offer new exhibits, staff special educational programs, and to repair unfunded facility maintenance programs. Also of significance is the fund’s obligation to pay the annual debt payment ($2 million/year) for the next seventeen years for the Pine Knoll Shores Aquarium expansion. The cutting of this fund will primarily delay the opening of new exhibits, programs, and scheduled repairs to facilities. Another possibility will be the delayed opening of the highly anticipated Jennette’s Pier in Nags Head, a branch of the NC Aquarium program. It is feared that a reduced stream of revenue for new exhibits and repairs will lead to a decline in visitation, further reducing funds, however, admission prices are not expected to rise to compensate for lack of funds.
	10. NC Parks and Recreation Trust Fund – $8.5 million The NC Parks and Recreation Trust Fund was created with the purpose of creating dollar for dollar matching grants to local governments for parks and recreation projects. In addition to its primary function, the program is also the primary source of all funding to build and renovate facilities in state parks, as well as to buy new land for existing parks. A more recent aspect of the fund has been to provide revenue for new public beach and waterfront access, in partnership with local governments.` Revenue from the fund is allocated in three ways: 65% goes to state parks for maintenance and land acquisition, 30% goes to local governments, and 5% goes to coastal/estuarine access.

By Andrew Henson and Andrew Blackburn