Senate Budget Plan Includes Tax Cuts, Spends $500 Million Less Than Perdue’s Budget

The North Carolina Senate unveiled its FY 2011-13 biennium budget plan this week, and unsurprisingly it had much more in common with the House plan than with Governor Perdue’s budget proposal. That said, however, there are a number of notable differences between the Senate and House proposals.

As the budget writing process continues to unfold, the Senate plan is likely going to be closer to the final budget crafted by the legislature and sent to Gov. Perdue’s desk.

Following is a summary of the Senate’s budget plan, including a number of comparisons to the Governor and the House budget proposals.

Senate Plan Spends Similar Amount as House, $500 Million Less Than Perdue

• The Senate plan appropriates $19.4 billion for FY 2011-12, slightly more than the House plan’s $19.3 billion, but $500 million less than the $19.9 billion contained in Gov. Perdue’s budget
• Like the House plan, nearly $200 million of the Senate’s budget represents a transfer in funds from the Highway Fund to finance the State Highway Patrol
• A total spending plan of $19.4 billion is roughly half a billion more than the FY 2007 budget, and would expand the state budget by a full one-third over the state budget of ten years ago

Senate Plan Offers Small Business Tax Relief

• The Senate budget proposal does not include any tax increases – in contrast to Gov. Perdue’s proposal to raise the state sales tax rate by ¾ a cent, which is projected to cost taxpayers $826 million
• Unlike the Governor and House budget plans, the Senate plan does not include a reduction in the corporate tax rate
• The Senate includes a “jobs package” tax reform plan, which includes:
  • An exemption for the first $50,000 of income for small businesses with gross receipts under $825,000. The exemption would be effective for the next two years
  • A reduction of 0.25 percentage points in the individual income tax rates; dropping the rates from 6, 7 and 7.75 percent to 5.75, 6.75 and 7.5 percent depending on income level
  • Along with the reduction in individual income tax rates would be a change in how North Carolinians define taxable income on their state returns. The new definition would be based on taxable income used on federal returns, thus changing a number of deductions and credits
• The Senate plan would also eliminate some targeted tax credits such as the sales tax holiday on “energy-efficient” appliances, the deduction for severance wages and the tax credit for recycling oyster shells

State Employees

• As in the Governor’s and the House’s budget plans, state employees would not receive pay raises
• According to estimates, the Senate budget would eliminate 19,744 state government positions, with as many as 13,000 of those being teachers assistants. This is out of a total of 285,000 current state employees, and would be about 2/3 of the state workforce’s typical attrition rate of 30,000 state workers leaving state employment for various reasons. It is also unclear how many of the estimated 19,744 positions targeted for elimination are currently vacant
• A significantly different approach included in the Senate budget but not included in the House and Governor budget plans is the introduction of a system of merit pay for state employees – including teachers. The Senate budget includes $1 million to study merit-based pay systems.

Fee Increases, Other Revenue Sources

• The Senate plan, similar to the House plan, increases a number of fees to generate more revenue. The Senate plan includes roughly $64 million in increased fees, compared to more than $92 million in fee increases included in the House plan.
• Almost all of the new fee revenue in the Senate plan would come from a $62 million increase in judicial fees
• Just as in the House budget, the Senate proposal would divert $67.6 million in tobacco settlement money from Golden LEAF in each of the next two years. This amount represents the expected annual payment from the settlement, and leaves Golden LEAF’s corpus of more than $630 million untouched
• The Senate plan would also divert next year’s $16.3 million settlement payment normally intended for the Health & Wellness Trust Fund to the General Fund, and also dissolve the Fund and transfer its remaining $33 million in assets to Public Health
• $35.2 million would be transferred from the Highway Trust Fund to the General Fund to finance school bus replacement costs

Comparison of 2011-12 Education Budget Proposals for Selected Categories
	Governor’s Budget	House Budget	Senate Budget
Total Education Budget	$11,247,178,269	$10,661,397,700	$10,737,553,822
Difference from Continuation Budget[1]	-$666,333,360	-$1,252,113,929	-$1,175,957,807
Overall Percent Reduction Total Public Education	5.5%	10.5%	9.8%
Reduction in Public Schools Budget	4.4 %	8.8%	8.8%
Reduction in Comm. College Budget	7.8%	10.0%	10.9%
Reduction in UNC System Budget	7.9%	15.4%	12.4%
State Suppt./Student K-12 Public Schools[2]	$5,113	$4,882	$4,880

Public Education

Senate 2011-12 Budget Plan: $7.2 B
House 2011-12 Budget Plan: $7.2 B
Perdue’s 2011-12 Budget Plan: $7.6 B
2010-11 Budget: $7.1 B

• Adds 1,100 additional teaching positions in each year of the biennium to reduce teacher student ratio from 1 to 18 to 1 to 17.  This is expected to cost roughly $62 million each year. The intent of the Legislature is to add funding in the following years to bring the ratio down to 1 teacher for every 15 students.
• Eliminates funding for Teacher Assistants in Grades 1 through 3, for savings of $390 million. This leaves funding equivalent to the amount estimated for the number of kindergarten TAs. LEAs, however, will still have discretion to utilize their TA funds to place Teacher Assistants among these grades as they see fit.
• Eliminates $13 million for Dropout Prevention Grants.
• Reduces funding for More at Four by 20 percent, or $16 million. Also transfers oversight of More at Four (and the remaining $65 million in funding) to the Division of Childhood Development within DHHS.
• Reduces funding for “noninstructional support” positions by $59.5 million, still leaving $337 million to finance these slots. Noninstructional support positions include janitorial, clerical, substitute teachers and other personnel.
• School Bus Replacement: Places responsibility of purchasing school buses on county schools. Provides $21 million in additional support to help counties with expenses.
• Eliminates state subsidy for the NC Teacher Academy and Center for Advancement of Teaching and Governors Schools for a savings of nearly $11 million.

Community Colleges

Senate 2011-12 Budget Plan: $982.3 million
House 2011-12 Budget Plan: 991.5 million
Perdue’s 2011-12 Budget Plan: $1.02 B
2010-11 Budget: $1.06 B

• Fully funds expected enrollment growth in both years of biennium, costing an additional $34.1 million in FY 2011-12
• Increases curriculum tuition by $10 per credit hour in FY 2011-12, saving the state $47.7 million. Resident Tuition will increase from $56.50 to $66.50 for residents and from $248.50 to $258.50 for non-residents
• Implements $53.2 million in savings through a management flexibility reduction

UNC System

Senate 2011-12 Budget Plan: $2.5 B
House 2011-12 Budget Plan: $2.4 B
Perdue’s 2011-12 Budget Plan: $2.7 B
2010-11 Budget: $2.7 B

• Implements $435 million in savings through a management flexibility reduction
• Fully funds expected enrollment growth in UNC System, 2,330 students, at an additional cost of $46.8 million
• Eliminates recurring funding for Center for Public Television, for a savings of $12 million (pending a legislative continuation review)
• Provides $18.5 million in building reserves to help operate new and renovated campus buildings throughout the UNC system
• Increases General Fund support to UNC Need Based Financial Aid Programs by $49 million, in order to compensate for a decline in Escheat Funding
• Reduces funding for legislative tuition grant by 12 percent in 2011-12 and eliminates funding altogether in 2012-13.  Legislative Tuition grants will be replaced by Need Based Scholarships

Comparison of Senate and House Education Budget on Selected Provisions
Provision	Senate	House
Class Size Reduction Grades 1-3	Senate Changes allotment ratio for Grades 1 to 3 from 1 to 18 to 1 to 17	No Change
Teacher Assistants	Senate funds TAs for Kindergarten only. Saves ($390million)	House funds K-1 Headcount (Saves  $255 million)
Central Office Administration	Senate Reduces COA 16%	House Reduces COA 10%
School Building Administration	Senate Reduces funding for Asst Principals 21%; # Principals not reduced	House reduces funding for Asst. Principals 17%; # Principals not reduced
School Buses	Senate shifts responsibility for school bus replacement to counties in FY 2012-2013	House funds approx. 1,600 buses for replacement and keeps state responsibility.
UNC Management Flexibility Reduction (MFR)	15%  reduction in MFR	16.6% reduction in MFR
UNC Hospitals Subsidy	Senate provides $25 million	House eliminates subsidy
Aid to Private College Students	12.5 percent reduction; new program for need-based students begins  in 2012-13	Percent reductions to each program, but keep programs in place.

Health and Human Services

Senate 2011-12 Budget Plan: $4.93 B
House 2011-12 Budget Plan: $4.47 B
Perdue’s Budget Plan: $4.72 B
2010-11 Budget:  $3.95 B

• Consolidates More at Four into the Division of Child Development and designates it as a Pre-Kindergarten program under the Senate plan. The $65 million in funding, along with oversight of the program, would be transferred from DPI, the current administrator of More at Four. Parent fees, such as those that apply to Smart Start and childcare subsidy programs, are to apply to participants in the Pre-Kindergarten program. Lottery funds in the amount of $63.1 million would also be allocated to Pre-kindergarten programs, just as they were under More at Four.
• 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. This spending reduction is made possible largely due to the elimination of the North Carolina Partnership for Children (the statewide organization tasked with administering Smart Start), and a local partnership administrative reduction of 50 percent. The Senate budget also includes a directive to hold childcare subsidy expenditures at $72 million (up from $52 million) and use funds associated with the increased subsidy mandate to reduce the number of children on the childcare subsidy waitlist. For more on the Senate budget plans for Smart Start, see here.
• Lowers Medicaid provider reimbursement rates by $71.4 million, or 3 percent. 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.
• Transfers the Health & Wellness Trust Fund to DHHS. The Senate budget transfers one of the trust funds – totaling $32 million – established by the national tobacco settlement to the Department of Health and Human Services. $22 million of this funding will be used to administer grants to Teen Tobacco Prevention, Checkmeds, Medication Assistance Program, and Obesity Prevention. $10 million shall be used to reduce required savings for Medicaid by Community Care of North Carolina. Remaining funds will be used to reduce the Medicaid provider rate cut.
• Eliminates State Abortion Fund for savings of $50,000.
• Eliminates 250 positions in Central Management for a savings of $7.8 million. There are currently 1,600 vacant positions in Central Management of HHS.
• Eliminates the annual inflationary increase to provider reimbursement rates, for a savings of $63 million. This freezes in place the reimbursement rate for Medicaid providers, in spite of the continued rising costs of medical care.

General Government

Senate 2011-12 Budget Plan: $404.2 million
House 2011-12 Budget Plan: $399.4 million
Perdue’s 2011-12 Budget Plan: $430.5 million
2010-11 Budget: $439.2 million

• Proposes savings of $7.5 million in administration most notably by shifting positions to receipt support, reducing funding to the Rape Crisis Program and Veterans Affairs and eliminating positions most heavily in the Office of State Personnel, Facilities Management – many of which are currently vacant positions
• Increases funding by $1.5 million for the Public Health Lab and Office of the Medical Examiner Building
  • Reduces operating costs in the General Assembly by $8.9 million by eliminating 17 vacant positions
  • Reduces by $406,537 the state appropriation for the statewide Grassroots Arts Program. There will still be $2.3 million in annual funding for the program
  • Saves $480,000 by eliminating state funding for the Vagabond School of Drama, the Lost Colony and the Shakespeare Festival
  • Creates savings of $1.3 million by eliminating 7 vacant positions and 8 filled positions in the Governor’s office
  • Reduces state subsidy of the N.C. Symphony by 10%, for a savings of $217,310
  • Closes the Museum of Cape Fear and the Museum of the Albermarle for total savings of roughly $1.5 million
• Reduces program funding for the Housing Finance Agency by $3.2 million
  • Proposes savings of $10.2 million in the Department of Revenue, largely by eliminating 84 vacant positions and converting 30 positions to receipt support
  • Saves $1 million in the State Board of Elections by eliminating 10 positions in voter registration
  • Saves $3.9 million by converting the division of State and Local Government Finance (36 positions) to receipt support

Justice and Public Safety

Senate 2011-2012 Budget Plan: $2.3 B
House 2011-2012 Budget Plan: $2.3 B
Perdue’s Budget Plan: $2.2 B
2010-2011 Budget: $2.1 B

• Eliminates 194.5 vacant positions in the judicial system, for a savings of $13 million. The positions were made vacant by a voluntary reduction on March 1
• Reduces 151 support staff positions in the District Attorneys’ offices, saving $5.2 million
• Reduces funding to Private Assigned Counsel fund by $8.9 million
• Transfers the State Bureau of Investigation and NC State Crime Lab to new Department of Public Safety
• Closes Swannanoa and Samarkand Youth Development Centers for $8.2 million in savings
• Eliminates 60 administrative positions within the Corrections Department for $2.9 million in savings
• Shifts medical costs for eligible inmates to Medicaid, with Department of Correction paying state share, saving $3 million in costs
• Closes four minimum custody prisons: Bladen, Cabarrus, Durham, and Haywood for $5.4 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

Natural and Economic Resources

Senate 2011-2012 Budget Plan: $415 million
House 2011-2012 Budget Plan: $388 million
Perdue’s Budget Plan: $407 million
2010-2011 Budget: $468 million

• Provides a General Fund appropriation of $8.3 million to administer the Tobacco Trust Fund. The Tobacco Trust Fund receives and oversees ¼ of the annual tobacco settlement payments to North Carolina. The Senate budget plan would divert those payments instead directly to the General Fund.
• Reduces $2 million in state support for aquariums, to be recovered with gate admissions. A remaining $7.5 million will remain available for state support of NC Aquariums
• Eliminates funding for the Oyster Sanctuary Program, realizing $1.5 million in savings
• Reduces General Fund operating expenses to the NC Zoo by 6.5% ($806,000), reductions may be offset by an increase of gate admissions by $2
• Reduces appropriations to the Clean Water Management Trust Fund from $100 million to $12.5 million. Perdue’s budget called for $50 million
• Appropriates $6 million for the Jobs Maintenance and Capital Development Fund
• Provides additional $10 million for One North Carolina Fund, the governor’s discretionary corporate welfare fund. This increase matches Perdue’s budget.
• Eliminates funding for the Wine and Grape Grower’s Council, saving $732,000
• Eliminates all pass through funding for the Regional Economic Development Commissions, saving $2.5 million
• Provides $12.5 million to establish the Income Producing Property Component of the North Carolina Capital Access Program
• Reduces the state subsidy to the North Carolina Biofuels Center by 20%, or $1 million. There will still be a $4 million subsidy to the Biofuels Center
• Reduces by 15% – or $2.9 million – the state subsidy to the North Carolina Biotechnology Center. There remains an annual subsidy of $16.6 million
• Eliminates state funding for the e-NC Authority, for a savings of $442,000

Transportation

Senate 2011-2012 Budget Plan: $3.1 B
House 2011-2012 Budget Plan: $2.98 B
Perdue’s Budget Plan: $2.9B
2010-2011 Budget: $2.72B

• Decreases $4.5 million from General Administration funding, including the elimination of 7 vacant positions
• Reduces funding for secondary road construction by $35 million
• Increases and implements tolls for ferry routes generating $5 million per anum
• Increases funding for Contract Resurfacing by $141 million
• Increases funds to repair structurally deficient bridges by $144.5 million
• Increases funds for General Maintenance by $78 million
• Increases funds for the Intrastate system by $60.6 million
• Increases funds for urban loops by $108.6 million
• Transfers State Highway Patrol funding to the Department of Crime Control and Public Safety ($193 million)