2012-13 Senate Budget Proposal: Slight Improvements over House Plan

The North Carolina Senate’s recommended adjustments to the state budget for FY 2012-13 would increase spending by $210 million over the amount approved in last year’s biennial budget, and by $470 million over the current 2011-12 spending total. The Senate’s spending proposal, however, is smaller than the House’s and Gov. Perdue’s budget plans.

Senate Plan: $20.15 B
House Plan: $20.28 B
Perdue’s Plan: $20.91 B
FY 2011-12 Budget: $19.68 B
Spending approved for FY 2012-13 last year: $19.94 B

[The budget plans being referred to here, of course, refer to the state’s General Fund and do not represent the true total state budget. The total state budget also includes transportation funding and funds passed down from the federal government, and totals more than $51 billion.]

Less Reliant on One-Time Funds, Senate Puts Money Aside for Rainy Day

A smaller spending plan means that the Senate relies less on one-time funds than the House. Where the House budget would rely on $42 million in unanticipated, one-time extra Lottery funding, the Senate does not include that as a funding source to help balance its budget. Moreover, the Senate sets aside $139 million of anticipated surplus revenue for the state’s Rainy Day Fund; the House budget set aside no money for the Fund. North Carolina’s Rainy Day Fund has been depleted in recent years, with less than $300 million currently remaining. The Fund’s balance is about 1.6 percent of the General Fund budget – well below the 8 percent goal established by lawmakers when the Rainy Day Fund was created.

Also in contrast to the House budget plan, the Senate does not dip into pension contributions for state employees in order to help balance their budget. The House plan reduced the state contribution by $62 million. Like the House plan, however, the Senate also drains the $121 million set aside last year into the “Compensation and Performance Pay” reserve fund. The reserve was established last year as a measure to fund a new system of merit pay for state employees, including teachers.

Similar to the House plan, however, the Senate likewise utilizes One North Carolina Fund money to help balance their budget. The Senate is a bit more aggressive, seeking $50 million from the Fund, versus the $30 million sought by the House.

Pay Raise for State Personnel, Funds Provided for Flexible Salary Support for Teachers

The Senate intends to utilize the “Performance Pay” funds to help finance $160 million set aside for “Compensation Increases and Personnel Flexibility.” These increases include a 1.2 percent pay raise for state personnel, excluding public school personnel. As for teachers and other public school employees, the Senate plan sets aside $84 million for local school districts to use for pay raises or to retain personnel.  By comparison, recall that the House budget would spend $79 million to distribute a one-time, across the board $250 bonus to permanent teachers and state-funded employees.

Funding Provided for Senate Education Reforms

The Senate budget proposal includes $47 million to fully implement the first year of the “Excellent Public Schools Act” – known legislatively as Senate Bill 795. For more on the details of the Act, read here.

Across-the-Board “Flexibility” Reductions to Pay for Potential Medicaid Shortfalls

Also included in the Senate budget plan is a 2 percent, across the board “management flexibility reduction” imposed on state agencies — except for education. The reductions are to be set aside and utilized to ensure the state has sufficient funds to cover any potential shortfall in the Medicaid budget. The FY 2012-13 budget plans in both the House and Senate set aside $154 million from previously unanticipated surplus revenue to cover a Medicaid shortfall in the current fiscal year. Moreover, the Medicaid program has experienced an additional $330 million in unanticipated shortfalls over the last two years. The Senate’s move is likely a wise one given the continued skyrocketing of Medicaid costs.

Senate Addresses Gas Tax and Child Nutrition Standards

Included in the Senate plan (but not addressed in the House budget) is a 37.5 cent per gallon cap on the state gas tax, scheduled to be effective from July 1, 2012 to June 30, 2013. As recently as 2009, North Carolina capped its variable gas tax at 29.9 cents per gallon. However, that cap subsequently was turned into a floor, and climbing gas prices have meant a state gas tax rising close to 40 cents per gallon. Every additional penny on the gas tax is expected to cost North Carolina motorists $50 million annually.

The Senate budget plan is also unique in that it includes an update to nutrition standards for child care facilities. The most relevant of these is the “parental exception” allowing home-packed meals to be exempt from the standards, and it also bars state inspectors from examining meals sent from home. The proposed rules are in response to an incident in Hoke County that garnered national attention.

Below is a summary of the Senate’s Budget for the five major state agencies.

Education

	2012-2013 Education Budget  Approved June 2011	2012-13 Senate Revised Education Budget	2012-13 House Revised Education  Budget	2012-13 Perdue Education Budget	2011-12 FY Budget
Tot. Pub Education	$10,980,794,798	$11,034,804,864	$11,249,465,399	$11,291,000,000	$10,989,867,189
Comm. Colleges	$985,000,000	$980,822,477	$995,000,000	$1,022,000,000	$985,000,000
K-12 Public Schools	$7,444,122,100	$7,478,264,218	$7,692,234,560	$7,599,000,000	$7,464,492,057
UNC System	$2,551,672,698	$2,575,718,169	$2,562,230,839	$2,670,000,000	$2,540,375,132

The Senate budget plan would increase funding for education by approximately $54 million over the spending plan approved in last year’s budget. About $34 million of the projected increase is slated for the public schools.

Senate Budget Highlights include:

The Budget Numbers

Community Colleges:

• Provides $980 million for 58 community colleges, a reduction of $4.1 million compared to the previous year.
• Includes $12.1 million in savings, based on expected decline in enrollment.
• Adds $7 million to eliminate budgeted increase in management flexibility reduction.

UNC System

• Adds $24 million to the $2.5 billion UNC budget plan for 2012-13 approved last year.
• Provides $3 million for faculty retention fund.
• Adds $35 million for UNC Need-Based Grants financial aid.

K-12 Public Education

• Provides an additional $34 million to the $7.4 billion spending plan for 2012-13 approved last year.
• $85 million for public school salary increases and personnel flexibility is provided. Gives districts more discretion on how to use funding for increases.
• Adds $74 million to eliminate expected increase in LEA reductions.
• Includes $47.4 million for support of Excellent Public Schools Act to strengthen student literacy, improve graduation rates, increase accountability in the classroom and reward effective teachers.
• Fully funds all current classroom teachers and teaching assistants.

Senate vs. House Education Budget Bill

Tough Decisions. To their credit, the Senate budget resisted use of temporary funding to fund permanent expenditures.  The Senate’s action stands in sharp contrast to the House’s use of $227 million in nonrecurring funds to pay for ongoing expenses, which sets a bad example and demonstrates an inability to make tough decisions.

Flip-Flopping?   The Senate’s decision to provide additional funding ($800,000) for the Governor’s school – a program brought back to life by successful private fundraising efforts ­‑‑ is curious. However, the Senate budget holds the line and does not provide money for other nonprofit organizations such as Teacher Cadet Program  ($200,000),  Parental Involvement Initiative  ($150,00), Tar Heel Challenge ($4 million)  and Teaching Fellows ($3.3 million ) – all programs whose funding was restored by the House after significant budget reductions last year.

Education Reform.  The Senate budget incorporates major provisions of SB 795 (Excellent Public Schools Act) to improve literacy, reward effective teachers and improve accountability in the classroom by eliminating career status.

Health and Human Services (HHS)

Senate FY 2012-13 Budget Proposal: $4,689,664,034
House FY 2012-13 Budget Proposal: $4,617,833,246
Perdue’s FY 2012-13 Budget Proposal: $4,631,493,709
FY 2011-12 Budget: $4,495,126,952
Spending Approved for 2012-13 last year: $4,455,162,933

After the House took a stab at its Health and Human Services (HHS) budget, it was time for the Senate Appropriations HHS Subcommittee to submit its own version of the FY 2012-13 budget proposal.  The original approved budget during the 2011 session was almost $4.5 billion. The House version came in at $4,617,833,246 while the Senate version stands currently at $4,689,664,034, almost $72 million above the House.  Many of the increases and cuts are similar in both proposals. However, where the House found savings in certain programs, the Senate has allocated additional funding

The highlights include:

• Replace state Smart Start Funds with federal Block Grant funds: This will save the state an estimated $4 million and is the same in the House version.
• Medicaid adjustments: Based upon an expected growth in eligibility, the Senate budget provides $168 million in additional funds for Medicaid.  Another $55 million will go to fund repayment of a FY 2009 federal overdraw and to repay a drug rebate policy change. In the House version, fraud prevention programs were estimated to save $3.8 million whereas the Senate version estimates an extra $15 million would be needed for Medicaid settlements and fraud prevention initiatives.
• Flexibility Reduction: The Division of Central Management within HHS receives a $34 million “flexibility reduction” as part of the Senate’s plan to set aside funds in case of another Medicaid shortfall.
• Temporary Short Term Assistance: A reserve fund of $25 million will be set aside to provide short-term assistance to adult care and group homes transitioning to the Community Living Plan.  These funds will go to adult care and group homes for residents no longer eligible to receive Medicaid reimbursable personal care services but have not been assigned a community placement yet.

Natural and Economic Resources

Senate FY 2012-13 Budget Proposal: $366,853, 410
House FY 2012-13 Budget Proposal: $384,014,831
Perdue’s FY 2012-13 Budget Proposal: $417,225,121
FY 2011-12 Budget: $402,964,442
Spending Approved for 2012-13 last year: $360,985,691

The Senate budget for Natural and Economic Resources comes in $17 million less than the House proposal. NER spending in the Senate plan would be less than $6 million higher than the spending amount included in last year’s biennial budget, or only 1.5 percent. Comparing year-over-year numbers, the Senate’s NER budget would mark a 9 percent decrease relative to the current FY 2011-12 budget.

The most significant difference between the House and Senate’s NER budget plans is the Senate’s “management flexibility reduction.”

The highlights include:

• $362,000 in funding for the Southeastern Agriculture Center & Farmers Market in Lumberton.
• $12.6 million in funding for regional offices within the Department of Environment and Natural Resources. The appropriation restores funding for the offices, which had been eliminated in last year’s biennial budget.
• Nearly $800,000 is restored to fund a “Conservation Education Program” in the Wildlife Resources Commission. The education program had been slated for elimination in last year’s biennial budget. The Senate budget includes roughly $300,000 more in funding for this program than the House budget.
• An additional $6.5 million in nonrecurring funding for “an economic development land purchase.”
• A $6.5 million reduction in the appropriation to the Rural Economic Development Center (likely just an offset for the “economic development land purchase”).
• $9 million for the One North Carolina Fund is set aside in reserves – the same amount allocated by the House budget to this corporate welfare scheme. The Fund currently has a cash balance of $78 million. However, $50 million of that would be transferred to the General Fund under the Senate proposal, with $28 million remaining.

Justice and Public Safety

Senate FY 2012-13 Budget Proposal: $2,277,377,934
House FY 2012-13 Budget Proposal: $2,302,980,918
Perdue’s FY 2012-13 Budget Proposal: $2,325,168,844
FY 2011-12 Budget: $2,328,384,420
Spending Approved for 2012-13 last year: $2,323,469,854

Just as in the House budget plan, the Senate budget proposal would reduce Justice and Public Safety (JPS) spending compared to the spending level included in last year’s biennial budget plan. The Senate’s plan, however, includes about $25 million less for JPS than the House budget did.

The highlights include:

• 2 percent management flexibility reduction across the board.
• Restoration of $2.8 million in recurring funds for Family Court Program, same as in the House budget.
• No increase appropriations for VIPERs (House budget included $2.3 million).
• No appropriation for Triad regional DNA lab – House budget included more than half a million for this purpose.

General Government

Senate FY 2012-13 Budget Proposal: $391,393,556
House FY 2012-13 Budget Proposal: $403,868,491
Perdue’s FY 2012-13 Budget Proposal: $416,693,475
FY 2011-12 Budget: $407,503,897
Spending Approved for 2012-13 last year: $401,274,973

The Senate’s General Government budget comes in nearly $12 million less than the House budget, and $10 million less than the spending amount approved by last year’s two-year spending plan. And unlike the House budget, non-essential items such as museums, tourist attractions and the symphony that received more than $5 million in additional funding in the House’s General Government budget plan receive no such spending hikes in the Senate plan.

The highlights include:

• 2 percent management flexibility reduction across the board.
• Restores recurring funding for Building & Maintenance Division of General Assembly after Continuation Review (+$2,572,506).
• Eliminates on a non-recurring basis funds for the Housing Trust Fund; instead funds HTF through the Mortgage Settlement agreement.