McCrory’s Budget: Gas Tax Hikes, Billions in New Debt

Gov. Pat McCrory yesterday released his budget proposal for the next biennium. In odd-numbered years like this one, the legislature passes a two-year budget plan, and the following year will make adjustments to the second year of the plan.

The total state budget proposed by McCrory just for the first year of the biennium, including the state’s General Fund, transportation spending and federal funds to be spent by the state, comes to $51 billion.

The General Fund, often simply referred to as the state budget, funds the ongoing operations of state government programs. McCrory’s budget plan appropriates $21.52 billion for the coming fiscal year beginning July 1, 2015. This amount would be $440 million more than allocated by the current year’s budget, an increase of 2.1 percent. Moreover, McCrory’s budget would mark an 119 percent increase of the state budget over the last twenty years.

The governor’s budget plan explicitly states, “There are no tax increases in the governor’s budget.” But his plan for the state’s gas tax says otherwise. McCrory’s budget includes fixing the state’s gas tax at 35 cents per gallon for the rest of this calendar year, which would represent an immediate 2.5 cent drop in the tax but deny NC motorists the significant drop in the tax scheduled to occur July 1, according to the current gas tax formula. If the gas tax were left unchanged, it would drop to about 29 cents per gallon. Indeed, although the proposal includes no specifics for how the gas tax would be calculated after the end of this calendar year, the budget plan specifically says the gas tax change will “increase total motor fuel tax revenue by an estimated $475 million over the biennium.”

McCrory also states his intention to seek between $2.4 and $2.8 billion in additional state debt, with $1.2 to $1.4 billion being a transportation bond devoted to funding his 25-year transportation vision. McCrory would seek another $1.2 to $1.4 billion worth of General Obligation bonds (subject to voter approval) to “revitalize blighted state buildings” and build facilities for the National Guard and community colleges.

To his credit, McCrory’s plan does not spend every penny of anticipated revenue. The proposal would set aside $47 million into the state’s rainy day fund, another $47 million to the state’s repair and renovation fund, and $175 million over the biennium to a Medicaid risk reserve fund to help cover likely Medicaid cost overruns.

Other notable highlights from McCrory’s budget proposal are listed below:

K-12 Education

• Increases overall K-12 spending in 2015-16 by $235 million over current year, an increase of 2.8%
• Spends $111.4 million to increase teacher salaries. Of that, $41.8 million would be used to raise average starting teacher salaries to $35,000, another $64.8 million would fund eligible teachers moving to the next tier in the salary schedule, and $4.5 million is slated for $1,000 bonuses for teachers who received the bonus last year
• Allocates $100 million to hire 1,400 new teachers over the biennium to keep up with enrollment growth
• Appropriates $64 million to maintain teacher assistants
• Spends $5 million next year and another $10 million the following year for teacher pay for performance plans
• Increases by $35 million funding for textbooks and other instructional resources to local education associations (LEAs)

Community College and UNC System

• Asks for a flexibility cut in the UNC System of 2% of its overall budget – roughly $50 million
• Encourages UNC administrators to find savings by eliminating “redundancies and inefficiencies, especially in its ‘back office’ functions”
• Saves $18 million by mandating that universities spend no more than $1 million in state funds on private fundraising efforts, which will effect 12 campuses
• Increases community college tuition by $4 per credit hour, or $128 per year for full-time students

 

Transportation

• Gas tax change mentioned above, which will “increase total motor fuel tax revenue by an estimated $475 million over the biennium”
• Creates a 25-year transportation vision
• McCrory states his intention to request a transportation bond of $1.2 to $1.4 billion for quicker construction of projects in his 25-year plan
• Appropriates an additional $30 million for technology and equipment modernization for DMV to improve customer service
• Continues the $217 million transfer to the General Fund from the Highway Fund, and another $13.6 million transfer to “other state agencies”

HHS

• McCrory states his support for his preferred Medicaid reform plan – Healthy NC. This a model that relies on Accountable Care Organizations, a structure that has received criticism from providers
• Sets aside $175 million over two years into a Medicaid risk reserve fund in case of cost overruns ($50 million the first year and $125 million the second year)
• Increases Medicaid funding by $287 million to reflect anticipated enrollment and cost growth
• Includes $82 million of additional spending over the biennium on mental health and substance abuse facilities, including start-up funds for the new Broughton Hospital, and foster care and adoption support
• Expands the NC Pre-K program (formerly More at Four) to accommodate 26,800 more children, at a cost of $5 million annually

Corporate Welfare

• McCrory states his support for the NC Competes Act – a separate bill that expands taxpayer subsidies to select corporations and extends targeted tax credits to a few favored industries
• Restores the Historic Preservations Tax Credit, estimated to be $1.7 million the first year, and $10.5 million the second year
• Appropriates $5 million for the One North Carolina Small Business Program, which awards taxpayer dollars to new, small high-tech businesses
• Provides $10 million in film production grant subsidies each year
• Extends several job preservation tax credits, estimated to be $4.2 million in the first year, and $72 million in the second year. These include credits for renewable energy facilities, data centers, motorsports tax refunds and refunds for airline fuel taxes

JPS

• Increases funding by $16 million over the biennium to the state’s court system for costs associated with jurors, witnesses, interpreters, and IT issues
• Increases funding by $9 million over the biennium for private assigned counsel for indigent defendants

 

Misc.

• Increases funding for Tryon Palace operational support by another $220,000 – in addition to last year’s increase of $400,000. Support for the Palace has increased $620,00 in last two years, now up to $3.2 million
• Restores $250,000 in funding for Roanoke Island Festival Park, with another $250,000 available if Park raises a certain amount of private donations.
• Appropriates $10 million in the first year and $72 million the second year to help adjust salary structure for state positions that are deemed to be paid below market value
• Spends an additional $135 million over the biennium for the state health plan for active and retired state employee health benefits due to changes in the plan effective Jan. 1, 2016
• NCGEAR (NC Government Efficiency and Reform) efforts estimated to save $14 million in year one and more than $57 million in year two of biennium
• Authorizes NC GEAR to establish a central grants management function in the state budget office to oversee and improve the administration of federal and private grant money. According to the budget document, this measure “Improves understanding of how federal grants interact to enhance North Carolina’s ability to pursue reforms.” This is a step in the right direction, and hopefully will lead to closer examination of the state’s reliance on federal funds, and the state matching money and maintenance of efforts required, and how prepared agencies are if fed funds were reduced