Overview of State Budget Proposal

Budget Plan Includes Tax Cuts for 2019, Raises for Teachers, Other State Employees and Retirees

Representatives from the North Carolina House and Senate released their “compromise” budget bill Monday evening. Total spending in the plan comes to $23.03 billion, slightly more than the $22.9 billion figure previously included in both the House and Senate plans.

The spending plan marks a 3 percent increase over the current year’s budget, and a noticeably smaller increase than Gov. Cooper’s desired 5.1 percent increase.

Major details of the budget plan include an average 3.3 pay raise for public school teachers, a permanent 1 percent increase in pension payments for state retirees, tax cuts to take effect in 2019, and the creation of an Education Savings Account (ESA) program targeted at special needs students and children of military families. Disappointingly, however, a lengthy list of “pork” projects has found its way into the budget proposal, along with a rapid expansion of corporate welfare to Hollywood production studios.

Meanwhile, the overwhelming majority of funds in the state budget continues to be devoted to personnel expenses. Salaries for employees total roughly $12 billion, while taxpayer’s share of pension contributions reaches $1.7 billion and another $1.5 billion is dedicated to health benefits for active employees.

Tax Cuts

The compromise budget plan delays planned tax cuts until 2019. Both the House and Senate, while differing on details of the tax cuts, both had them taking effect in 2018 in their original proposals. The total savings from the tax cuts are estimated to be about $530 million over the biennium. Highlights of the tax plan include:

• Reduction of personal income tax rate from 5.499 percent to 5.25 percent
• Increase in the standard deduction from $17,500 to $20,000 for married couples filing jointly, and from $8,750 to $10,000 for single filers
• Reduction in the corporate tax rate from 3 percent to 2.5 percent
• Simplification and reduction of the state franchise tax by replacing the current tax with a flat $200 assessment on the first $1 million of a business’ net worth.
• A repeal of the sales tax on mill machinery
• A modification of the state child tax credit, converting it to a standard deduction that varies according to income level. The deduction ranges from $2,500 per child for lower-income earners to $500 for upper-income earners, and filers with income above $120,000 will receive no deduction.

 

State Employee Pay

Teachers, retirees and other state employees receive pay increases under this budget plan. Legislative leaders touted the plan as providing what would amount to a 9.6 percent average pay raise for teachers over two years, with a stated goal to raise average teacher pay to $55,000 by 2020.

• Spends more than $100 million in 2017-18 to increase teacher pay by an average of 3.3 percent. Teachers with 17 to 24 years of experience would see the biggest raises, while teachers with more than 25 years of experience would see more modest bonuses
• Other state employees receive an across-the-board $1,000 pay raise
• Includes a 1 percent increase in pension payments to state retirees

 

Education

Funding for K-12 education would increase by nearly $700 million over two years under the proposed budget plan. And in a big win for school choice advocates, funding for an Education Savings Account (ESA) program targeted to special needs children and military families is included. ESAs will provide up to $9,000 to eligible families for them to use toward qualified educational expenses such as private school tuition, tutor or therapists. A total of $3 million is scheduled to be appropriated in FY 2018-19 to begin awarding funds to eligible families.

Other education highlights include:

• The planned continued increase in funding for the Opportunity Scholarship program remains intact, with a total of $44.8 million being slotted in FY 2017-18 for the program
• More than $100 million in lottery funds over the biennium to be directed to grants to rural counties for school building needs
• More than $4 million in “stabilization funds” over the biennium to Elizabeth State University
• An additional $27 million over two years to increase the NC Pre-K program (formerly More at Four) by more than 3,500 slots
• Establishment of a reserve fund for the NC Promise program, which sets tuition at $500 per semester for in-state students, and $2,500 for out-of-state students at three UNC universities. $11 million is slated for FY 2018-19 to establish the reserve, while the total net appropriation is projected to be $51 million.

 

Savings and Disaster Relief

• Budget plan transfers more than $363 million to the state’s Rainy Day Fund, bringing the savings reserve to its highest total since its inception. This move continues to better prepare North Carolina to weather the next economic downturn.
• Provides $100 million in disaster relief assistance to Hurricane Matthew recovery

Justice and Public Safety

• Includes just over $500,000 to begin implementation of the “Raise the Age” bill, which raises to 18 the age of which most juveniles committing non-felony offenses will be tried as an adult.
• Additionally, also in response to “Raise the Age”, $13.2 million will be spent to construct a new youth development center in Rockingham County to accommodate the additional youths being tried as juveniles instead of adults.

Corporate Welfare/Cronyism

• Increases the “Film and Entertainment Grant Fund” to $15 million in the first year, and to $31 million in FY 2018-19. This fund provides taxpayer subsidies to film production companies filming in North Carolina.
• Extension of renewable energy tax credit that was scheduled to sunset Jan. 1, 2017 for properties using biomass
• $1.9 million non-recurring funds for “domestic and international advertising”
• Allocates $2 million to yet another new program called NC Ready Sites program, which directs taxpayer funds to local governments for infrastructure projects to support select manufacturing sites
• $5 million to the town of Haw River for the revitalization of a mill
• $8.5 million for grants for revitalization and economic development projects across the state
• $200,000 to the High Point Market Authority
• $2.5 million to the Carolina Small Business Development Fund
• $250,000 to the Cary Chamber of Commerce
• $40 million in funding for construction projects at commercial airports across the state

 

Pork

Many local projects that are non-essential receive funding in the budget proposal. These are items that may be nice to have, but fall out of the scope of the proper limited function of government:

• $225,000 increase in funding for the state transportation museum
• $975,000 for the Fort Dobbs historical site
• $558,000 in grants to local libraries and bookmobile projects
• $1.3 million for various local parks
• $2 million increase in funding for the North Carolina Museum of Art
• $500,000 increase in funding for the grassroots arts program
• $350,000 increase to aquariums on the coast
• $257,000 increase in funding for the North Carolina Museum of History
• $350,000 increase in funding to the NC Symphony
• $100,000 increase in funding for the Maritime Museum
• $100,000 for building a facility for the Sturgeon City environmental education center in Jacksonville
• More than $500,000 to a handful of nonprofit, charitable organizations, included under the Commerce Department’s “State Aid” category
• $35,000 for a museum in Albemarle
• $50,000 for the Earl Scruggs Center
• $40,000 for the Sampson County history museum
• $25,000 for Raeford Hoke museum
• $20,000 for the Cherokee County museum
• $25,000 for the Oxford Museum of History
• $125,000 for a children’s museum in Jacksonville
• $50,000 for a museum on Ocean Isle
• $75,000 for a “rural touring arts program”
• $50,000 to the “Dreams of Wilmington” project
• $50,000 to the “Kids Making It, Inc.” organization
• $50,000 to the arts council of Wilmington and New Hanover County
• $80,000 to the Pocosin arts organization
• $50,000 to the Jones County and Foscue Plantation
• $50,000 for Crowders Mountain State Park

 

For an extensive overview of 30 years of state budgets in North Carolina, be sure to check out the Civitas Public Policy Series.