by Leah Byers and Brian Balfour
This spring, the North Carolina House and Senate have been working on their budget proposals. After weeks of negotiation, the two chambers unveiled the compromise budget that, if passed by both chambers, would be presented to Gov. Roy Cooper for final approval or veto.
The two budget plans were relatively similar, and the final version has its strengths and weaknesses. The overall spending for year one of the budget is $24 billion, with year two spending approximately $24.8 billion. First year spending is slightly higher than the originally agreed upon $23.9 billion and represents around a 3 percent spending increase from the current year. This figure, due to some recent changes, however, is not quite an apples-to-apples comparison. These changes are described more below.
Here are some of the key provisions. As a reminder, North Carolina, like many other states, budgets on a two-year basis. This two-year period is known as the biennium. This biennial budget is for July 2019 through June 2021.
Budget Highlights
Education –
- Provides a 3.9 percent average teacher raise over two years.
- Provides veteran teachers with over 25 years of experience a $500 annual bonus for each year of the biennium.
- Increases principal pay schedule and merit-based bonuses.
- Creates new program to recruit principals to low-performing schools.
- Creates a financial literacy class for high school students and provides $1 million for professional development related to the introduction of the new course.
- Increase school lunch funding by $3 million, allowing students who qualify for federally reduced-price lunches to receive free lunches.
- Preserves scheduled funding increases for the state’s Opportunity Scholarship program.
- Provides funding for K-12 education capital facilities through a pay-as-you-go system.
Taxes and General Government –
- Replenishes $710 million of the state’s Rainy-Day Fund over 2 years.
- Raises the state’s annual standard deduction from $20,000 to $21,000 for married filing jointly and from $10,000 to $10,500 for single filings.
- Reduces the state’s franchise tax rate.
- Provides most state employees with an average five percent salary increase over the biennium.
- Provides higher salaries to recruit and retain prison employees in high-need facilities.
Health and Human Services –
- Funds 1,000 additional NC Innovation Waiver slots, a product of the state’s Medicaid program that provides home or community-based care services for individuals with intellectual or developmental disabilities.
- Appropriates funding for the state Medicaid program’s transition to managed care.
- Fills the $140 million funding gap of the state’s Medicaid program for children, NC Health Choice, caused by the federal government’s reduced reimbursement rate.
Justice and Public Safety –
- Provides $70 million to help implement “Raise the Age” legislation.
- Provides funding to clear the state’s rape kit backlog.
- Approves hiring of 8 new SBI agents to assess threats against schools and churches.
- Allocates $2 million for new prison security measures.
- Develops Quick Response Team to help address the needs of opiate and heroin overdose victims who don’t get the help they need.
- Provides $1 million to help reintegrate non-violent offenders into society.
Agriculture and the Environment –
- Allocates $43 million over two years for the creation of new state and local parks and to preserve North Carolina’s natural resources.
- Provides $39 million over two years for the Clean Water Management Trust Fund.
- Provides $10 million for a new Ag Sciences Center.
Transportation –
- Increases funding for Strategic Transportation Initiative by $20.9 million in 2019-20 and $109.5 million in 2020-21. Net appropriation is almost $3 billion over two years.
- Provides $530 million to help maintain, repair and replace bridges.
- Increases Highway fund by more than $165 million to improve DOT response to storm events and other maintenance needs.
Other notable provisions –
- Approves $15 million for the next two years to help expand rural broadband.
- Provides $1.1 million for implementation of the state’s Voter ID constitutional amendment approved in November 2018.
- Allocates $20 million over the biennium for building multi-family affordable housing units across North Carolina.
Some good provisions that were present in one version of the budget but did not make it into the final proposal.
- Expansion of the state’s Opportunity Scholarship eligibility – present in the Senate’s proposal. This provision would have increased income eligibility requirements for the program, which provides tuition scholarships for low-income students to attend private schools of their choice.
- Repeal of some of the state’s restrictive Certificate of Need laws – the Senate proposal repealed several certificate of need (CON) requirements. These burdensome laws require medical providers to obtain a government permission slip to open or expand their practices. North Carolina has the fourth most restrictive CON laws in the country, driving up healthcare prices and reducing access to care.
Budget Perspective
It’s important not to get lost in all the numbers and be able to compare this budget with others.
However, when we do so, right away we notice differences. The reported and “legal” spending amount for the proposed FY 2019-20 General Fund budget is $24 billion. But this figure excludes debt service payments and capital expenditures paid for via the new State Capital and Infrastructure Fund (SCIF) – amounts that were regularly included in General Fund spending totals prior to last year. During the budgeting process, these funds are set aside into the SCIF and never technically made available for General Fund expenses, but the money is still spent nevertheless.
To make an apples-to-apples comparison to previous budgets, we can add on the debt service and capital expenditures to the $24 billion total and reach a total spending amount of $26.26 billion. The new total represents a 9.3 percent increase over last year’s budget expenditures (also adjusted for the SCIF change).
Much of the $2.2 billion annual increase is attributed to an aggressive investment in capital projects which total $1.5 billion, paid for on a pay-as-you go basis. This sensible approach enables the state to avoid adding to its already sizable debt.
Roughly $1.4 billion in surplus and unspent money from the current fiscal year helps to finance the bulk of these capital investments. About $281 million of the capital expenditures is directed toward counties for public school projects, with close to another $100 million for UNC capital projects, including $15 million for a new Brody School of Medicine at ECU. The rest of the money goes largely for a variety of state offices, research facilities, cultural attractions and public safety facilities.
Despite the sizable year-over-year increase of the total General Fund appropriations, this year’s budget plan would mark a 34.7 percent aggregate increase in apples-to-apples spending amounts over FY 2010-11, the last year Democrats held majorities in the General Assembly.
Compare this to the nine-year period leading up to the great recession under Democrat control, in which spending exploded by 52.9 percent from FY 1998-99 to FY 2007-08.
Budget Bottom Line
All budgets are a product of compromise and competing priorities and will never be perfect documents. That said, even though the comparison above shows it represents a significant increase, a majority of the spending increase in this proposal is tied to addressing capital needs in a prudent manner and committing additional funding to the state’s reserve fund, which had been depleted due to hurricane recovery efforts.
The income tax relief and reduction of the franchise tax rate are steps in the right direction. However, there was a missed opportunity to eliminate the state’s corporate income tax. School facility spending, now financed on a pay-as-you-go method, is more fiscally responsible than a bond. However, doing so does nothing to address the long-term issue of localities not meeting their facility obligations, which will be topics for future discussions.
It’s not perfect, but it’s still a pretty good budget. If approved by both chambers, the bill will be presented to the governor for final approval or veto. If Cooper vetoes the budget and there is no budget for the start of the new fiscal year on July 1, the state will revert to the last year’s budget until a new budget is passed.
