It has been a few weeks since Governor McCrory released his budget proposal for the biennium that runs from July 2013 to June 2015. His proposal has received a lot of praise for building up the state’s various savings reserves, including the Rainy Day Fund, the Medicaid Risk Reserve, and the Repair and Renovations Fund.
What has been less widely scrutinized is whether the reserves in his proposal would be sufficient to cope with the first and potentially second rounds of damaging sequestration cuts to defense and non-defense programs.
The first round of sequestration cuts went into effect last month and will impact North Carolina in the first year of the biennium from July 2013 to the end of September 2013. The second round of cuts is scheduled to go into effect in October 2013 and would impact the state during part of both years of the biennium through the end of September 2014.
North Carolina’s budget will be directly affected by these cuts, although to what extent is unknown. We do know, however, that cuts to non-defense programs will shift costs onto the state General Fund budget to carry out basic functions. And because approximately one-fourth of non-defense spending is in the form of grants in aid to states and localities, we also know that this cost-shift will exacerbate both state and local budget problems. In 2012, North Carolina and its localities received $2.9 billion in grants , with the majority going to the K-12 system.
As the NC Budget and Tax Center wrote in this report , the Governor’s proposal would add $200 million to the Rainy Day Fund each year of the biennium for a total balance of $619 million in FY2013-14 and $819 million in FY2014-15. The proposal would also add $603 million to other reserves over the biennium that could potentially help address budget shortfalls.
And to add insult to injury, there is also the federal budget passed by the US House of Representatives  that would make deep cuts—on top of the already-scheduled cuts—to federal support for schools, public safety, and a range of other state and local services.
Congressional decisions will matter for the availability of funds for critical investments in our state. And, it will matter that there are sufficient reserves to address sequestration cuts and any other emergency-drive budget shortfalls that arise over the biennium.