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Follow the money: How the Senate pays for its 2015 fiscal year budget proposal

On Wednesday evening, the North Carolina Senate unveiled its $21.16 billion budget proposal [1] for the 2015 fiscal year that begins in June 2014 and ends in July 2015. The Senate leadership decided to put the budget on a fast track to approval, bypassing the appropriations subcommittee process and scheduling the final debate to begin today at 4pm [2] into early Saturday morning.

Even when lawmakers have an adequate amount of time to review the full budget proposal—and to be clear, in this case, an adequate amount of time was not allowed—budget debates tend to spend a majority of the time on the spending side. Yet, how the state raises the billions of dollars that fuel the state budget gets relatively little scrutiny compared to the rest of the budget during the budget process.

Examining how the Senate pays for its budget is more important than ever in light of last year’s tax plan that drains $438 million from the state’s coffers in the upcoming fiscal year. This is on top of the fact that lawmakers are facing a current year revenue shortfall, a projected revenue shortfall for the next 2015 fiscal year, and a Medicaid shortfall.

For the most part, the Senate pays for its budget in the same way the Governor paid for his budget [3]. Here’s what you need to know regarding how the Senate chose to pay for its budget:

The Senate expects to receive nearly $20.96 billion in base revenues—$191 million short of what the state initially anticipated.

The Senate relies heavily on money they anticipate agencies will return to the state (known as reversions), other one-time dollars, and new fees to close the revenue shortfalls and balance the budget.

The Senate leaves no money unspent in the end.

The Senate frees up money—or General Fund availability—by relying more on federal block grants and raising millions in fees.

It is worth lifting up the question that few people are asking: what if the tax plan ends up costing more than originally estimated?

As we reported earlier this month, estimates from the Institute on Taxation and Economic Policy suggest that the revenue projections for next fiscal year could be off target by $600 million [7]—a far greater number than the $191 million estimate. If that ends up being the case, the Senate will have to again force agencies to return a huge chunk of change—estimated at over $400 million (see table below). Of course, this would come at the expense of vital programs and services that build a strong foundation for the economy and help North Carolinians.

The General Fund availability statement is summarized in the chart below using both the consensus forecast projections as well as the ITEP projections.

Follow the money_Senate, ITEP [8]

One last note on agency reversions.

Typically, reversions are carried over as a “positive” balance in the subsequent fiscal year—boosting the next fiscal year’s bottom line rather than the current year’s bottom line because of timing. Agency reversions are the result of varying circumstances. They can result from the Governor’s directive to roll back spending (i.e. forced cuts), as is true in this case. Or in the case of education, there are anticipated savings resulting from the lower cost of teacher salaries. This can happen when veteran teachers leave the classroom and are then replaced by newer, lower-cost teachers. Savings can also accrue during vacancies as well.