This morning, the House leadership released their $21.1 billion 2015 fiscal year budget  for the period that runs from July 2014 to June 2015. It marks the midpoint between the Senate budget  of $21.16 million and the Governor’s budget  proposal of $20.99 billion. Similar to these other budget proposals, the House proposal leaves too many vital public services at diminished levels—failing to catch up with the needs of kids, working families, and communities five years into the official economic recovery.
As I wrote during the Senate budget process, at this point, budget proposals that put the train on the wrong tracks should come as no surprise. Due to tax changes enacted last year, budget writers are constrained in major ways. This is effectively a self-imposed budget challenge. The state is facing a revenue shortfall of $191 million in the 2015 fiscal year (not to be confused with the nearly half-a-billion shortfall for the current 2014 fiscal year that ends in June). In the upcoming fiscal year, the tax plan will drain available revenues to the tune of $437.8 million in the 2015 fiscal year. Estimates suggest that the revenue losses from the tax plan, particularly stemming from the personal income tax changes, could reach $600 million in next fiscal year .
Yet, rather than prudently recommending the halting of future tax cuts  that are scheduled to go into effect in January 2015, the House, Senate, and Governor all choose to keep this next round of tax cuts in place despite the diminished revenue picture.
State spending under the House proposal would continue to remain 6.5 percent below pre-recession levels, as illustrated in the chart below. It’s clear that the misguided tax cuts are making it harder to catch up on lost ground.
Budget and Tax Center’s analysis of the House’s budget proposal. The author modified the originally recommended base budget for FY2015 that was published last year to reflect the decline in student enrollment in all areas of education and the decline in projected base salaries for K-12 personnel. The author excludes the salary raises from the core areas of the budget and assumes they are in the Salaries and Reserves section of the budget to follow precedent and to avoid artificially inflating spending levels for the core areas of the budget.
My colleagues and I at the Budget and Tax Center gave the proposal  a cursory look and put together a short list of noteworthy items in the major budget areas (with an eye towards low- and moderate-income North Carolinians):
- Provides an average 5 percent pay raise to teachers and a flat $1,000 salary increase to state employees.
- Reduces funding for the Housing Trust Fund and HOME program on a recurring basis, but provides a $10 million one-time appropriation for the Workforce Housing Loan Program.
- Sends $89 million to the Rainy Day Fund and another $89 million to the Repair and Renovations savings account. Senate and the Governor sent less than half that amount.
- Replaces a portion of state funding for teachers with lottery funding. Removes a restriction to the lottery funding that allows for increased revenues; uses $10 million to increase funding for textbooks rather than digital learning devices.
- Keeps funding for the voucher program.
- Saves $43.4 million in funding that was originally heading to Classroom Teachers by disallowing the scheduled class size decrease for Grades 2 and 3 that were approved last year to go into effect.
- Saves $37.4 million savings due to a projected decline in student enrollment and another $64.9 million from a decline in average teacher base salaries.
- Eliminates newly created teacher supplemental compensation program—which would have replaced teacher career status with 4-year temporary contracts for the top 25 percent of teachers, worth annual pay bonuses of $500 for each year of the contract—slated to begin in FY 2014-15.
- Restores the education-based salary supplements for teachers with master’s, advanced or doctoral degree for certain personnel.
- Continues the phase-out of the elimination of the Teaching Fellows Program.
- Includes a fourth funding tier for high wage occupations with documented skill gaps resulting in a $16 million recurring increasing for community colleges. Included in the Governor’s budget.
- Funds financial aid for eligible veterans and dependents attending the community college system.
- Saves money because enrollment projections declined by 2.5 percent at community colleges.
- Raises curriculum tuition at community colleges by 50 cents per credit hour to $72 per credit hour.
- Directs the UNC General Administration to revise its Enrollment Growth Funding Model so that budget cuts to institutional support will not be limited when enrollment declines. The impact is a $5.3 million recurring reduction.
- Funds financial aid for eligible veterans and dependents attending the UNC system.
- Makes permanent the state’s $4.5 million commitment to the NC need-based scholarship or students attending private institutions. No increase in need-based aid for those attending the UNC system.
- Increases the management flexibility reduction to the UNC System by 28 percent to total $94.4 million for the upcoming fiscal year.
- Funds game changing research in priority areas of advanced manufacturing, data sciences, defense, military and security, energy, marine and coastal sciences and pharmacoengineering.
- Funds the NC New Teacher Support program which is a comprehensive induction program that targets beginning teachers.
Health and Human Services
- Provides $25.4 million to cover the projected Medicaid shortfall—the Senate provided $93.9 million—and another $1 million for Medicaid reform. Requires a study of personal cares services options.
- Keeps the automatic eligibility for Medicaid for older adults and people who are blind or have a disability, unlike in the Senate budget.
- Relies more heavily on federal block grants and lottery funding—and less on state General Fund dollars—to pay for early childhood programs.
- Makes it harder for families to qualify for child care subsidies by changing income guidelines and also increases the copayment that families pay at 10 percent of their income to help cover costs. Effectively, approximately 12,000 children will no longer be able to participate after October 2014 when the new guidelines are implemented (Senate date is for September 2014). Also disallows parents with part-time child care from being able to pay a lower, prorated rate.
- Allocates $5 million in one-time funding to address the additional cost per slot in the pre-K program due to teacher raises. Remaining funds would go towards an unspecified number of additional pre-k slots. The Senate budget provided one-time funding for 1,000 slots whereas the Governor’s budget supported an additional 700 slots (but they were permanent slots).
- Provides funding to cover costs of requiring people who apply for and participate in the Work First program, which helps North Carolinians gain a foothold on the economic ladder. See this report for why such a policy is costly, likely illegal, and ineffective at identifying and treating drug abuse .
- Provides $5 million to cover foster care assistant payments due to increased enrollment growth and another $4.5 million for child welfare in-home services. And, provides $5 million for community-based crisis stabilization services that are alternatives to the use of local hospital emergency rooms or state-operated facilities.
- Keeps funding steady for school nurses despite falling below national standards (Senate made further cuts). And, maintains funding for the Wright School, which provides mental health services for children. Funding was eliminated in the Senate budget.
- Makes no cuts to the Home Care and Community Block Grant for older adults. Senate budget cut nearly $1 million despite long waiting lists and unmet needs that have piled up over the last few years.
- Saves $8 million by retaining a portion of the physician provider assessment and another $6 million by reducing the outpatient cost settlement for UNC-CH and ECU.
- Provides $4.9 million to create a new organization that will house the Division of Medical Assistance to meet “critical objectives for Medicaid” and NC Health Choice. As such, the Division will no longer be housed in DHHS.
Justice and Public Safety
- Makes it harder for people who are poor to have fair access to the courts. It eliminates the Access to Civil Justice Grant which supports the representation of poor North Carolinians in civil cases (Legal Aid). And, it reduces administration funding for Indigent Defense Services by 20 percent. Senate reduces budget by 10 percent.
- Eliminates state funding for Family Court.
- Orders the Department of Public Safely to enact a Management flexibility reduction on a nonrecurring basis of $6.3 million.
- Transfers the State Bureau of Investigation to the Department of Public Safety.
- Generates a saving to the state by eliminating all misdemeanants from state prisons and shifts them to county jails.
- Closes the Fountain Correctional Center for Women and the North Piedmont Correctional Center for Women to make way for conversion of Eastern Correctional Institution to a female minimum-custody facility.
- Funds the creation of a new Forensic Biology/ DNA unit at the Western Regional Laboratory.
- Provides funds for one experience-based step increase for Assistant and Deputy Clerks of Superior Courts and increases the entry rate of pay and all subsequent steps for the Magistrate pay plan.
Natural and Economic Resources
- Cuts in half funding for the Limited Resource Communities Grant program in the Rural Economic Development Division, created last year to replace the assistance formerly provided by the Rural Center. This cuts the budget by 1.25 million on a recurring basis, and significantly reduces designated support for distressed rural communities.
- Eliminates $637,500 on a recurring basis from the Division of Community Assistance, the office charged with administering the Community development Block—the federal-state partnership designed to provide resources for infrastructure, housing, and water/sewer lines in distressed communities. This provision eliminates 9.15 FTs, and shifts these dollars to fund the purchase and installation of a new grants monitoring and management software system as part of the state match. The additional portion of the state match will come from budgeting additional time on CDBG-related activities from existing staff members.
- Provides $1 million in one-time funds for the Support Center, a community development financing entity that supports small business lending. This represents a $1.5 million cut from last year’s budget.
- Provides $1 million non-recurring increase to the Clean Water Management Trust Fund, the program responsible for repairing, replacing, and upgrading water and sewer infrastructure in rural communities. The total appropriation for the Trust Fund is $14.6 million, down from $120 million in FY 2010-11.
- Provides a non-recurring $364,000 reduction for the Job Maintenance and Capital Development Fund, the state’s incentive program designed to retain large-scale capital facilities. Several companies did not create the required number of jobs, and so the state’s payments to these companies were reduced by this amount.
- Reduces overall funding for the Industrial Commission—the agency responsible for enforcing worker compensation laws and claims—by $700,000 of which $125,000 is cut on a non-recurring basis.
- Shifts $500,000 in non-recurring funds to receipts for the Common Follow-up System, which tracks former participants in the state’s education and job training programs.
- Provides $3.6 million in one-time funds for the N.C. Biotechnology Center. This represents a $400,000 cut from last year’s budget, and a $1.25 million reduction from FY2012-13.
- Recommends a 0.3% flex cut to the Department of Agriculture and a 2 percent flex cut to the departments of Labor and Commerce as well as to the Wildlife Resources Commission—flex cuts allow the agency head to determine where efficiencies can be achieved to reduce overall spending.
 See this report for why such a policy is costly, likely illegal, and ineffective at identifying and treating drug abuse: http://www.ncjustice.org/sites/default/files/NCJC%20Brief%20-%20TANF-Mandatory%20Drug%20Testing.pdf