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Follow the money: House leadership takes a different path than Senate and Governor when it comes to paying for its budget

Yesterday, the North Carolina house unveiled its $21.11 billion budget proposal [1] for the 2015 fiscal year that begins in June 2014 and ends in July 2015. The proposal is moving through the committee process with the expectation of a final vote on the House floor by Friday. Surprisingly, there is a considerable difference in how the House leadership pays for its budget compared to the Senate’s and Governor’s paths. In particular, the House anticipates a smaller revenue shortfall for the current fiscal year and a far larger amount in agency reversions (which is money sent back to the state at the end of the year).

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 lawmakers pay for the 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 half-billion current year revenue shortfall and a projected revenue shortfall of $191 million for the next 2015 fiscal year—not to mention the fact that the shortfall could be as high as $600 million [2] (see section at the end of this post). It is also on top of the Medicaid shortfall, which lacks agreement among the Governor, House, and Senate on its actual cost. Their estimates are far apart.

For the most part, the House pays for its budget proposal in the same way as the Governor [3] and the Senate [4] pay for their budgets. The similarities and differences are summarized below. 

All three expect the same unspent balance that will remain at the end of the current year. Yet, they differ on the cost of the current fiscal year shortfall as well as the money agencies will return to the state at the end of the current year. The House sends far more of the net balance to savings accounts.

On top of the money they carry over at the end of this fiscal year, all three expect to receive $20.96 billion in base revenues—$191 million short of what the state initially anticipated.

All three rely on one-time dollars to balance their budgets. In particular, the House and Senate divert money from special funds and raise fees to enhance General Fund availability.

In the end, the House and Senate leave no money unspent whereas the Governor leaves money on the table.

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 last month, estimates from the Institute on Taxation and Economic Policy (ITEP) suggest that the revenue projections for next fiscal year could be off target by $600 million [2]—a far greater number than the $191 million estimate. If that ends up being the case, the Governor, House, and Senate would all have to again force agencies to return a huge chunk of change (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 the consensus forecast projection. The last line illustrates what the shortfall would be using the ITEP projections.

 

Follow the money, all three [9]