It is normal in the budget process for the Governor, state Senate, and state House to each put forward budget proposals that lay out different visions for how best to educate our children, care for vulnerable populations, boost prosperity, and put North Carolina on more solid footing. The public expects those differences to be ironed out during what’s known as the “conference” process. What the public doesn’t expect is for the three budgets to use wildly different estimates on items that should be fairly consistent across budget proposals. But, that’s exactly what is going on in North Carolina.
Among the three budget proposals, there is no consensus on four key items in the budget that significantly impact the availability of dollars for other public investments, as illustrated in the table below. The budgets don’t agree on the revenue shortfall that the state is facing now in the current fiscal year. Curiously, the House anticipates a current year revenue shortfall of $429.4 million—this is $16 million lower than the Governor’s and Senate’s estimate of $445.4 million. Lawmakers must address the current revenue shortfall before putting together a budget proposal for the upcoming fiscal year. This is because the shortfall hampers how much money can be carried over next year and used to pay for one-time expenses in their proposals.
Also, the three budgets use wide-ranging estimates for the amount of money agencies are expected to return back to the state. The House anticipates a far larger amount of money will be returned than what the Governor and Senate do. The House anticipates $407.2 million—which is higher than the Senate’s anticipated amount of $371.6 million and the Governor’s amount of $290 million. These agency reversions are made possible due to the Governor’s directive in March that ordered state agencies to curb spending as well as the second directive issued in May. The directive was issued to address the current year revenue shortfall. But, if the House’s estimates are correct, the directive is bringing in more than what is actually needed to address the revenue shortfall—effectively, making deeper cuts to programs this year to pay for one-time spending for the upcoming fiscal year.
Next, on the spending side, the budget proposals are all over the map when it comes to estimating the cost of the current year Medicaid shortfall and next fiscal year’s Medicaid rebase—which is the latest calculation of what it takes to run the Medicaid program due to enrollment growth, changes in service consumption, drug price increases, and other factors. Back in April, state officials estimated the Medicaid shortfall to be between $120 million and $140 million. Breaking from the norm, budget writers use different assumptions—on the backlog claims, for example—that determine the estimate for the shortfall. As a backup measure, two of the three budgets put money into savings account in case their estimate ends up being above projections.
Of all three budgets, the House budget puts aside $100 million to $156.7 million less than what the Governor and Senate do, respectively, for the shortfall, rebase, and reserve combined. It’s clear that the House lowballs the Medicaid Shortfall, putting aside only $25.4 million. The House also puts aside nearly $118 million in a reserve but it fails provide money for the rebase like the other budgets do so it’s essentially money that will pay for the rebase—not something that will account for underestimating the shortfall. On the other end of the stick, the Senate puts the most money aside for these items combined.
Ideally, there should be consensus on the revenue shortfall, anticipated agency reversions, and Medicaid shortfall and rebase because the professional staff for the Governor and the Legislature work together to produce these estimates. It’s unclear why legislators made the decision to use different assumptions to produce the Medicaid estimates. When it comes to the revenue shortfall and agency reversions, it may be the case that the professional staff is using the latest revenue estimates available at the time of the release of the budget proposals—yet, there is no information online to verify this. Besides, the budgets were produced within one month of one another so the estimates should not be that far off from one another.
These differences will surely complicate the conference budget process. This is because lawmakers will not only have to work out the differences as to what they have available but they’ll also have to negotiate the rest of the differences on the spending side too.