NC Budget and Tax Center

Governor orders budget cuts in case budget standoff lingers beyond end of fiscal year

In an unexpected move on Monday, Governor McCrory directed state agencies to prepare for budget cuts in case lawmakers fail to iron out a budget deal before the fiscal year ends in six days. Art Pope, the Budget Director at the Office of State Budget and Management, laid out the budget guidelines in a two-page memo that orders agencies to plan for the worst-case- scenario between the Senate and House budgets. Here is a summary of the directive:

  • Agencies must take the highest cut (for the entire agency rather than on a line-item basis) that is presented in either the Senate or House budget.
  • The rule above doesn’t apply to spending associated with Teacher Assistants (TAs), which is cut in half under the Senate budget. This would mean that spending for TAs would remain at the levels in the FY2015 budget that is already on the books (see note below on the biennial budget process). This is in contrast to the Governor’s own budget, which cuts funding for TAs by nearly $20 million.
  • Filled positions that are eliminated in either the Senate or House budgets should be treated as such. Similarly, vacant positions that are eliminated in either of the proposals shall not be filled.
  • No pay raises are authorized. Nor are any expansion items in either of the proposals.

The Governor, Senate, and House already put forward their respective budgets. Now, those differences are being ironed out in what’s known as the conference process where the Senate and House leadership come together to strike a final budget deal. Because the conference process is dominated by legislators, the Governor is more or less shut out of the process—especially now because of the veto-proof majorities in both chambers. The budget memo represents a way for the Governor to pressure the legislative leadership to iron out their differences in a timely fashion. It also serves to demonstrate the worst-case scenario’s deleterious impact on the average North Carolinian.

Even if lawmakers throw their hands up in the air and leave Jones Street without striking a final budget deal (as some have suggested), there is already a spending plan on the books for the upcoming fiscal year. Under such a scenario, it is likely that the budget memo would be displaced and the already-approved FY2015 budget would go into effect. The North Carolina budget process operates on a biennial cycle. So, lawmakers passed a two-year budget last year during the long session and came back into town this year to adjust the second year (FY2015) of that budget.

Leaving the budget for FY2015 in place is an option but it’s a bad option. Medicaid is just one example of why. Spending for Medicaid would be far below what’s needed under the already-approved budget due to the current year Medicaid shortfall as well as the rebase, which is a recalculation of Medicaid costs due to factors such as enrollment growth and inflation. Legislators differ on just how much is needed to address the shortfall and rebase as well as other basic budget estimates. And, Medicaid is surely one of the issues being ironed out behind closed doors.

See a list of the legislators appointed as budget conferees here.

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