NC Budget and Tax Center

Progress made in conference budget negotiations, hashed out in rare public debate

North Carolina Senate and House budget writers met today in a rare public meeting to break the budget logjam and iron out a final budget deal for the 2015 fiscal year (FY)—which began yesterday. Because lawmakers approved a two-year budget last year as part of the biennial budgeting process, vital public services and programs are continuing but at modified levels per the Governor’s budget directive.

Leaving the budget for FY2015 in place is an option but it’s a bad option. Spending for Medicaid would be far below what’s needed under the already-approved budget due to enrollment and claims backlogs as well as the Medicaid rebase. The budget also fails to include other election-year priorities such as much-needed pay raises for state employees and teachers.

The Senate and House all put forward budget proposals that use wildly different estimates on items that should be fairly consistent across budget proposals. Before moving on to sub-committee negotiations where the full budget differences will be hashed out, budget writers’ goal for the meeting today was to seek harmony on a final budget estimate for three basic areas: 1) agency reversions; 2) the Medicaid shortfall and rebase; and 3) lottery revenues. Doing so allows budget writers to know how much money is available on the spending side. Lawmakers walked away with an agreement on estimates for agency reversions and Medicaid estimates but not on the lottery revenues.

Agency reversions are unspent dollars that the agencies are expected to return to the state that were originally authorized to be used in the 2014 fiscal year that ended last month. The House anticipates a far larger amount of agency reversions than the Senate does. Today, budget writers agreed to split the difference between the two estimates in half, agreeing to $388 million. This money will boost the amount of one-time dollars budget writers have to use in the 2015 fiscal year for what should be one-time expenses.

Walking into the meeting, the House and Senate budget writers’ estimate for the Medicaid shortfall and rebase (which is a recalculation of Medicaid costs due to factors such as enrollment growth and inflation) were far apart. The Senate prepared for a “worse-case scenario” due to a lack of firm estimates whereas the House put aside far less to cover these expenses. Today, the House made an offer to “meet in the middle” on the different estimates and the Senate agreed to that offer. The final budget will set aside $136.5 million for the Medicaid shortfall and $186 million on the Medicaid rebase. While the details have to be fleshed out later down the line, there is agreement that any leftover Medicaid dollars at the end of the 2015 fiscal year (which hasn’t been the case in several years) shall be sent to the Rainy Day Fund and the savings account for repairs and renovations.

Harmony was not struck on the dollars the final budget will raise from the state lottery. The Senate wants to stick with its proposal to keep lottery revenues as is under current policy whereas the House wants to keep its regressive and unsustainable plan to generate more lottery dollars by allowing more advertisement. And, the House’s revised estimates for its lottery plan crept up by another $29 million dollars. This point of contention must be addressed before a final budget deal is struck.

Now, the sub-committees on appropriations that are tasked with their respective budget areas will begin working on final negotiations for the remainder of the budget bill. It’s not clear if those meetings will be open to the public.

There is still a big gulf in core areas of the budget, such as the pay raise plan for teachers (and whether to fire Teacher Assistants to pay for the cost) and also in the Department of Health and Human Services budget. There was also no discussion of the potential for the tax plan passed last year to result in even greater revenue shortfalls, a result that will create greater challenges for balancing the budget in the middle of the fiscal year next year.

Despite alluding to the fact that there are few too dollars available to meet the needs of families and communities, budget writers failed to talk about how last year’s tax plan is hampering their ability to invest and make faster progress on unmet needs. On top of the $445 million FY2014 shortfall that’s eating into how much money is available to spend in FY2015, lawmakers are facing a projected revenue shortfall of $191 million for FY2015 too—not to mention the fact that the shortfall could be as high as $600 million. There are options available to boost revenues to fund vital public services and program. For starters, lawmakers should halt the income tax rate cuts that are scheduled to go into effect next January.

One Comment

  1. James

    July 2, 2014 at 4:07 pm

    The Kansas model, alive and well here in hurricane alley.

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