NC Budget and Tax Center

What we expect to be true in the soon-to-be released final budget deal

Budget writers announced over the weekend that the Senate and House leadership agreed to a basic framework for a final budget deal. That framework includes a pay raise for teachers averaging roughly 7 percent and further cuts to the Medicaid program that provides health insurance and long-term care to children and adults who are poor, disabled, and elderly. There is no question that other vital programs and services will be cut due to a lack of adequate funding, resulting from lawmakers’ choice to make room for unaffordable tax cuts for the wealthy and profitable businesses in 2013.

While the full details of the final budget deal will not be released until this afternoon at 1:30pm, below are five things we expect to be true in the final budget deal:

  1. The state will still be operating at a diminished baseline. A new $21 billion budget deal would be more than $1 billion short of spending in the 2008 fiscal year, or the last year before the Great Recession hit, once adjusting for inflation. This budget deal cannot, and should not, be evaluated without properly putting its contents into the perspective of previous damaging cuts that have been enacted since the start of the recession.
  2. The state’s ability to catch up and keep up with the needs of families is impeded by the growing cost of the 2013 tax plan. Investments in critical services—such as early childhood programs, public education, public health, and community-based economic development programs—are hampered by last year’s tax plan that is draining available revenue. In fact, the tax plan is costing at minimum $200 million more year than initially expected, according to new data released by the Fiscal Research Division. This new information raises a serious question about whether the final budget deal will be fiscally responsible and balanced.
  3. It is expected that schools will be entering the new school year with fewer state General Fund dollars compared to the enacted budget. Both the Senate and the House put forward spending plans that would cut the public education budget for the current fiscal year compared to the $8.046 billion budget already approved by lawmakers last year. Since this has been a point of agreement, there is no reason to expect reinvestment. Also, lawmakers will be relying on lottery dollars—a regressive and unsustainable funding source—to keep Teacher Assistants on the rolls for this school year in the final budget deal, per news reports.
  4. State spending is expected to decline for six straight years as a part of the economy under the final budget deal. State spending at $21 billion would continue to be a shrinking part of the economy (as measured by state personal income) and remain below the 45-year average. It is questionable how the state can address the ravages of the greatest economic downtown since the 1930s with state investments at historic lows.
  5. Medicaid and other public health programs are on the chopping block. There will be at least $135 million in cuts to the Medicaid program.  These cuts will come on top of last year’s deep cuts that reduced the number of doctor visits the state pays for to 10 from 22, increased the co-payments, and lowered reimbursement rates for providers.

There are better choices available that will put North Carolina on a stronger path to recovery for children, families, and communities across the Tarheel state. For starters, lawmakers need to face the reality that we can’t afford further tax cuts and stop the income tax cuts that are scheduled to go into effect next January. Doing so will save approximately $100 million in the current fiscal year and $300 million in the 2015 calendar year. These revenues would go a long way towards reversing the most damaging cuts that were enacted in the aftermath of the Great Recession. That’s a short-term fix.  A longer term fix requires restoring the progressive personal income tax structure so that revenues are stable and more adequate.

Until then, lawmakers would be wise to consider using funds from the Rainy Day Fund to plug the gap and stop further budget cuts. A smaller education budget and further cuts to public health programs is proof that it’s still raining. The route of using savings to plug the gap is merely a short-term and unsustainable fix that won’t solve our problems in future years. The only viable solution is for lawmakers to reevaluate last year’s tax plan and to pass true tax reform.

Advocates are running a petition to stop further tax cuts because they are unaffordable. For more information, click here.

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