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Posted by : In NC Budget and Tax Center

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 Read More

Posted by : 6 Comments In Uncategorized

State budget negotiations will spill over into next week as lawmakers remain at odds over Medicaid and the best approach for funding raises for teachers and state workers.

Rep. Verla Insko believes legislative leaders may have a difficult time reaching a consensus after last year’s budget cut taxes “too much, too fast.”:

“One of the proposals this year was to reduce funding for children with intellectual and developmental disabilities,” explained the Orange County legislator. “Why would you take a population that deserves help and needs help and remove [services]?”

“The economics is what we talk about a lot…but the real sad thing is we don’t think about the impact on human beings.  These are our children and our community, and we are undermining their ability to have a productive life.”

Rep. Insko appears this weekend on N.C. Policy Watch’s News & Views to discuss the budget, school vouchers, and support for the university system.

For a preview of her radio interview with Chris Fitzsimon, click below:

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Click here for more on how the Senate and House budget proposals would impact programs for young children and working parents.

Posted by : 5 Comments In NC Budget and Tax Center

AF-Jobs

As long as North Carolina’s overall job creation remains anemic and rural regions continue to lag behind the rest of the state, it will be critical to adequately invest in proven economic development strategies like increasing small business lending, supporting development in economically-distressed communities, and strengthening the nexus between cutting edge research and innovative industrial development in key sectors. These are many of the types of investments that made North Carolina a leader in innovative economic development over the past 30 years.

Although significantly less supportive of these efforts than in past years, the House budget proposal for FY 2014-2015 does a better job of funding the state’s most effective economic development investments than does the Senate proposal, which relies on largely unproven strategies like fracking.

Both proposals are ultimately constrained by the continued commitment to tax cuts that primarily benefit the wealthy and profitable corporations that are also unlikely to deliver on the job creation promises that their proponents have made.

In the years since 2011, the General Assembly has largely dismantled much of the state’s most innovative economic development efforts. It eliminated the nationally-acclaimed rural development entity—the N.C. Rural Economic Development Center, dramatically scaled back investments in the biotech sector, abolished the state’s regional economic development planning partnerships, and eliminated state support for 13 nonprofits performing community-based economic development in the state’s most distressed communities. Both budgets continue this long-term trend of dismantling North Carolina’s system—the House just restores some of the lost investments.

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Posted by : In NC Budget and Tax Center

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.

Blog post, no consesus

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.

Posted by : 4 Comments In NC Budget and Tax Center

Yesterday, the North Carolina house unveiled its $21.11 billion budget proposal 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 (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 and the Senate pay for their budgets. The similarities and differences are summarized below.  Read More

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