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In a bizarre turn of events, the House Committee on Appropriations met today to review and vote on a new spending plan for the upcoming fiscal year. The bill passed in what appears to be along partisan lines, and it heads to the House floor tomorrow. For the most part, the new spending plan leaves in place the second year (FY2015) of the two-year budget that lawmakers already approved last year. The changes are mainly geared toward moving lottery dollars into the General Fund, boosting pay for teachers and state employees, and adjusting the education budget.

See the NC Budget and Tax Center’s statement on the budget here.

The day started with Governor McCrory and Speaker Tillis holding a joint press conference at 1pm to make an education announcement. It was revealed that House leadership planned to unveil a new spending plan that doesn’t rely on raising additional lottery dollars generated from increased advertising.  What wasn’t mentioned at the press conference is that the new plan relies on more lottery dollars to finance pay raises, those dollars just aren’t generated from relaxing the advertising rules. Those dollars just happen to be the result of revised lottery projections under current rules. In other words, the budget is still relying on a source of funding that is unstable and regressive. Read More

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.

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

This is the first post of a Budget and Tax Center blog series on public services and programs that face cuts in the budget process or have been underfunded in past years. 

There would be 70 fewer school nurses in North Carolina’s public education program under the Senate budget, even though the statewide average nurse-to-student ratio has been far below national standards for at least a decade. In addition to this 30 percent cut to the School Nurse Funding Initiative, the Senate budget would shift the remaining 166 nurses to the state’s most economically lagging counties, known as Tier 1 counties.

Apparently, the Division of Public Health “asked” for this cut in response to the Governor’s directive to cut spending by 2 percent, per the comments made today by the Fiscal Research Division staff. Senate budget writers factored agencies’ responses to the Governor into their budget proposal.  Again, this is just another decision by leadership that makes clear the harmful choices that must be made when policymakers reduce the availability of revenue—which is what occurred when lawmakers passed last year’s tax plan that drains available revenue for public investments.

There is a mountain of research that shows that health and education go hand in hand. That’s why the state instituted comprehensive school health services in public schools, per the state Division of Public Health: Read More

The North Carolina Senate passed their budget just past mid-night, in the wee hours of Saturday morning. The Senate budget puts into clear perspective the high price ordinary North Carolinians will have to pay for last year’s tax cuts that primarily benefit the wealthy and profitable corporations. Despite progress in some areas, the proposal leaves too many vital public services operating at diminished levels—failing to catch up with the needs of kids, working families, and communities five years into the official economic recovery. Our overview of the Senate budget can be read here.

State spending under the Senate budget would be 6 percent, or $1.4 billion, below the last budget that was enacted before the Great Recession, adjusting for inflation. Yet, there are more students to educate, citizens to serve and protect, and older adults to help care for.

Due to tax changes enacted last year, budget writers are now dealing with the consequences of a self-imposed budget challenge. State lawmakers created a structural deficit in which revenues are falling short of what is needed to meet critical needs across budget areas. The state is facing a revenue shortfall of $191 million in the 2015 fiscal year (not to be confused with the nearly half-a-billion shortfall for the current 2014 fiscal year that ends in June).

The driver of these revenue shortfalls—despite an economic recovery—is the series of tax cuts that lawmakers approved and Governor McCrory signed into law last year that will drain available revenues to the tune of $437.8 million in the 2015 fiscal year. As we reported earlier this month, estimates suggest that the revenue losses from the tax plan, particularly stemming from the personal income tax changes, could reach $600 million in next fiscal year.

It is important to put these revenue losses into the context of foregone public investments that are the building blocks of a strong economy, as the table below does. Read More