The budget, the budget, the budget

The budget, the budget, the budget

- in Weekly Briefing

What to know about the most important matter confronting the General Assembly as it reconvenes next week

It's really not accurate to say that state lawmakers will return to Raleigh next Wednesday. In truth, many, if not most, members of the General Assembly have been in and out of the Capital City for months to attend a variety of study and review committees.

Even more significantly, legislative leaders from both houses have been holing up in less public places for several weeks in an ongoing effort to get a head start on the process of putting together a bill to adjust the two-year budget passed last summer. Indeed, Senate leaders have expressed a desire to pass their version of the budget bill by May 20 – a mere eight days after the start of the "short session."

Laying aside whether this kind of expedited and behind the scenes work makes for good government (it doesn't, even if it may be good politics), it's clear that thinking and caring people need to get up to speed quickly if they're going to effectively monitor the budget-making process and have an impact on the outcome.

Here then (with help from the N.C Budget and Tax Center), are five key things that progressives ought to know (and maybe even say) about the budget in the coming days and weeks as state lawmakers move swiftly "get in and get out" of Raleigh:

#1- The budget picture remains very tough. If the state budget were a hospital patient, it would still be on the "critical list." Though no longer "grave" or "on life support" as in 2009, the state continues to grapple with the twin, recession-induced challenges of a badly depleted tax base and a dramatic increase in the demand for services. Here's the BTC:

"Because of the recession, tax revenue in North Carolina fell behind projections by $3.2 billion, or 15 percent, in FY 2008-09, forcing Governor Mike Easley and then Governor Beverly Perdue to use their emergency budget powers to  dip into reserves and into the state lottery fund, to furlough employees, and to freeze hiring and capital spending. Heading into FY 2009-10, Governor Perdue and the General Assembly grappled with a budget shortfall that exceeded 20 percent of the budget. North Carolina's policymakers took a balanced approach and addressed the budget gap with a combination of budget cuts (net reductions of $1.7 billion), increased taxes ($1 billion) and federal assistance ($1.4 billion).

However, the end of the state's budget troubles is not yet in sight. In the current fiscal year, tax revenues are falling behind yet again, although not to the extent that they were in recent years, and state leaders must confront a budget shortfall of approximately $1.6 billion as they begin crafting the FY 2010-11 budget."

#2 – Though imperfect, lawmakers did a decent job last year of avoiding catastrophe and spreading the pain around. Unlike a lot of other states that resorted to releasing large numbers of prison inmates and shutting down their public schools, North Carolina did a creditable job last year of coping with an unprecedented shortfall. A mixture of modest (if regressive) tax hikes, spending cuts and federal assistance helped keep most public services functioning at a respectable level of effectiveness.

Still, state leaders did enact many painful and counter-productive cuts. As the BTC notes:

"Cuts to public school funding have resulted in increased class sizes and teacher layoffs, as well as fewer literacy coaches, librarians and teaching assistants."

"The UNC system abolished hundreds of teaching and non-teaching positions …[and the Community College] system may have accommodated a staggering 15 percent enrollment increase during the current school year compared to the previous year."

There were significant cuts "to community support services for people with mental illness and substance abuse issues and to personal care services that help individuals with medical conditions to remain in their homes and out of institutional settings."

"At the very time the state is exploring ways to reduce the demand for prison beds, lawmakers cut funding for the Sentencing Services program, which helps to place appropriate, non-violent offenders in alternative community settings."

#3 – Now is no time to kick the patient out of the hospital. To continue with the health care analogy, North Carolina's budget may be off of life support and on the mend, but it's way too early to think about discharge. According to the BTC, even with the hundreds of millions in federal assistance that North Carolina has received over the last couple of years, state government has shrunk and shriveled dramatically.

"[BTC] estimates show that the net effect of the recession on the scope of state services is approximately 10 percent, meaning that even when accounting for additional federal assistance the state budget is now 10 percent smaller than it would need to be to bring services back to pre-recession levels."

Clearly, this is no time to embark upon new rounds of tax and service cuts as has been recommended by the far right think tanks and politicians.

#4 – Governor Perdue's proposal is a good start, but it needs work. According to the latest BTC Reports, Governor Perdue's proposed budget is essentially a continuation of the tactics employed last year.

"The governor's proposed budget would address the new shortfall by reducing net appropriations by $396 million, increasing revenue availability by $213 million, and relying on $578 million in additional federal recovery assistance through an increase in federal Medicaid funds."

Unfortunately, even this very conservative approach may be insufficient.

"Legislative staff's estimates show a larger budget hole than what the governor worked with, including $85 million in lost estate tax revenue due to federal changes to the tax code and an additional $160 million to fully fund the state retirement system. These additions bring the new adjusted budget shortfall for FY 2010-11 to $1.4 billion, nearly $300 million larger than the governor's projected gap."

Add to this hard reality the fact that the Governor's proposal includes several simply unacceptable cuts to essential services (including big new class size increases and cuts to a number of already hard hit but proven programs like Communities in Schools, Harriet's House and Summit House) and it's clear that legislators have their work cut out for them.

One simple idea: End the $10 million gift provided each year to athletic booster clubs by repealing the policy that charges in-state university tuition to out-of-state athletes.

#5 – There is a responsible path forward. Here, the BTC has put forth a roadmap that bears serious consideration. Recommendations include:

  • Implementing new efficiencies– The Governor's Budget Reform Commission and the Performance Evaluation Division of the General Assembly have recommended a number of "streamlining" proposals (in everything from Alcoholic Beverage Control to motorfleet management to the creation of a "preferred drug list" for Medicaid) that offer real promise.

  • Using all available resources – Examples include drawing down additional federal recovery dollars, using remaining "rainy day funds," and using tobacco settlement proceeds.

  • Eliminating inefficient tax expenditures – Examples include the Article 3J tax business incentive credits (formerly called "Bill Lee Act" credits), film industry credits, the sales tax exemption for electricity used by manufacturers, and the sales and use tax holiday.

  • Improving tax collections – Lawmakers should continue to support the Department of Revenue's successful tax compliance initiatives.

  • Increasing selected taxes – This could include closing business tax loopholes through the adoption of mandatory "combined reporting," expanding the franchise tax to include "limited liability" business entities, and adding warranties and repairs to the sales tax base.

Going forward

Based on past recent performance, there is reason to believe that lawmakers will, like a competent physician, do more good than harm in the upcoming short session of the General Assembly. With a little engaged and informed "patient advocacy" from progressive citizens, they might even manage to place the state budget on the road to a lasting recovery. Let's all get to work.

About the author

Rob Schofield, Director of NC Policy Watch, has three decades of experience as a lawyer, lobbyist, writer and commentator. At Policy Watch, Rob writes and edits daily online commentaries and handles numerous public speaking and electronic media appearances. He also delivers a radio commentary that’s broadcast weekdays on WRAL-FM and WCHL and hosts News and Views, a weekly radio news magazine that airs on multiple stations across North Carolina.
rob@ncpolicywatch.com
919-861-2065