Must Reads, The Devil's in the Details

The Devil’s in the Details: House Budget Subcommittee Recommendations

The Devil's in the Details

This article is last installment of a series contrasting budget cut options identified by NC General Assembly joint appropriations subcommittees with revenue options that would preserve decades of public investment in the economic and social advancement of North Carolina. Click here for other articles in the series.

North Carolina’s budget is the tool by which policymakers invest in the public structures—schools, roads, courts and clinics—from which we all benefit. Even before the current recession, however, North Carolina had been under-investing in these public structures, thereby undermining the state’s prospects for economic recovery and access to economic opportunity for all North Carolinians. Yesterday, House legislative leaders announced their subcommittee recommendations for the Fiscal Year 2011-2013 budget. These recommendations fail to take a balanced approach to the state’s fiscal challenges, relying solely on cuts to public investments that will be particularly devastating to working families, the elderly and businesses.

Some weeks ago the Senate and House leadership had signaled this would be their approach when they released a budget target of $18.3 billion. This figure is $1.6 billion less than the Governor’s proposal and reflects an 8.4 percent reduction over the current year budget, making it the largest year-over-year reduction in total state spending in the last 30 years.

Rather than address the root causes of North Carolina’s current fiscal challenges—historically low revenue—North Carolina’s policymakers have claimed the problems can only be fixed by cutting spending. This is simply not true. Just as a contractor doesn’t arrive at a building site with just a hammer, North Carolina’s policymakers must have and use more policy tools than spending cuts. This is especially true when the cause of the shortfall is the collapse in revenue driven by a weak economy and made worse by an outdated revenue.

North Carolina’s policymakers do have choices. They can take a balanced approach to addressing the state’s fiscal challenges that includes both cuts and additional revenue, a move that would be supported by the public according to recent polls. Taking such a balanced approach would not only ensure the state’s investments in public structures continue but also could establish a more adequate and equitable revenue system that supports economic recovery and paves the way to a stronger economic future for the state.

The House leadership recommendations are moving North Carolina in a different direction, taking the state backwards in a way that will harm working families in North Carolina, especially those struggling the most in this economic downturn, and diminish the state’s ability to recover and grow. The cuts recommended in this proposal will result in thousands of job cuts in both the public and private sectors; families will receive less support in providing their children with health care and education; and communities will see the investments in their infrastructure erode. House budget leaders are doing a disservice to North Carolinians with this proposal, a disservice that reverses decades of progress and will undermine opportunity for the people of this state for years to come.

The NC House has recommended
the following budget cuts …
… but instead of making cuts,
they could:
Public Education
$500 million

  • Eliminate 8,694 teaching assistants
  • Cut 290 instructional support jobs
  • Cut 1,700 non-instructional jobs
  • Cut support for limited English proficiency
  • Eliminate Drop-Out Prevention Grants
  • Cut state support for textbooks by 68% and instructional supplies by 42%
  • Cut funds for local transportation
$500 million

  • Apply state sales tax to all consumer services and reduce state sales tax rate from 4.75% to 3.75%
$16 million

  • Slash support for More at Four program
$17 million

  • Repeal Article 3J “Bill Lee” business tax subsidies, which a recent UNC study found to be ineffective at creating jobs in North Carolina
Community Colleges
$102 million

  • Increase tuition by $10 per credit hour
  • Management flexibility cut
  • Cut funding for basic skills by 13%
  • Shift GED to receipt-support
  • Cut minority male mentoring program by 10%
$100 million

  • Stop allowing multi-state corporations to shelter profits from the state corporate income tax
UNC System
$469 million

  • Cut UNC System budget by 16%
$307 million

  • Keep the corporate income tax rate at 6.9% instead of cutting it to 4.9%
$44 million

  • Eliminate the UNC Hospitals subsidy that offsets the cost of health care for low-income patients
$43 million

  • Retain 2% personal income tax surcharge on households with joint taxable income between $100,000 and $250,000 ($60,000 to $150,000 single)
$12 million

  • Eliminate funding for the Center for Public Television in FY12-13
$12 million

  • Eliminate annual sales and use tax holiday
Financial Aid
$8.2 million

  • Limit UNC need-based aid to 9 semesters starting in FY12-13
  • Take balance of the community college grant fund
$9.1 million

  • Eliminate tax credit for companies exporting cigarettes from a North Carolina port
Health & Human Services
$4.2 million

  • Reduce Home & Community Care Block Grant by 12%
$4 million

  • Repeal sales tax exemption for artisanal bakery products
$37.6 million

  • Cut Smart Start by 20%
$37 million

  • Eliminate tax subsidy for film and television productions in the state and other business subsidies eliminated in 2009 Senate revenue plan
$50.4 million

  • Cut Medicaid provider rates
$45 million

  • Revert to traditional apportionment of corporate income and capital stock for multi-state corporations, with equal weights for sales, payroll, & property
$62.9 million

  • Eliminate Medicaid inflationary increases
$70 million

  • Treat Limited Liability Companies (LLCs) like other limited liability businesses by extending franchise tax to all LLCs
$80 million

  • Presume high-level savings from Community Care NC
$79 million

  • Retain 3% personal income tax surcharge on households with joint taxable income above $250,000 (above $150,000 for single filers)
Justice & Public Safety
$58 million

  • Increase court fees
$56 million

  • Eliminate sales tax breaks on expensive boats and private aircraft; vending machine items; and prepared food sold in university dining rooms
$4 million

  • Eliminate family court and dispute resolution programs
$6.6 million

  • Eliminate the cap on sales tax paid on jet fuel by interstate passenger air carriers
$5.4 million

  • Close several prisons, eliminating 203 jobs
$6.1 million

  • Repeal 2% discount for tobacco dealers and distributors for filing and paying taxes on time
$2.5 million

  • Eliminate 47 court counselor positions
$2.7 million

  • Repeal 2% discount for alcohol wholesalers and importers for filing and paying taxes on time
$3.2 million

  • Eliminate 58 chaplains and replace them with volunteers
$3.5 million

  • Eliminate the franchise tax credit for piped natural gas
$2.1 million

  • Eliminate Sentencing Services program
$2.6 million

  • Eliminate sales tax refund on professional motor racing vehicle parts
Total Cuts: $1.5 billion
Total Public Jobs Cut: > 10,992
Total Revenue: $1.3 billion
Total Public Jobs Cut: None

Text: Alexandra Sirota, Director, NC Budget and Tax Center; Chart: Brenna Burch and Edwin McLenaghan, Public Policy Analysts, NC Budget and Tax Center

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