With the House’s refusal to concur with the Senate budget last night, now is a good time to summarize the strengths and weaknesses of the three different spending plans. The three budgets differ greatly on taxation, debt, Medicaid, and new hires, with relatively minor differences as regards teacher/state employee raises, education and other healthcare issues. (For a quick overview, see the attached chart.)
Same Old New Taxes
Only the Senate budget permits the “temporary” income and sales taxes to expire. Under the Senate plan, the two taxes will be allowed to fall back to their pre-2001 levels – resulting in a ¼ cent reduction in the sales tax and a 0.25 percent reduction of the highest bracket income tax. Both the House budget and governor’s budget seek to renew these taxes once again. In fact, the governor’s proposal contains projections that presume these taxes will still be on the books in 2012.
Gas Tax Cap
In response to escalating gas prices, North Carolina lawmakers capped the state’s motor fuels tax last year at 29.9 cents per gallon. (More specifically, the variable wholesale component of the tax was capped at 12.4 cents a gallon.) A portion of the state gas tax is calculated according to the average price of gas over a six-month period. When the price of gas increases, so does the gas tax – thus causing the price of gas to increase even more. The Senate budget would make the cap permanent, while the House and the governor would let the cap expire on June 30, 2007. Yet even at 29.9 cents per gallon, North Carolina has the highest state fuel excise taxes in the Southeast and is second to Florida in overall state and local gas taxes.
Spending and New Debt
Each of the budget proposals exceeds $20 billion in spending for FY2007-08, with the House budget increasing spending by more than $200 million over the Senate and governor’s plans. Compared to the previous budget, spending would increase 6.1 percent under the governor’s and Senate budgets and 7.4 percent under the House budget. By comparison, population growth plus inflation grew by 3.8 percent over last year.
Although General Fund spending in the Senate budget is $13 million less than the governor’s budget, the Senate plan authorizes $1.22 billion in appropriation-supported debt – “COPs” – over the next four years. Certificates of Participation (COPs) are non-voter-approved debt often used to finance capital projects – in this case, 30 new buildings for the UNC system. By comparison, the House budget allocates $449 million in COPs over the next two years; while the governor’s proposal includes $209 million in COPs over the next six years. The governor’s budget also includes $1.4 billion in general obligation bonds – debt subject to voter approval.
In short, the Senate budget spends a little less now, but burdens future generations with additional debt. Moreover, given that COPs are more expensive to the state than general obligation bonds, even this savings will eventually dissipate thanks to higher interest payments.
County Medicaid Relief
There is little question that North Carolina’s counties have been hard-pressed to keep pace with the rapid expansion of Medicaid over the last 20 years. Only the House budget appropriates funds to help counties pay for their share of the state’s Medicaid expenditures. The House allocates $100 million for county Medicaid relief, just under 20 percent of the estimated total county share for FY2007-08. The Senate budget does not allocate any money for county Medicaid relief, but declares the intent to develop a method to permanently relieve counties of their share of the state’s overall Medicaid burden by July 1, 2008. The governor makes no mention of county Medicaid relief. Currently, the state pays approximately 32 percent of the overall cost of Medicaid; counties pay 6 percent, with the federal government picking up the remainder.
Growth of State Government
The Senate budget would create some 688 new state jobs while the House budget creates only 54 net new positions. The governor’s plan calls for nearly 570 net new state jobs. Highest on the priority list for the governor and the Senate is the Justice & Public Safety (JPS) area, in particular the Judicial Branch. The Senate would add 650 new jobs in the court system, while the governor’s plan adds 236. Meanwhile, the House budget creates only 11 new positions in the court system, while cutting jobs in JPS overall. The Senate budget also creates 201 new jobs in education, as compared to 111 in the governor’s recommended budget. The House budget nets only 10.5 new education positions.
Elimination of Vacant Positions
Two of the budget proposals eliminate state jobs funded by the General Fund that have been vacant for six months or longer. The House bill would eliminate all of these positions, at an estimated savings of $104 million in FY2007-08. The Senate plan excludes education jobs (including the UNC system, community colleges and public education) from elimination and so saves only $34 million. This raises the question of just how many vacant jobs there are in North Carolina’s education system. In any case, the governor’s budget does not eliminate any positions.
Teacher/State Employee Raises
Each of the three budgets would provide public school teachers with an average salary increase of 5 percent. The budgets differ when it comes to state employees, though. The House budget is the most generous with a pay raise of 4.25 percent; the Senate increases state salaries by 4 percent; the governor comes in at 2.5 percent.
EARN Scholarship Program
The Education Access Rewards North Carolina (EARN) scholarship fund would provide annual scholarships of $4,000 to eligible students from families with incomes up to 200 percent of the federal poverty level (FPL). All three of the budgets agree on the creation of this fund, but differ in the amounts allocated. The governor recommends $150 million for the fund over the next two years, the Senate $100 million, and the House $75 million.
Learn & Earn
This program establishes high schools that offer a five-year program in which students can earn both their high school diploma and also a community college associate’s degree, or two-years credit toward a four-year degree. The majority of new money allocated to Learn & Earn is designated to a new program that enables students in participating high schools to earn both high school and college credit by taking courses online. In effect, this expansion of Learn & Earn would permit these students, regardless of family income, to take online college courses for free.
Given that Learn & Earn is one of Governor Easley’s pet projects, his proposal allocates the most money for the program. Easley’s budget recommends expanding Learn & Earn by just over $20 million, more than twice the amount appropriated in the House and Senate budgets. Current funding for the initiative is roughly $19.8 million, so the governor’s proposal would double the size of Learn & Earn.
NC Health Choice
This program is designed to provide government subsidized health insurance to children not eligible for Medicaid. Kids in families with incomes up to 200 percent of FPL ($41,300 for a family of four) are eligible for assistance. Each of the three budgets provides funding for a 6 percent increase in enrollment, at a cost of $7.5 million for FY2007-08. The Senate budget would cap annual enrollment at 6 percent, while the House budget caps enrollment at 3 percent every six months. The governor’s budget does not mention a specific enrollment cap.
NC Kids’ Care
NC Kids’ Care would provide government subsidized health insurance to children in families with income levels too high to qualify for Medicaid or NC Health Choice. Both the governor and the House want to use NC Kids’ Care to provide health insurance to children from families with income between 200 percent and 300 percent of FPL. Currently, 200 percent of FPL for a family of four is $41,300; while 300 percent is $61,950. The House budget would cost the state $4.7 million in FY2007-08; and $7 million in FY2008-09. The Senate budget takes a more incremental approach, calling instead for DHHS to conduct a study aimed at determining “the most cost-efficient and cost-effective method for implementing” the program. As such, the initiative is to be limited to kids from families who earn between 200 percent and 225 percent of FPL. DHHS is to report the findings of its study to the General Assembly no later than April 1, 2008. This plan would then be implemented in FY2008-09 at an initial cost of $2.4 million.
Earned Income Tax Credit (EITC)
An EITC is a program for low-income workers to receive government tax credits on a sliding scale based on their income level. Currently, the federal government, as well as 21 states and the District of Columbia, provide for an EITC.
Both the House and the Senate budgets create an EITC for North Carolina, but differ on the timeline. The House appropriates $69 million for the initiative to begin in FY2008-09. The Senate appropriates no money over the next two years for the EITC itself, but allocates $50,000 to be used for EITC tax preparation and outreach efforts in anticipation of its implementation. The governor does not propose an EITC, but opts instead to allocate money for targeted tax breaks that he claims will eliminate or reduce income taxes for low-income taxpayers.