North Carolina House Budget Proposal Includes Massive Tax and Fee Hikes, Cuts Public Education More Than Other Agencies

The North Carolina House budget proposal for fiscal year 2009-10 will raise taxes and fees by more than $860 million and spend roughly $19.97 billion. The spending amount is down from the projected $20.3 billion being spent in the current fiscal year. Looking back further, however, the House spending plan would mark a five year spending increase of 25 percent, with $4.05 billion in new spending introduced since FY 2004-05.

On the revenue side, the House plan anticipates balancing the budget through a mixture of tax and fee hikes, transfers from various special state funds and $1.4 billion of federal fiscal stimulus dollars.

A list of the House budget’s recommended revenue adjustments are as follows:

Major Adjustments to Revenue Availability

  FY 2009-10 Amount
Improved Revenue Collections  
Department of Revenue Improved Enforcement $60,000,000
Transfers from Various Funds  
Transfer from Disproportionate Share Reserve $25,000,000
Transfers from Special Funds $40,743,885
Transfers from Cash Balances from Capital and R&R Accounts $65,687,775
Transfers of Cash Balances from Special Funds $51,528,456
Transfer from Health and Wellness Trust Fund $5,000,000
Transfer from Tobacco Trust Fund $5,000,000
Transfer Sales Tax for Wildlife Resources Commission $23,150,000
Subtotal: $216,110,116
Tax Increases  
Increase Upper-income Tax Brackets $256,700,000
Combined Reporting, Corporate Income Tax $18,500,000
Sales Tax on Warranties, Installations, Repairs/Maintenance $176,200,000
Sales Tax on Local and Interstate Courier Services $25,000,000
Sales Tax on Digital/Click-throughs $13,200,000
Sales Tax on Amusements/Movies $23,600,000
Franchise Tax on Limited Liability Companies $59,000,000
Throwback Rule, Corporate Income Tax $5,900,000
Change Bank Interest Deduction $2,600,000
Increase Liquor Tax by 1.5% $7,900,000
Increase Statewide Sales Tax rate 1/4 cent $195,000,000
Subtotal: $783,600,000
New Fees and Fee Increases  
Reserve for Increased/New Fees $81,172,651
Dozens of new fees and fee increases are included in the House Budget plan. A few of the fees being increased are:
Marriage license fee
Charitable bingo license fee
Insurance company licensing fee
Health Maintenance Organization licensing fee
Home inspector license fee

House Budget Spending Proposal, Changes of Note:

Education, particularly K-12 education, takes the biggest hit in the House’s budget proposal. When comparing to the current fiscal year’s estimated spending (after adjusting for mandated spending cuts), public education spending would be down 7 percent under the House plan.

The next largest percentage cut relative to current year actual spending is General Government with a 4.6 percent decrease.

Health and Human Services, Natural and Economic Resources and Justice and Public Safety all hold essentially even to current year funding levels. Community colleges and the UNC system both would see a bump in spending under the House proposal.

Total spending (including “education stabilization funds” from federal stimulus act): $11.32 billion
Estimated spending for FY 2008-09: $11.8 billion

Public education – K-12, community colleges and higher education – accounts for 54 percent of the state budget. Major House budget provisions impacting public education include the following:

K-12 Pubic Education

  • House budget plan approves $7.6 billion for North Carolina public schools (including federal stimulus funds), down from an estimated $8.2 billion estimated spending for current fiscal year.
  • $403 million of funding for noninstructional support and classroom materials are supported by education stabilization funds as part of the federal stimulus package. No mention is made of how federal money will be replaced in two years.
  • Eliminates all third grade teacher assistants to save $130 million.
  • Increases grades four through 12 class size by two students in 2009-10 and by three in 2010-2011. The change will save $183 million in FY 2009-10 and $265 million the following year. Student teacher ratios in K-3 will remain the same.
  • Redirects $60.5 million over the next two years from the corporate income tax funds designated for the Public School Building Fund and moves it to the General Fund.
  • Provides additional $27 million to accommodate growing student headcount.
  • Supplies $13 million in dropout prevention grants.

Community Colleges

  • House budget plan appropriates $981 million for North Carolina community colleges. New budget would be up from the projected $957 million expenditures for FY 2008-09.
  • Provides an additional $58 million to fully fund anticipated enrollment growth.
  • Raises tuition $256 for full-time students to a maximum of $1,600 per year.

UNC System

  • The $2.8 billion budget includes $64 million in federal stimulus funds. The $2.8 million is up slightly over the $2.7 billion estimated appropriations for the current fiscal year. 
  • Provides an additional $44 million to fully fund enrollment expansion.
  • Increases tuition at UNC campuses by the lesser of $200 per student per year or 8 percent.
  • Reduces EARN Scholarship grants from $4,000 to $2,000 and eliminates grants altogether in 2010-2011.
  • Increases need-based financial aid at UNC institutions by $23 million in each of the next two years to accommodate the growth of eligible students.

Health and Human Services (HHS)
Total spending (including federal stimulus and block grant funds): $4.76 billion
Estimated spending for FY 2008-09: $4.76 billion

A lot of noise has been made about cuts in the HHS budget, but a comparison to projected expenditures shows that the coming year’s House HHS budget will spend the same amount as the current fiscal year. There were, however, a number of significant changes of note included in the House plan.

  • $857 million in federal stimulus funds will be used to cover a portion of the state’s Medicaid obligations.
  • $268 million increase to reflect the increased state responsibility for Medicaid (phasing out the county share).
  • $155.9 million increase to accommodate Medicaid caseload growth.
  • $111 million in savings by consolidating Medicaid case enrollment and through greater “care management.”
  • $82.6 million reduction to Medicaid provider rates.
  • $59.7 million reduction to community support services.
  • $50 million reduction of funds to Local Management Entities for Mental Health.
  • $40 million is savings from implementing a preferred drug list for Medicaid.
  • $12.9 million saved by eliminating 350 positions from the Division of Mental Health, Developmental Disabilities and Substance Abuse Services.
  • $5 million reduction to Smart Start funding.
  • $3.1 million in savings by increasing Medicaid co-pays by $2.

Natural and Economic Resources (NER)
Total spending: $534 million
Estimated spending for FY 2008-09: $534 million

The House budget plan for NER would spend the same amount as is projected to be spent for the current fiscal year. The major story for the NER budget seems to be items that the House chose either not to cut at all, or to reduce funding only by a minimal amount. As House budget writers chose to cut school teachers and funding to mental health programs, the following are examples of funding for programs not targeted:

  • Aquariums: House budget cuts $2.5 million, but retains $7.9 million.
  • Oyster Reef Program: House budget cuts $1.25 million, but retains $1 million.
  • Grassroots Science Museum: House budget cuts $139,000, but retains $3.2 million.
  • $25 million is allocated to the Clean Water Management Trust Fund, down from the typical $100 million.
  • Plant Protection: $3.4 million fully funded.
  • Shellfish sanitation: $1.7 million fully funded.
  • Oyster sanctuary program: $2 million fully funded.

General Government
Total Spending: $439 million
Estimated Spending for FY 2008-09: $460.5 million

General Government appropriations are reduced by roughly 5 percent from actual current year expenditures. Similar to the NER budget, the most interesting aspects of the General Government budget are the items House budget writers decided to continue to partially or fully fund.

  • NC Symphony: $2.3 million fully funded.
  • NC Museum of History: $6 million fully funded.
  • Historically underutilized businesses: House budget cuts $43,000, but retains $992,000.
  • Tyron Palace: House budget cuts $433,000, but retains $2.1 million.
  • North Carolina Arts Council: House budget cuts $300,000, but retains $8.6 million.

Justice & Public Safety (JPS)
Total Spending (including federal stimulus and block grant funds): $2.12 billion
Estimated Spending for FY 2008-09: $2.11 billion

JPS appropriations in the House budget proposal will include roughly $42.5 million in federal fiscal stimulus and block grant funds to bring the total to $2.12 billion, slightly up from the anticipated expenditures for the current fiscal year. Major targets for cuts are in corrections, as 500 vacant positions would be eliminated and eight underutilized prisons would be slated for closing.

  • Save $18.8 million through elimination of 500 vacant positions in Department of Corrections.
  • Close eight prisons to save $8.9 million.
  • Eliminate “Save our Students” program to save $5.9 million. The program provides funding for after school activities for middle school children.
  • Save $4.4 million by eliminating 87 filled positions from Department of Corrections.
  • Freeze the step salary increase for magistrates and clerks for a savings of $2.3 million.


  • $132 million expenditure required to shore up the State Health Plan.
  • $21 million appropriation to help plug the state pension fund’s liability.
  • $672 million in debt service (this amount is more than two and a half times larger than the $252 million required in FY 2001-02).

Highway Fund
Total Spending: $1.7 billion

  • $84 million diverted from secondary roads program to statewide maintenance
  • Eliminate 156.5 vacant positions to save $7.4 million.
  • The $34 million for driver’s education program is changed to non-recurring. A continuation review will be conducted to determine whether it gets funding in 2010-11 and beyond.

Highway Trust Fund
Total Spending: $869 million

  • Total cuts of $146 million below projected continuation budget as calculated by new, lower gas tax collection estimates.
This article was posted in Budget & Taxes by Brian Balfour on June 18, 2009 at 10:10 AM.

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