The North Carolina House has approved a spending plan for 2010-11 that increases actual spending over the current fiscal year, adds 861 full-time positions to the state payroll, raids lottery funds to preserve teacher jobs, freezes teacher and state employee pay and offers a misguided package of targeted tax breaks intended to help small business job growth.
Total Spending Up Again, Reliance on Federal Funds Not Yet Approved
The N.C. House’s proposed spending plan for 2010-11 includes appropriations totaling $18.9 billion, but that doesn’t tell the whole story. The $18.9 billion does not count $1.04 billion in American Recovery and Reinvestment Act (ARRA) – the federal stimulus act – funds already embedded as cuts via last year’s two-year spending plan. That is money counted as a “cut” in the state budget, but backfilled by federal dollars. The House’s recommended adjustments for 2010-11 include another $579 million in “cuts” that are also merely funding shifted to the feds. The $579 includes $490 million in Medicaid dollars not yet approved by the U.S. Congress, so that money may not actually materialize. All told, the spending on state programs including the federal funding comes to about $20.5 billion in the House budget.
Due to a current year shortfall, the 2009-10 budget year will likely see actual appropriations (including federal funds) of about $20 billion. Thus, the House proposal would mark a half billion dollar increase in year-over-year spending, or about 2.5 percent.
House Budget Adds 861 Full-Time State Employees
In what would continue a long-term trend of growing state employment as private sector jobs contract, the House Budget would add 861 full-time state positions even as North Carolina suffers from double-digit unemployment.
Most of those positions would come in the form of staffing needs for a new women’s prison and a central prison hospital and mental health facility. The UNC system would also had more than 200 new positions for maintenance and security staff for additional buildings being put to use.
Raids Lottery Funds to Preserve 1,600 Teacher Jobs; Teachers and State Employees Pay Frozen
The House plan raids $127 million of lottery proceed to preserve a reported 1,600 teacher positions. This amount is $90 million more than contained in the Senate’s proposed budget.
Teacher and state employee salaries, however, would be frozen for the second straight year under the House’s proposal. Furthermore, the House did not include the “payback” for last year’s unpaid furlough contained in Gov. Perdue’s budget.
Ineffective Attempt at Small Business Relief
Similar to the Governor’s plan, the House budget offers some targeted tax credits for small businesses in an attempt to create jobs. Included in the plan is a $250 credit for small businesses for each employee earning under $40,000 they provide health insurance for. Also is a credit for small businesses of $1,000 for each job added and maintained for three years. In other words, the credit would work out to $333 per new employee per year. Such small, targeted tax breaks are not likely to sway the hiring decisions of business owners.
Furthermore, even if the tax credit for hiring new workers lives up to the General Assembly’s full expectations, only 7,200 new jobs would be created. By comparison, North Carolina has lost more than 250,000 jobs since January of 2008.
Setting the Stage for an Even Worse Crisis in 2011-12
Just like the Senate and Governor budgets, the House avoids making any difficult spending decisions this year. By relying on more than $1.5 billion of non-recurring federal stimulus funds and $1.3 billion in temporary tax revenue to help balance the 2010-11 budget, the N.C. House is setting up North Carolina for a major state budgetary crisis in 2011-12. Absent those two significant sources of funding, state budget writers will be facing a revenue hole of $2.8 billion when they reconvene next year to craft the 2011-12 state budget.