House Budget Plan: The Rest of the Story

Last Friday, Civitas analyzed the budget proposals put forth by the five major state General Fund appropriation committees that make up the majority of the General Fund. The analysis found plans that would increase spending in those agencies by $436 million above the spending level approved for the coming budget year in last year’s biennial budget. This raised the question of where the extra money is coming from.

This morning, the House released the full budget plan. The full House budget reveals that House budget writers relied largely on one-time funds – including unanticipated revenue – to help finance their additional spending.

Total spending in the House plan’s General Fund comes to $20.3 billion, overall roughly $340 million above total spending approved last year. The $20.3 billion amount would also mark a nearly $600 million hike over last year’s General Fund budget.

Additional Funding Sources

The spending hike will be financed largely by additional revenue that was unanticipated when the budget passed last year. $438 million in unspent monies and revenue surplus from the current fiscal year play a large role – with $216 million going to plug the current year’s Medicaid shortfall ($154 million) and help shore up the state’s Repairs and Renovations reserve account ($62 million).

Moreover, the House budget anticipates an additional $41 million in judiciary fees above what was projected last year, along with $22 million in extra “other” non-tax revenue collections not incorporated in last year’s budget plan.

And as noted in the previous article, the House budget taps into an extra $42 million in state lottery funds, as well as $30 million from the One NC Fund, in order to put the spending plan into balance.

Relying so heavily on one-time funding sources to help balance a budget consisting largely of recurring expenses is to repeat a risky mistake made many times in the past.

Other Accounting Gimmicks

House budget writers also raid the $121 million in funds set aside last year into a “Compensation and Performance Pay” reserve fund. The reserve was established last year as a measure to fund a new system of merit pay for state employees, including teachers. Instead, the House budget would use $79 million of those funds to distribute a one-time, across the board $250 bonus to permanent teachers and state-funded employees. The “performance pay” initiative is a praiseworthy one; it is unfortunate that House budget writers want to de-fund it before it is even implemented.

Furthermore, the House budget reduces by $62 million the state contribution to the state employee and teachers pension.  The move is justified by a change in the actuarial valuation of the pension plan at the end of 2010, showing the pension plan to be fully funded. However, with such volatility in the market, and given the fact that just three years ago the state Treasurer was advising state budget writers to allocate hundreds of millions of additional funds to help shore up the pension, this also seems like a very risky move. Potentially shortchanging a long-term obligation like the state pension fund for a one-time money grab is not a very fiscally conservative strategy.


The release of the full House budget plan answered several questions about revenue sources. Disappointingly, those answers reveal a band-aid approach of patching the budget together with one-time funding sources and a lack of any meaningful spending reform.

NOTE: The original version of this article mistakenly discussed a “raid” of Highway Fund money. The Highway Fund transfer is actually a planned transfer of funds approved in last year’s budget to finance the State Highway Patrol, which was moved from an independent agency funded by the Highway Fund to the new Department of Justice and Pubic Safety, which  is under the General Fund. Civitas regrets the error.

This article was posted in Budget & Taxes by Brian Balfour on May 29, 2012 at 4:40 PM.

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Comments on this article

  • 1

    Scott May 30, 2012 at 7:52

    The Republicans are wasting a golden chance to change government. My prediction, if a zero based budget is not adopted is another billion dollar deficit next year because we are going to have another recession starting this fall.

  • 2

    Dan May 30, 2012 at 11:40

    Scott is right on all counts.Are they possibly just trying to get past Perdue and then start the real work under McCrory? I would rather see them fight Purdue and show the people they are doing the job we elected them to do.

  • 3

    Charles Adams
    Charles Adams May 30, 2012 at 16:07

    What a disapointment to see how our Repulican controlled legislature is Failing to control run-away spending, This state is BROKE, we can’t afford to spend any non- essential money. What happened to all the spending cuts we expected. We do not need tax-payer funded baby-sitters and way over the top spending on education.Money is not the answer to our educational shortcomings- good dedicated teachers are what we need, and leaders that are not dancing to the tune of the education lobby.

  • 4

    Phillip Marlowe
    Phillip Marlowe Jun 01, 2012 at 9:47

    I appreciate the comments above and agree. However, I also understand the realities that the Republicans are having to deal with. Their primary obstacle is the Governor and the fact that they do not have sole veto override authority without at least 4 Democrats agreeing to go along. I firmly believe given the character of the Republican leadership coupled with the, by all accounts, excellent Freshman class of 2011 that we are on the right track. We just need to finish the job by returning them to power with a Republican Governor.

  • 5

    Wyatt Jun 01, 2012 at 23:33

    The budget needs to be cut with an ax, not a paring knife. The Republicans are disappointing Conservatives and will have some push-back in the elections. Do politicians ever receive the message?

  • 6

    David Jun 06, 2012 at 11:22

    Ordinarily, I would totally agree with Phillip Marlowe’s statement. However, I am seeing some abuse of power out of the new, Republican controlled legislature. I disagree with the way that the immigration hearings were conducted. Allowing illegals to speak at those hearings and not permitting any legal citizen who desired an audience, was shameful. Illegals paraded in and out of our state legislative building at will, making a mockery of our laws.

    Aside from that behavior, Bob Rucho (R-Meck.) and David Lewis (R-Harnett) hired a senior official of La Raza to help draw the maps of the 7th Congressional District. It is widely believed that they gerrymandered the district in a way that ensured victory for their fellow legislator, Senator David Rouzer.

    These demonstrated abuses of power are demoralizing their grass-roots base. If they continue to ignore conservatives, they will find themselves beaten on election day, just like the Congress did in 2006.

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