State Budget Increases Spending by Half a Billion Over Last Year

For the second year in a row, Gov. Bev Perdue vetoed the state budget approved by the General Assembly. And also for the second straight year, the General Assembly garnered the three-fifths majority vote in both chambers needed to override her veto.

The final FY 2012-13 state budget bill tweaks the second year of the two-year budget passed last year, and includes a total of $20.18 billion in spending.

Note that the budget plan being referred to here, of course, is the state’s General Fund and does not represent the true total state budget. That also includes transportation funding and funds passed down from the federal government, and totals more than $51 billion.

The $20.18 billion is $240 million more that the amount legislators approved last year for 2012-13, and marks a half a billion-dollar increase over the 2011-12 budget.

The Senate voted 31-10 to override Perdue’s veto, while the House approved of the override by a 74-45 margin – the minimum number of votes needed for the two-thirds majority. Voting in the Senate strictly followed partisan lines, while in the House six Democrats joined the unanimous Republican vote to secure the override.

The largest source of objection behind Gov. Perdue’s veto was in the area of K-12 public education. Perdue wanted $7.6 billionB., Tthe General Assembly plan spends $7.5 billionB, yet Perdue sought a $760 million sales tax increase to allegedly more fully fund K-12 education. Why she believed a $760 million tax hike was necessary to fund roughly $100 million more in K-12 education went unexplained by Perdue.

Overall, the 2012-13 state budget was a mixed bag. Given a difficult situation, the General Assembly managed to balance the budget without raising taxes, and in fact reduced the gas tax (albeit only for one year.)  Some much-needed dollars were added to the under-funded Rainy Day Fund, and state employees received a pay raise for the first time in years. Disappointingly, the brand-new “performance pay” system was de-funded, and millions of hard-earned tax dollars continued to be earmarked for non-essential leisure activities.

Pay Raises for State Employees, Retirees

The final budget plan includes a 1.2 percent salary increase for state employees (including teachers), along with a 1 percent cost-of-living (COLA) adjustment for state retiree pension payments.

K-12 Public Schools

The final 2012-13 public education budget increased spending by $42 million compared to last year’s appropriations. Highlights of the K-12 budget include:

  • Canceling $143 million in local budget cuts.
  • Providing $27 million to implement several provisions of SB 795, the Excellent Public Schools Act – which was included in the Senate budget plan. The Senate plan had allotted $47 million for the Act’s full implementation. The provisions that were included in the finalbudget include:
    • A program for improving third-grade literacy and ending social promotion.
    • Calls for establishment of merit pay plan for local school districts.


One-time Money, Unnamed Corporate Welfare Money Earmarked

In regards to using one-time funds to help fill the budget gaps, the final budget drains $121 million from the “Compensation and Pay Performance Pay Reserve,” which had been set up last year to implement a reform to state compensation to include more merit-based pay increases. Similarly, the budget uses one-time anticipated surplus funds of $16 million to help fund local education agencies in the public school system. The budget also taps into $45 million from the One North Carolina Fund to help balance the General Fund. The Senate plan had hoped for $50 million from the fund, while the House plan would have transferred $30 million.

The budget also earmarks $5 million of that One NC Fund transfer for an unnamed economic development project “not to be subject to the terms of the One NC Fund.”

Rainy Day Fund

The budget settled on $123 million to set aside into the Rainy Day Fund, which has been running perilously dry in recent sessions.

Medicaid Shortfall Addressed

The budget sets aside $154 million of anticipated surplus revenue from the current fiscal year to address the Medicaid shortfall. The budget further sets aside another $100 million in reserves to help offset any further potential shortfalls for the coming year, by implementing “flexibility reductions” upon many state agencies.

Gas Tax Capped for One Year

The budget caps the state’s gas tax at 37.5 cents per gallon. The NC gas tax is among the highest in the nation, and the cap would reduce the current tax by roughly a penny a gallon, and protect against possible increases in the tax later this year. The cap, however, would be temporary and only in effect during the 2012-13 fiscal year.

Rules for Day Care Nutrition

The final budget plan included an update to nutrition standards for child care facilities. The most relevant of these was the “parental exception” allowing home-packed meals to be exempt from the standards, and it also bars state inspectors from examining meals sent from home. The proposed rules are in response to an incident in Hoke County that garnered national attention.


The final state budget leaves out any compensation to victims of the state’s eugenics program. The House had sought $11 million in its budget to compensate $50,000 to each victims of the state’s former forced sterilization program $50,000. The Senate plan included no such provision.

Leisure Activities to Receive More Taxpayer Dollars

In spite of claims of extreme belt-tightening, the FY 2012-13 state budget still allocates roughly two million in additional taxpayer dollars to non-essential leisure activities, while leaving many more millions of such funding untouched.

  • More than half a million dollars in additional funding for the Transportation, History and Art museums are included in the conference budget – all of which are recurring commitments.
  • Another half a million taxpayer dollars are provided for additional support for Tryon Palace.
  • $1.5 million in grant money to the N.C. Symphony is included. This is in addition to the millions of taxpayer dollars they already receive.
  • The budget leaves $5.6 million in spending on “Basic Arts Grants” and “grassroots arts” programs intact.

Missed Opportunity

The legislature failed to capitalize on an opportunity to once again empower North Carolina voters with a say over new state debt. House Bill 491, first introduced last session, would eliminate the statutory authority allowing the use of Certificates of Participation (COPs) – a form of debt financing that does not require voter approval. COPs have been used almost exclusively as the debt instrument of choice during the last 12 years, as voters have been denied a say over state debt since 2000. Unsurprisingly, during that time per capita state debt has more than doubled, and annual debt service payments have tripled.

Moreover, an overwhelming 83 percent of likely North Carolina voters say state government should not be allowed to issue new debt without voter approval.

In spite of these compelling reasons to support HB 491, the bill (after being approved by the House last session) was sent to the Senate Finance committee — where it was never even brought up for discussion.

This article was posted in Budget & Taxes by Brian Balfour on July 23, 2012 at 10:00 AM.

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Comments on this article

  • 1

    Blaine whitson
    Blaine whitson Jul 25, 2012 at 13:35

    This seems like a good budget in the hard times we are living in. If all the naysayers are not happy, let them run for office and see if they can do better.

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