by Joseph Coletti
Senior Fellow, Fiscal Studies, John Locke Foundation
The North Carolina budget bill (House Bill 966) for fiscal years (FY) 2019-20 and 2020-21 is over a thousand pages of provisions and monetary line items describing how state government will handle an estimated $100 billion in state and federal funds over the next two years. The most important number related to the budget, however, is eight. That is the number of Democratic legislators, seven in the House and one in the Senate, Republican leaders need to win over if their budget is to survive Gov. Roy Cooper’s all-but-inevitable veto. Because of a minor change in state law in 2016, however, this conflict will not create a governing crisis.
Actual state appropriations climb $100 million from the House and Senate budgets from $23.9 billion to $24 billion. A greater portion of the spending increase is nonrecurring than in either previous version. General Fund appropriations grow 3.5 percent during the first year of the biennium and another 3.3 percent during the second year.
Compensation for past and present state employees, including teachers and principals, accounts for $213 million of the additional expenditures. Overall, pension contributions cost more than current salaries with just a 0.5 percent increase in benefits each year. Every pay increase for current employees and every permanent cost of living increase for retirees gets multiplied in its impact on future pension obligations.
The other significant increases across all budget proposals would keep youth under 17 years old in the juvenile justice system for certain offenses and ensure Medicaid can pay for promised health benefits as it transitions from a system that pays for each individual service to one that pays private insurance companies to manage the care of beneficiaries.
Medicaid already covers 700,000 more people than it did a decade ago. Although not included in the conference budget, Medicaid expansion would add up to 600,000 more people, including people who already have private insurance and people who are already eligible but have opted not to enroll, which would mean more direct cost to the state. These costs are something often overlooked in claims that expansion would be “free” because the state’s $200 million share in FY 2019-20 would be paid almost entirely by new taxes on hospitals that do not go through the General Fund.
Aside from teacher pay and Medicaid expansion, the most contentious item separating the governor and the legislature is over how to finance government construction across the state. Gov. Cooper’s plan was to take on $3.9 billion in new voter-approved debt over 10 years for schools, community colleges, and other projects plus another $288 million in debt without voter approval to relocate the Department of Health and Human Services to a new facility in Raleigh. The Senate, flush with a $643 million windfall from higher-than-expected tax collections, dedicated $400 million to savings, $600 million to capital projects with no anticipated need for future debt, and left $743 million available for the next year or the next emergency.
In the conference budget, savings drop by $300 million. One-third of that goes to the operating budget. The remainder goes to additional repairs, renovations, and new construction of schools, community colleges, universities, and other state facilities. With the new money, the legislature plans to spend $200 million for repairs and renovations and $600 million for new projects. For FY 2019-20, public schools would receive $281 million, community colleges $56 million, universities $96 million, and other state agencies $98 million. Of the remaining funds, $11 million would pay for water projects, $39 million for local projects in Bladen, Carteret, Cumberland, Forsyth, Guilford, and Onslow counties, and $15 million annually for rural broadband. The capital projects and target spending in the General Fund may provide clues to which Democrats could eventually vote for the budget.
If there is no budget by July 1st, current and retired state employees, including teachers and principals, would not begin receiving their anticipated raises or cost of living increases. Some youth accused of crimes could be in limbo between the adult system and the juvenile system. Medicaid’s pilot transition to managed care would be delayed, and the system would continue to pay for services as enrollees used them. Repairs, renovations, or new construction of state facilities, schools, and other proposed projects would be delayed, though planning would likely continue in anticipation of having funds available.
Other than that, life would continue as before for North Carolinians. Government would continue to operate. People would still be able to get their driver’s or fishing licenses. Parks and historical sites would remain open. In short, there would be no immediate crisis from a government shutdown to drive the governor or legislators to accept just any spending deal.
It is anyone’s guess what would come next, but there would be no need for continuing resolutions or desperate actions. Evidence suggests the outcome will be more fiscally sustainable than if there were a government shutdown.
Editor’s Note: On June 28, Gov. Cooper announced that he will veto the legislative budget proposal. After the veto is recorded, the budget will return to the General Assembly. We expect the Republican leadership in the Senate and the House will attempt to override the governor’s veto.