by Joseph Coletti
Senior Fellow, Fiscal Studies, John Locke Foundation
Does the current budget impasse between the N.C. General Assembly and Gov. Roy Cooper feel different? It should. There is less of a sense of crisis even though the decisions on debt and Medicaid expansion threaten the state’s fiscal future.
House and Senate bills to provide additional money for targeted programs may not get approval from the governor, even if they make it to his desk.
One reason for the difference is that there is no threat of a government shutdown. This is the first test of a 2016 amendment to the State Budget Act. Because there was no new budget in law at the start of the fiscal year on July 1st, last year’s budget continues without the one-time adjustments that were in effect.
No new spending for employee pay and benefits, Medicaid managed care, capital projects, or other initiatives will take effect without a supplementary appropriation or a new budget, but 96.5 percent of what the conference bill would have been spent on state operations is available. The groundwork for this change was laid in 2013 with the definition of a new starting point for budgets.
The “base budget” is simply the recurring dollars spent in each area. One-time cuts or increases are dropped. Instead of being automatically funded as they were in the previous “continuation budget” system, funding for expected changes for inflation, enrollment, and other adjustments must now be specified.
Since July 1st, state government has been operating according to this base budget. It does not fund enrollment changes in public schools, community colleges, universities, or Medicaid. Could this lack of money for enrollment be the linchpin that forces negotiations?
Enrollment in community colleges declined last year, which means the community college system will lose $4.5 million in the new budget. While community colleges may seek a resolution so that they can start receiving promised money for construction projects, the schools will not be harmed by maintaining their existing level of enrollment funding.
Four-year schools in the University of North Carolina System do not face a reduction in spending with the next budget, but they have no new funding for enrollment growth in the stalled budget.
Primary and secondary schools would receive $3.1 million for enrollment growth once the budget passes. State appropriations (not counting funds from the federal government or other sources) total $9.6 billion for the 2019-20 fiscal year. New spending for enrollment totals less than one-third of one-tenth of one percent (0.032 percent) of state spending on education. This is less than many of the budget revisions made during the course of a typical year by the N.C. Department of Public Instruction and the N.C. Office of State Budget and Management.
Medicaid’s transition to managed care presents the biggest challenge. Senate leadership has considered delaying the rollout of the new system without new funding. Setting aside the $2 billion combined cost of Medicaid expansion Gov. Cooper still seeks, the budget rebase adjustment for higher enrollment and health care utilization adds $30 million in state appropriations. For comparison, the current Medicaid program costs state government $3.9 billion, so the increase is three-fourths of one percent (0.77 percent) of total state appropriations. This could also be handled through formal budget revisions or an accelerated allotment of funds for Medicaid until a budget is passed.
Enrollment needs for schools and Medicaid can be easily met with existing funds. State government has $26.5 billion in surplus and new revenue available from which to spend $23.9 billion on continuing operations and debt service. With a new budget, much of $2.6 billion difference would provide salaries and benefits for state employees and teachers, to rebuild state savings, to prepare for major storms, to assist local governments with broadband, or to repair, renovate, and build facilities for local schools, community colleges, water projects, universities, and state government.
All of these things can be done once a budget passes. Until then, there is no crisis in covering the continuing costs of schools, community colleges, universities, or even Medicaid. In contrast, Gov. Cooper’s demands for billions of dollars in new federal borrowing to expand Medicaid and $3.5 billion in new state borrowing to expand other state programs make a future crisis more likely.