by Joseph Coletti
Senior Fellow, Fiscal Studies, John Locke Foundation
Note: Part 2 of this series examines the appropriations in Gov. Roy Cooper’s 2021-23 biennium budget proposal in greater detail. Part 1 gave an overview of Cooper’s budget. Finally, Part 3 will highlight some good ideas — and a terrible one — from the governor.
Gov. Roy Cooper’s proposed 2021-23 biennium budget proposal is woefully short on fiscal prudence and realism. It would be a missed opportunity to keep North Carolina state government on solid fiscal footing, which the General Assembly can still do. Here is a closer look at Cooper’s proposed appropriations.
After vetoing multiple proposals that would have given raises to teachers and higher education instructors, Cooper offers them bonuses of $2,000 per person this May for a total of $447.4 million, plus $1,000 bonuses in each of the next two years, totaling $223.7 million each year. Teachers and principals would receive raises of at least 10 percent over two years, including the normal step increase, at a cost of $289.4 million in Fiscal Year (FY) 2021-22 and $478 million in FY 2022-23. Principals had received a 6.2 percent average salary increase over FY 2019-20 and FY 2020-21. Other education employees would receive raises totaling 7.5 percent over two years. The proposed budget would also increase the minimum wage for noncertified education employees to $15 an hour, at cost of $22 million per year. At a cost of $7 million per year, teachers would again be eligible for higher pay with a master’s degree and, beginning in FY 2022-23 at a cost of $1.9 billion, a thousand teachers each year could have their costs to obtain National Board Certification covered.
State employees outside education would receive $1,000 bonuses and a 5 percent raise over the next two years, matching the 5 percent increase over the past two years.
Retirees would receive 2 percent bonus payments totaling $72.5 million each year and a recurring cost-of-living adjustment of 2 percent, totaling $92.9 million because of the impact on the long-term liability of the pension system. Excluding the increase, the budget would provide $109 million each year for the actuarially required contribution. The budget would also set aside $150 million for retiree health benefits and include a $98 million increase in employer share of insurance cost in FY 2021-122 and a $200 million increase in FY 2022-23.
$16.1 billion appropriation (+$2.0B vs. FY 2019-20), $20.6 billion total (+$2.6B vs. FY 2019-20)
$11.1 billion appropriation (+$1.3B vs. FY 2019-20), $13.3 billion total (+$1.9B vs. FY 2019-20)
Cooper pays lip service to the latest recommendations on school funding as part of the 27-year-old Leandro process, but his budget proposal offers no money from any source and does not put a price tag on what it would cost to begin implementing the ideas, regardless the source of funds:
Commitment to a Sound Basic Education for All Students (Leandro)
The Comprehensive Remedial Plan in Leandro v. State of North Carolina outlines the actions the state must take to meet its constitutional obligation of ensuring every student has access to a sound basic education. The Governor is committed to pursuing the policy and programmatic changes outlined in the Plan and to providing the resources necessary to achieve the actions in the Plan over the next biennium and in future fiscal years.
As previously discussed, recurring spending already takes nearly every dollar of recurring taxes in Cooper’s budget proposal. He would have nothing left in the state’s tank to cover more spending. If Cooper were instead to use federal American Rescue Plan Act (ARPA) funds, it would likely negate his ability to provide either the earned income tax credit (EITC) or the dependent care tax credit, since the federal spending would cover an identified need in the budget and so make the tax reductions possible indirectly, which would be in express violation of ARPA’s language on tax reductions.
The budget proposal anticipates student enrollment to grow the next two years, mostly due to the growth of public charter schools, with spending increases of $79 million in FY 2021-22 and $100 million in FY 2022-23. The expected growth rate would be 75 percent slower in the second year than the first.
Cooper would increase other payments to local school districts, in part to address components of the Leandro plan submitted to the court in March. They would receive $105 million in FY 2021-22 and $200 million in FY 2022-23 for Children with Disabilities, Limited English Proficiency, Disadvantaged Student Supplemental Funding, and Low Wealth districts. He would add $40 million in FY 2021-22 and $80 million in FY 2022-23 for school staff working in mental and physical health of students, for a total of 1,000 new full-time equivalent staff in FY 2022-23. Another $19 million would pay for more career assistance and career and technical education support. Four statewide technology projects would receive $30 million in FY 2021-22 and $15 million in FY 2022-23 from the Information Technology Reserve to implement.
About the only spending reduction that would affect families with primary and secondary school children would be Cooper’s plan to eliminate the successful and popular Opportunity Scholarship program over time by closing off new applicants, saving $45 million in FY 2021-22 and $36.5 million in FY 2022-23 under the UNC system budget.
$1.4 billion appropriation (+$0.2B vs. FY 2019-20), $1.8B total (+$0.2B vs. FY 2019-20)
Community colleges have been hit with lower attendance as a result of COVID-19. Cooper would provide them with $61 million in budget stabilization to offset the lost enrollment, which would otherwise result in reduced community college budgets. Another $30 million in FY 2021-22 and $32.5 million in FY 2022-23 would pay for scholarship stipends, short-term certificates, and staffing to help community colleges meet high demand in specific areas.
Upgrading information technology (IT) for 58 community colleges, including online registration for short-term workforce continuing education courses, would take $28.5 million from the IT Reserve.
$3.5 billion appropriation (+$0.4B vs. FY 2019-20), $5.5 billion total (+$0.5B vs. FY 2019-20)
Cooper’s budget proposal would provide more to NC Promise schools to continue offering in-state students $1,000 annual tuition and nonresident students $5,000 annual tuition. Out-of-state students at those three campuses pay lower tuition than in-state students at UNC–Chapel Hill, NC State, and the UNC School of the Arts. Their tuition is also within $1,000 of the in-state tuition at five other UNC campuses (Appalachian State, East Carolina, UNC-Asheville, UNC-Greensboro, and UNC-Wilmington).
Other recommendations in Cooper’s UNC budget such as Teaching Fellows, Principal Fellows, New Teacher Support, and a College Advising Corps would impact K-12 schools.
As mentioned above, Cooper would eliminate Opportunity Scholarships over time by closing off new applicants, saving $45 million in FY 2021-22 and $36.5 million in FY 2022-23.
$5.9 billion appropriation (+$0.4B vs. FY 2019-20), $25.9 billion total (+$6.4B vs. FY 2019-20)
$4.1 billion appropriation (+$0.2B vs. FY 2019-20), $19.7 billion total (+$5.3B vs. FY 2019-20)
The biggest item in Cooper’s proposed budget has no price tag. The budget document has no spending requirement for Medicaid Expansion, though every indication is that it would cost “over $5 billion” more than the current system, with state costs for “up to six years” covered by $1.3 billion from a $1.7 billion increase in federal reimbursement for the non-expansion population.
If the state share of expansion cost was just $200 million per year, the six-year estimate could make sense. Cooper’s 2019 budget proposal estimated Medicaid expansion would cost the state $474 million per year. Based on experience in other states, a more realistic state share would be between $568 million and $632 million per year, meaning the entire $1.7 billion would last no more than three years. Once that money is spent, Cooper continues to assume that hospitals would agree to a new provider tax paid directly to DHHS. Regardless, hospitals were not so eager to pay such a tax when it was offered before.
Unfazed, Cooper’s budget proposal states optimistically that “$400 million [of the $1.7 billion] would support other health initiatives including increased mental health and telehealth access and programs to support workforce development and Medicaid beneficiary transitions to employer or other private coverage options.”
Not including expansion, Medicaid would cost state taxpayers $68 million more in FY 2021-22 and $614 more in FY 2022-23, based on estimated changes in enrollment, utilization, and cost of care. Money already set aside in the Medicaid Transformation Fund would provide $989 million in FY 2021-22 and $510 million in FY 2022-23 to pay existing fee-for-service claims as enrollees transition to managed care and other costs of the transition.
$171 million appropriation (+$16 million vs. FY 2019-20), $985 million total (+$138 million vs. FY 2019-20)
Surprisingly for his first budget proposal after a global pandemic, Cooper includes no additional money for infectious diseases or pandemic-related programs. Presumably those areas have been covered through the CARES Act or will be funded through APRA, but those federal funds are not recurring.
As budgeted in FY 2019-20, $66 million of the $103 million in state appropriations and $641 million of $815 million in total expenditures for the Division of Public Health covered programs for women, infants, and children. Those programs again would receive the bulk of new appropriations in Cooper’s proposed budget.
$1.6 billion appropriation (+$0.2B vs. FY 2019-20), $5.3 billion total ($0.9B vs. FY 2019-20)
Cooper’s proposed increases in the rest of the DHHS budget would total $200 million in FY 2021-22 appropriations, mostly compensation increases, and $900 million in total expenditures, mostly increases in federal funding determined by federal law with no change in state law.
$3.3 billion appropriation (+$0.3B vs. FY 2019-20), $3.6 billion total (+$0.3B vs. FY 2019-20)
State appropriations provide 90 percent of the funding for the state’s criminal justice system, including the court system, lawyers at the Department of Justice, lawyers to defend the accused, the Highway Patrol, and prisons. The Department of Public Safety also includes National Guard and disaster response.
Compensation increases would, under Cooper’s proposal, make up the bulk of new spending in this area. Other significant changes would include new staff at the long-term care facility at Central Prison and additionalprobation and parole officers to make community corrections more available. For the courts, Cooper would include the first rate increase for private assigned council since FY 2016-17, new equipment for public safety personnel, and a new enterprise system for the courts.
$0.6 billion appropriation (+$0.1B vs. FY 2019-20), $0.8 billion total (+$0.1B vs. FY 2019-20)
Besides compensation increases for existing employees, the biggest changes Cooper proposes for the government agencies that provide direction and support to the rest of state government would be in new positions. The state controller would add 17 new people to maintain the new statewide financial system, the state treasurer would add eight people for the retirement system and four to assist local governments, and the governor would gain seven new positions to shape policy and public opinion.
Cooper would double appropriations for the Housing Trust Fund to $15.3 million per year, send local governments $1 million per year to lobby state and federal officials to keep military bases, and use money from the state’s settlement with Dish Network to provide students with mobile hotspots. He would also have the Department of Administration provide more charging stations for electric vehicles and monitor utility usage by state agencies.
$0.7 billion appropriation (+$0.1B vs. FY 2019-20), $1.2 billion total (+$0.1B vs. FY 2019-20) plus$224 million from an “Energy and Environment Reserve”
Cooper would divert the bulk of new spending on commerce, agriculture, and the environment through a new “Energy and Environment Reserve” fund. Of the total $224 million Cooper would distribute to these agencies, trust funds to acquire land would receive $124 million each year, $68 million would go to energy projects of varying effectiveness, and the remaining $32 million would cover projects from park trails to hog lagoons.
$4.0 billion appropriation (+$0.3B vs. FY 2019-20), $5.6 billion total (+$0.4B vs. FY 2019-20) plus$300 million in Build NC bonds
The biggest change for the Department of Transportation (DOT) in Cooper’s proposed budget would be $1 million for new staff in finance and the Office of the Inspector General to help instill accountability in the agency’s financial management. After overspending by $742 million in a rush to reduce the amount of its cash balance, DOT leadership agreed to recommendations from the state auditor, General Assembly, and Office of State Budget and Management to implement new controls and live within a budget.
The last part of this series will highlight four good ideas and a terrible one in the governor’s proposed budget.