- The North Carolina House released its biennium budget proposal this week as scheduled, and the North Carolina Senate is scheduled to release its version next before the two chambers meet to establish a conference budget
- The House budget proposal contains tax cuts, generous capital spending, state employee raises, and investments in workforce training programs
- Nonbudget policy items in the budget include requirements to inform the public of classroom materials, voter ID funding, additional state funding limitations on abortion, and prohibition on state or regional emissions standards for new cars
North Carolina House members unveiled their biennium budget proposal at a press conference Wednesday afternoon. Their budget largely focuses on workforce development, education, state employee pay increases, infrastructure and capital spending, and tax cuts.
This brief highlights important budget items, but it is not comprehensive. The 415-page budget bill can be found here.
The House proposed spending $29.8 billion in the first year of the biennium (fiscal year 2023-24), a roughly 6.5% increase from the current fiscal year’s spending. They proposed spending $30.9 billion for the second year, though that number would likely be adjusted during next year’s short session.
Tax revenues will exceed projections by an estimated $3.25 billion this year, giving budget writers significant unspent monies to work with. Even so, the budget proposal would send no additional funds to the Savings Reserve, although it would set aside $4.2 billion into other reserve funds. Those reserve set-asides include $1 billion each year into the Clean Water and Drinking Water Reserve as well as others mentioned below.
The proposed year-over-year spending increase is quite large. As our nation is on the brink of recession, the new recurring spending that the state would then be on the hook for indefinitely is worrisome. This budget would add a net $2 billion in new recurring spending in the first year and $3.3 billion in new recurring spending in the second year. Moreover, with the signing of this budget, Medicaid expansion would be authorized, creating long-term vulnerabilities for state and national taxpayers.
Even so, the top line spending number for the House proposal is much more conservative than Gov. Roy Cooper’s recommended budget, which would have grown spending by 18%.
Other important items in the House budget proposal include:
- Cautiously move up the already scheduled personal income tax rate reduction. Under the House budget, the rate would drop to 4.5% one year earlier than scheduled. As currently scheduled, the personal income tax rate will fall from 4.75% to 4.6% in January of next year. Under the House budget, the rate would be 4.5% next year and in 2025. The rest of the scheduled rate decreases remain as scheduled, with the rate reaching 3.99% after 2026.
- Do nothing to accelerate the corporate income tax rate reduction, keeping the next reduction slated for 2025, when the rate will decrease to 2.25%. The 2021 biennium budget boldly cut taxes, and this budget would continue those great reforms. Even so, dramatic spending in other budget areas implies legislators could have been more aggressive in cutting taxes.
- Perhaps more notably, raise the standard deduction by 2%, helping low-income families the most. Under this budget, married families filing jointly would see their standard deduction increase from $25,500 to $26,000 while the deduction for single filers would increase from $12,750 to $13,000. The John Locke Foundation has recommended indexing the standard deduction to inflation to prevent low-income taxpayers from becoming unnecessarily pushed above the standard deduction ceiling even if their inflation-adjusted wages have fallen.
- Increase the child deduction by 20%, with the larger increases occurring for lower-income households. A married family filing jointly would see the child tax deduction increase from $3,000 to $3,600 per child if their adjusted gross income (AGI) is less than $40,000. Families with AGI between $120,000 and $140,000 would increase their deduction amount from $500 to $600.
- Establish a refundable adoption tax credit of $2,000 for families who qualify for the federal adoption tax credit and also establish an income tax credit for live organ donation expenses equal to the lesser of the live organ donation expenses or $5,000.
- Reduce franchise tax liabilities. The 2021 biennium budget simplified the franchise tax base, reducing business tax liabilities. Instead of requiring businesses to calculate their liability under three different bases, businesses only look at their apportioned net worth to calculate their liability. The House budget would take this a step further, reducing their liability from the current rate of $1.50 per $1,000 to $1.00 per $1,000 in 2029. The rate would decrease by ten cents each year beginning in 2025.
- Repeal the harmful, archaic, and redundant privilege license tax, a win for businesses and workers in North Carolina.
State Employee Salaries and Benefits
- Provide most state employees with a 4.25% across-the-board raise in the first year and an additional 3.25% increase in the second year.
- Provide teachers with a 4.25% pay increase in the first year, and an additional 3.25% increase in the second year, and provide additional step increases that would bring the average pay raise to 10.2% over the biennium, according to budget writers.
- Set aside additional funds for further salary increases to address specific staffing issues for various sectors in hard-to-retain positions or localities.
- Set aside $17.7 million in recurring funds to implement a new salary schedule for the State Highway Patrol.
- Implement a 2% cost of living adjustment for retirees over the biennium. This increase to TSERS from the General Fund would be recurring.
- Provide $8 million in recurring funding for advanced degree salary supplements for public school teachers.
- Slate $10 million in recurring funding to provide paid parental leave for public school personnel.
- Provide incentives for various professionals to work in rural areas, such as providing $25 million each year for health providers who agree to practice in rural and underserved areas.
- Set aside $1.3 billion to the State Capital and Infrastructure Fund (SCIF) for the biennium on top of the statutorily required reservation ($2.9 billion for the biennium in this case) to fund capital and construction across the state and avoid needing to finance such projects through debt.
- Spend $400 million over the biennium in nonrecurring dollars on repairs and renovations for state-owned facilities (not including the UNC System) and more than $500 million in nonrecurring dollars on repairs for the UNC System.
- Allocate $300 million in nonrecurring dollars over the biennium for community colleges for construction, repairs, and renovations.
- Spend significant resources on capital for the Department of Agriculture and Consumer Services, including $200,000 for Western NC Farmers Market planning, $5 million for Raleigh State Farmers Market improvements, and $3.35 million to the North Carolina Forest Service in Duplin County for the biennium.
- Provide $30 million over the biennium to the Department of Health and Human Services to establish the new South Piedmont Regional Medical Examiner’s Office.
- Give nearly $32 million to the state Department of Environmental Quality for a new research facility.
- Spend $33 million for headquarters renovations for the State Bureau of Investigation (SBI).
- Expand Medicaid as authorized in HB 76. The nonfederal share of the costs, totaling nearly $500 million in the first year, would mostly be covered by a new fee assessed on hospitals. For more on Medicaid expansion and what this means for the state’s fiscal future, see here.
- Allocate $60 million in additional funding to increase the wages of direct care workers.
- Set aside nearly $300 million in recurring funding, of which only $100 million per year would come from the General Fund, to maintain the current Medicaid reimbursement rates for skilled nursing facilities.
- Spend $15 million per year in recurring funds to expand communicable disease testing, surveillance, and detection.
- Invest heavily in bolstering the healthcare workforce, including $20 million in nonrecurring funding to the nonprofit North Carolina Independent Colleges and Universities (NCICU) to support and advance courses that lead to a degree in healthcare–related fields.
- Spend $20 million in nonrecurring funds to expand courses leading to degrees or credentials in health–related fields at community colleges.
- Spend $40 million in nonrecurring funds to expand health-care–related courses at UNC institutions.
- Fund programs to bolster health care options, including $11 million for the biennium to support The North Carolina Association of Free & Charitable Clinics.
- Expand eligibility for school choice. The Opportunity Scholarship program currently requires students first to attend a public school if they enroll in K-2nd grade. With the House budget, previous public schooling would not be required for K-8th grade.
- Contribute significantly to school safety measures. It would provide $40 million over the biennium for school safety grants to support students in crisis, school safety training, and safety equipment.
- Spend an additional $20 million in the biennium to mitigate cyberbullying, monitor classroom technology, and assist with suicide prevention services.
- Slate nearly $60 million in recurring funding to provide teacher assistants in the fourth grade to make up for the transition to larger classrooms in the fourth grade from having larger class size restrictions. An additional $20 million in nonrecurring funding for the biennium would go to the Department of Public Instruction to reward teacher assistants who complete coursework to become teachers. Another $575 million in recurring funds would provide additional tuition expenses to account for additional teacher assistants in the program.
- Allocate $10 million in recurring funding to expand N.C. State University’s College of Engineering.
- Set aside $25 million in recurring funding to provide scholarships to students for the Longleaf Commitment Community College Grant Program. Another $25 million in recurring funds transferred from the Escheat Fund would increase the number of state residents who can attend the program at no cost.
- Limit state funding for abortions. State funds are already prohibited from being used to support abortion except if the life of the mother is at risk or in cases of rape or incest. With the House proposal, no state funds could be used to renew or extend contracts with any provider that performs abortions.
- Make the State Bureau of Investigation (SBI) an independent agency and bring the State Crime Laboratory under the SBI.
- Prohibit the State Board of Elections (SBE) from joining the Electronic Registration Information Center, Inc. (ERIC), a voter registration data-sharing program. It would also prohibit SBE and county commissioners from accepting private donations for conducting elections.
- Prohibit cap and trade requirements for carbon dioxide emissions.
- Increase academic transparency by requiring classroom course materials to be available to the public.
- Put into effect a prohibition on state or regional emissions standards for new motor vehicles.
- Set aside $3.5 million in nonrecurring funds to implement the voter ID law passed in S.L. 2018-144 and amended in S.L. 2019-22.
- Prohibit employment discrimination by any state agency, city, county, or political subdivision of the state against people for refusing a Covid-19 vaccine.
Corporate Welfare and Pork Spending
- Add $400 million to the Economic Development Project Reserve, along with $1.1 billion to the Regional Economic Development Reserve, over two years. Putting funds into these separate reserves allows for future politically favored local projects to be funded without transparency.
- Send $300 million over the biennium to the Megasites Readiness Program, increasing the number of developed state-supported megasites — properties viable for industrial development that exceed 1,000 acres — from five to seven.
- Add dozens of pork spending projects, including $4 million to the Carolina Ballet, $17 million to purchase a portion of the Saluda Grade Trail, and $10 million for the Lake Mattamuskeet Outfall Canal project.