July 23, 2013
RALEIGH — Lawmakers are considering a $20.6 billion General Fund budget deal that incorporates tax and education reforms with long-term positive impacts for North Carolina. That’s according to the author of a new John Locke Foundation Spotlight report.
“With a tax reform plan designed to improve conditions for economic growth in North Carolina, and education reforms based on years of sound, research-based proposals, this budget moves North Carolina government in the right direction,” said report author Sarah Curry, JLF Director of Fiscal Policy Studies.
The General Assembly is addressing these changes despite unexpected growth in Medicaid funding that limited lawmakers’ ability to fund other government priorities, Curry said. “Medicaid accounts for the largest increase in spending in the budget, amounting to almost $1 billion over the two years of the budget plan.”
Overall General Fund spending increases by 2.5 percent in 2013-14. To account for Medicaid growth, lawmakers made adjustments in other departments and agencies, Curry said. “While making some cuts, lawmakers also create more accountability for state funds,” she said. “Meanwhile, they were able to update the state’s outdated information technology infrastructure and continue to fund the state employees’ pension and health plans.”
The tax reform plan Gov. Pat McCrory signed into law Tuesday led to adjustments in the amount of money available for spending over the next two years: $86.6 million in 2013-14 and $437.8 million the following year.
“That amounts to more than a half-billion dollars over the next two years that North Carolinians will be able to spend, save, and invest on their own, rather than surrendering the money to government to pay for politicians’ priorities,” Curry said. “Over time, a flat personal income tax rate, lower corporate income tax rate, and the elimination of special provisions and loopholes will make North Carolina more competitive with neighboring states. Tax reform will also improve the state’s business climate, which will promote job growth and economic prosperity.”
Education takes up 56 percent of total General Fund spending in the new budget plan, amounting to more than $11.4 billion. Reforms incorporated in the budget are likely to produce positive gains in student achievement if implemented correctly, Curry said.
The budget includes $10 million by 2014-15 for new opportunity scholarships. This program offers up to $4,200 annually for low-income families to send their children to private schools. “Over time, incorporation of the opportunity scholarship has the potential to serve low-income students’ educational needs more effectively, while spending tax dollars more efficiently,” Curry said.
Lawmakers also eliminate teacher tenure, lay the groundwork for performance pay, and devote more money to recruiting and retaining high-quality teachers through an expansion of the Teach for America program, Curry said.
Critics miss the mark when they emphasize a reduction in funding for public school teacher assistants, Curry said. “Ten years of rigorous peer-reviewed studies conducted on the presence of teacher assistants and other paraprofessionals in the classroom suggest that these staffers do little to increase student achievement,” she said. “Lawmakers preferred to devote scarce education dollars to areas that would have more bang for the buck.”
Most growth in state funding can be traced to Medicaid, which has seen spending increase by nearly 90 percent over the past decade, Curry said. “Between the 2009 and 2012 budget years, Medicaid spending exceeded the approved budget by a combined $5.4 billion,” she said. “The cost overruns have averaged 11 percent of the Medicaid budget.”
The General Assembly is set to accomplish one of its most important tasks of the year when it finalizes a budget, Curry said. “This budget offers the best possible solution available now to address the Medicaid spending problem, while it redirects other state funds to state government’s most critical needs,” she said. “Fiscal responsibility was the overwhelming theme of this year’s budget debate, which is a refreshing change from the not-too-distant past.”
Sarah Curry’s Spotlight report, “Budget Basics: Sustaining the present, preserving the future,” is available at the JLF website. For more information, please contact Curry at (919) 828-3876 or [email protected]. To arrange an interview, contact Mitch Kokai at (919) 306-8736 or [email protected].