John Locke Update / Research Brief

Gov. Cooper’s Budget Proposal: Deep Dive Into Spending Growth

posted on in Fiscal Insight, Spending & Taxes
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The basics of North Carolina spending do not change much in Gov. Roy Cooper’s proposed budget. As in previous years, more than 85 percent of state tax dollars would go to education, Medicaid, and public safety. The trajectories of spending growth are not sustainable, however. Spending would grow by 5.4 percent against tax revenues that grow just 3.0 percent.

Seeking to undo recent statutory changes that Republicans passed to make state government more fiscally resilient, Cooper dedicates more money to current spending instead of capital and savings and seeks more than $4 billion in debt for a smorgasbord of capital projects.

Cooper and his staff claim he proposed a “comprehensive two-year budget,” but experience suggests it is best to consider the second year as a starting point. For example, spending growth would slow in this proposal from 5.4 percent in fiscal year (FY) 2019-20 to 2.9 percent in FY 2020-21, for a two-year increase of 8.5 percent. We ignore his second-year projection based on logic and experience. It is unrealistic that a governor will slow spending growth in an election year.

In 2017, Cooper sought a 5.1 percent first-year increase and promised slower growth the second year for a two-year increase of 6.7 percent. When 2018 came around, he proposed spending 6.5 percent more than the budget that actually passed, which would have resulted in a two-year increase of 9.8 percent. It seems reasonable to conclude that, barring an economic downturn, Cooper will want to increase spending by much more next year than his current budget proposal indicates.

Public schools would receive $10 billion in state tax dollars, Medicaid would receive $4 billion, and public safety would receive $3 billion. Transportation would receive $4 billion in dedicated state tax dollars.

When considering all sources of funds, Medicaid would jump to $18 billion in Cooper’s proposal, with $2 billion of that increase a result of Medicaid expansion. Of that, $200 million would be raised from new taxes on hospitals and Medicaid managed care organizations.

The largest budget increase would be for salaries and benefits for school employees, adding $422 million to the General Fund budget. These increases would boost recent increases in teacher salaries, which have climbed to $54,000 (29th highest in the nation from 34th last year) or $57,000 (20th highest) adjusted for cost of living.

Other increases in proposed public school appropriations total $145 million. Of that, $55 million would pay for school safety upgrades, $33 million would go to teacher training initiatives, and $29 million would pay for books and supplies.

The UNC System would receive a $110 million increase in continuing appropriations. In addition to $76 million in compensation increases, this would include $30 million to better use campus facilities by encouraging more students to take courses in the summer term and $27 million for degree completion efforts and NC Promise tuition assistance. These increases would be offset by $64 million in one-time and continuing reductions in funding for Opportunity Scholarships that help low-income families find the best educational option for their children.

Rounding out spending on education, community colleges would receive $23 million for workforce training and degree completion, plus $35 million for compensation increases. At the other end of the spectrum, Cooper would direct $16 million in lottery receipts to fund new NC Pre-K slots and would use $14 million in one-time receipts to add 2,300 child care subsidy slots.

Public safety would receive salary and benefit increases totaling $81 million employees and $10 million in safety and security equipment upgrades. In addition, Cooper would allocate $27 million to enable the juvenile justice system to accommodate more youth offenders as a result of the bipartisan Raise the Age law.

Economic development efforts in the Department of Commerce would receive a one-time increase of $82 million. Most of this would be spent in three broad areas. Small matching grants for 68 locally identified projects would total $26 million. A marine industrial park in Perquimans County, renovations to the Rockingham Speedway, and a number of projects around the Global Transpark would receive $20 million. Other rural economic development projects would share $25 million.

Rural broadband grants would acquire $30 million in appropriations through the Department of Information Technology, which would also provide school districts $5 million to help students with broadband access. The Housing Finance Agency would be awarded $20 million to make more worker housing available.

Most of these spending increases do not target the core functions of state government. To pay for his wish list, Cooper suggests adding new debt, leaving existing obligations for retiree health benefits underfunded and only slowly replenishing the state’s rainy-day fund. This budget proposal seems to be the governor’s admission that having more Democrats in the General Assembly has not changed his shortsighted approach to spending.

Joe Coletti is Director of Oversight Staff for the NC House Majority. Joe is a former Senior Fellow at Locke. Here, he examined fiscal and tax policy. He previously headed the North Carolina Government Efficiency and Reform initiative… ...

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