John Locke Update / Research Brief

Budget 2019: Mini Budgets Circumvent State Budget Staring Contest

posted on in Fiscal Insight, Spending & Taxes
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Despite his protestations, Gov. Roy Cooper has signed three mini-budget bills passed unanimously by the General Assembly. Republican legislative leaders signaled their move to piecemeal budgeting in mid-August when they announced a refund of up to $250 per taxpayer. All but four Democratic House members had previously signed a letter stating they would uphold Cooper’s budget veto.

This piecemeal budgeting ensures funding for key items with fewer earmarks than the General Assembly included in the original budget Cooper vetoed. Republican legislators will likely not get their latest tax reforms through the process, but neither will they need to capitulate on Medicaid expansion and its $6 billion price tag over two years, which would be paid with federal borrowing and new state taxes on insurers and hospitals.

While the tax refund bill waits for the House to return from its post-Labor Day recess next week, legislators have passed three bills (HB126 for most employees, HB226 for State Highway Patrol Troopers, and HB777 for State Bureau of Investigation and Alcohol Law Enforcement) providing 2.5 percent raises to state employees who are not employed in education. A fourth bill (HB426) covering employees in school districts and higher education and providing one-time increases for retirees passed the House 65-48 but did not receive a Senate vote before Labor Day. No bill offering teacher pay raises has advanced.

Because the bill did not provide for Medicaid expansion, Cooper vetoed HB555, which would have provided money to meet higher costs in Medicaid and Health Choice, the state’s insurance program for children, and funded Medicaid’s shift to managed care. It passed each chamber by five votes, not enough to guarantee an override. Legislators also acted quickly after Cooper’s initial budget veto to allow federal grants (HB961) to continue flowing through the state treasury.

The bills signed into law so far add $278 million to the budget for Fiscal Year (FY) 2019-20 and $648 million for FY 2020-21. If it becomes law, the tax refund would add another $669 million in FY 2019-20. The education raises would cost $73 million in FY 2019-20 and $126 million in FY 2020-21. Together, the bills would increase spending by $1 billion this year.

Teacher pay, funding to raise the age for juveniles to be considered adults in the criminal justice system, and capital projects could double that amount if they were funded close to the amount in the General Assembly’s budget. If legislators and Cooper could agree on these items, they would leave $831 million available to rebase Medicaid spending and prepare the program for its transition to managed care, to put in the Savings Reserve, or to have available for next fiscal year.

John Locke Foundation chairman John Hood thinks the current approach could be “more than just a temporary solution to a vexing political conflict” and sees “good reasons to vote separately on operating budgets, capital budgets, pay raises, and bills to draw down federal funds for state projects.” North Carolina has in the past had separate bills for continuing operations, capital, and expansion items, and the State Capital and Infrastructure Fund provides a partial return to that system as does the current system of base budgeting.

Past research has found that states that operate with a single budget committee and a single budget bill spend less than those with a spate of separate bills from multiple committees. The piecemeal approach works this year, in part, because the pieces are enacting what was already proposed in the total budget bill. A line-item or line-adjustment veto could accomplish some of the concerns about earmarks and policy changes in the budget without removing the discipline of a single bill from a single committee.

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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