If you thought North Carolina was alone when it came to tardy budgets, think again. North Carolina joined Alabama and New Hampshire in passing budgets late last week. Now there are only two states left in the country without budgets, Illinois and Pennsylvania.
There are some similarities between the three states that passed budgets last week. Both New Hampshire and North Carolina had previously passed continuing resolutions, avoiding state government shutdowns. Alabama also has Republican control of the legislative and executive branches, and their budget negotiations were full of debate surrounding Medicaid and tax changes, similar to North Carolina.
Both Alabama’s and New Hampshire’s legislatures had experienced gubernatorial vetoes before passing a final budget. North Carolina was able to avoid a budget veto this year, with Governor McCrory signing the budget into law just hours after the legislature finalized the document.
North Carolina’s General Fund budget for fiscal year 2015-16 will rise 3.1 percent to $21.7 billion, below the combined rates of population growth and inflation. The following year, the budget will have an overall increase of less than one-percent, but changes are expected during next year’s "short session" that will likely boost the overall amount spent on state government in FY 2016-17. There are many details to any budget, and while they aren’t all mentioned here, this budget for North Carolina is overall very positive for taxpayers and citizens alike.
This budget cycle was focused on education spending, Medicaid, and transportation. For the current fiscal year, the elementary and secondary education budget exceeded $8.5 billion, an increase of nearly $412 million, or 5 percent, over last year’s K-12 budget. A large part of that spending includes a $2,000 per year increase in the salary for early-career teachers, raising the base pay from $33,000 to $35,000 per year, and experience-based advancement on the teacher salary schedule for all others. All teachers and state employees will receive a $750 one-time bonus.
In this year’s budget, Medicaid accounts for 17 percent of the General Fund and nearly three quarters of North Carolina’s Health and Human Services budget. While plans to reform Medicaid were not included in this budget, legislators set aside $225 million over the next two years to begin the process of improving the state’s Medicaid program.
Transportation also received a massive injection of taxpayer money in this budget, an additional $705 million over the biennium. Part of the reason for the increase was the elimination of the $216 million transfer from the Highway Fund, thereby allowing highway money to be spent where it was intended and not sent to other areas of state government. The John Locke Foundation has long championed this reform.
While the budget focused on spending, there were also some changes to the revenue side of the ledger. This legislation lowered the personal income tax from 5.75 percent to 5.499 percent, which gives North Carolina a lower personal income tax rate than any of its neighbors. It also increases the standard deduction by $500 for joint filers, $400 for heads of households, and $250 for single filers. The corporate income tax was lowered from 5 percent to 4 percent, and a new trigger was put in place that ties an additional one-percent reduction to the tax if the state collects a certain amount of tax revenue within a fiscal year.
Much discussion surrounded the tardy nature of North Carolina lawmakers and their inability to pass a timely budget, but we need to be thankful we aren’t in the same situation as the two states in the country still without budgets. Both Illinois and Pennsylvania are dealing with rising pension payments and are having discussions about tax changes and cuts to spending to make up the difference. Courts in both states have mandated that state employees are to be paid regardless of a budget deal, while only Illinois has agreed to fund elementary and secondary schools.
In all cases for all states, the primary purpose of a state budget is to direct taxpayer dollars to agencies and other government entities for items that the state has a constitutional or statutory obligation to fund or that correspond to the policy priorities of the elected members of the state’s legislature. The success or failure of any budget is dependent on how the money is spent.
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