by Sarah Curry
Director of Fiscal Policy Studies
Trick question — North Carolina already has a budget for the next fiscal year. The biennial budget process in North Carolina means legislators return to Raleigh in even-numbered years to make adjustments to a budget that has already been enacted into law. So there is no chance the debate that has been occurring on Jones Street will cause the state government to ‘shut down.’ Stalemate would just mean that state government would continue to operate at levels that were approved during the last fiscal year, with none of the changes that have been discussed this session being enacted.
The Senate filed a bill in early June setting a date for adjournment on Friday, June 27, 2014. That date can be changed, but it means that hopefully legislators will go home before the Independence Day holiday.
So why are legislators still in Raleigh and what is keeping them from adjournment? It sounds like a broken record at this point, but the story is still about Medicaid and teacher pay increases. According to a news article, staff from the Senate Pro Tem’s office said, "The legislature must receive the real numbers on Medicaid and the lottery we requested from DHHS (Department of Health and Human Services) and OSBM (Office of State Budget and Management) to move forward on the budget."
Medicaid is one of the largest expenditures in the state’s budget, and not having accurate forecasts of the program’s future costs mean everything else in the budget is on hold. Similarly, a teacher salary increase is also a large expenditure within the budget, one that cannot be finalized until all other agency spending is agreed upon.
If the House and Senate do not agree upon a budget, the Governor will have to make any necessary adjustments to account for revenue changes and agency shortfalls. In a memo to department heads and legislative leaders, the State Budget Director outlined plans for funding levels for state government. One of these parallels the process used in a recent John Locke study of using reverse logrolling to find savings in the budget.
"Logrolling" is a budgeting technique whereby each chamber negotiates with the other for inclusion of specific line items in the final spending plan. This study reverses that practice by accepting the lower of the two chambers’ previously approved figures for each department or agency, as well as the higher of the two chambers’ previously approved fund transfers. This is referred to as "reverse logrolling."
Reverse logrolling applied to the current state budget would result in a General Fund budget of $20.6 billion. This would create a $667 million surplus, excluding any teacher pay raise. Reverse logrolling before the incorporation of a teacher pay increase would allow legislators more flexibility when discussing spending priorities. It would also allow enough to be set aside in savings and reserves to avoid any unforeseen Medicaid shortfalls in the next fiscal year.
The Governor did state that, in the absence of new spending legislation, the next year’s spending would not include many of the items proposed, such as a salary increase for teachers or state employees, and there would be no cuts to teacher assistants.
It is unlikely that a final budget will not be agreed upon, but the negotiations do highlight the major drivers of the budget once again. Medicaid is a huge part of the budget and continues to grow and exceed forecasts every year. Every budget proposal this year has given some attention to reforming Medicaid, some more aggressive than others. Reform is unlikely to occur this year, but during the next fiscal year we can expect long debate about the future of North Carolina’s Medicaid program.
Hopefully the conference committee will take some of the reverse logrolling into consideration when crafting a final spending plan. Lottery money will play a part in this budget, but until lawmakers receive updated figures, it is a waiting game.
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