Senate Releases More Conservative Budget Plan | Eastern North Carolina Now

    Publisher's note: This post, by Brian Balfour, was originally published in the Budget & Taxes section of Civitas's online edition.

Senate Budget Spends Nearly $700M Less than House, Cuts Taxes, Issues No Debt, Sets More Aside for Rainy Day, Trims Cronyism

    The North Carolina Senate this week unveiled its state budget spending for the upcoming FY 2015-16 fiscal year. The plan includes total spending of $21.47 billion, compared to $22.15 billion in the House budget plan.

    By way of comparison, the Senate plan is $685 million less than the House plan, and marks a 3 percent increase over current year actual spending versus 6 percent by the House plan.

    Much of the difference in spending comes from the Senate's decision to set aside $500 million in to the state's Rainy Day Fund, compared to only $200 million by the House. Moreover, the Senate plan would not authorize any new debt. Conversely, the House plan is in agreement with Gov. Pat McCrory's plan — NC Connect — which would issue a total of $3 billion in new debt for transportation, state parks and state buildings.


    The Senate plan includes a tax cut package that reduces the personal income tax rate from the current 5.75 percent to 5.5, while gradually increasing the standard deduction. The tax plan also ensures corporate tax rate reduction over the next two years to 3 percent from the current 5 percent. (Under current law, the corporate rate cuts are contingent upon certain revenue targets being met).

    Under the Senate budget's tax reforms, the sales tax base would be broadened to include some services such as repair and maintenance of personal property and veterinary services, while reducing the franchise tax on businesses. On net, the tax cut plan is projected to result in $1.9 billion in taxpayer savings over the next five years.

    The Senate's tax proposal also changes how local sales tax revenue is distributed, from the current formula that primarily allows localities keep the majority of sales taxes collected in their region to a formula distributing the revenue according to population.


    The Senate plan, in agreement with the House, would raise starting teacher salaries to $35,000, and provide an average pay raise of 4 percent for teachers. Those teachers with fewer years' experience would receive larger pay raises, percentagewise, than those with more experience. State employees would not receive 2 percent across-the-board pay raises as proposed in the House budget; instead, state departments would get some latitude to grant targeted pay raises.


    With regard to Medicaid reform, the Senate plan would create a new state agency called the "Health Benefits Authority" to oversee the Medicaid program, removing its oversight from the Department of Health and Human Services. The Senate's Medicaid reform plan would replace the current fee-for-service program with one that pays entities on a per patient basis, with the managing entities responsible for costs of the enrollees. The Senate would open up management of these entities to both managed care organizations and provider-led organizations, whereas the House reform plan would only allow for provider-led organizations.


    The Senate budget increases state support for public education by $453 million, fully funding enrollment increases. An additional $270 million over the biennium is provided to reduce teacher-student ratios, specifically in grades K-3.

    The Senate plan also Increases funding for opportunity scholarships by $6.8 million in the coming year (same as the House plan, although the House plan does not include the funding increase for the second year of the biennium), and requires local school districts receiving a performance grade of D or F to develop of plan to improve school performance.


    Among other budget items of interest, the Senate budget proposal:

• Eliminates the $216 million transfer from the Highway Fund, increases DMV fees by 20 percent — compared to 30 percent in the House budget — and provides $316 million to begin road building projects. In contrast, the Governor's Office and the House favor borrowing $1.4 billion for transportation projects (in addition to $1.5 billion for state parks, campus buildings and state offices).
• Phases out Certificate of Need Laws, which force medical providers to get permission from the state to add new facilities and certain types of equipment. The House budget does not eliminate CON laws.
• Extends the sunset of the corporate welfare JDIG program, while adding $5 million in current availability. Makes adjustments to how these funds are allocated, and provides for additional funds to be available for larger investment projects.
• Expands by $4 million funding for the Rural Economic Development Grant programs, bringing the total to $17.5 million.
• Allows solar tax credits to expire. (The House wants to extend them for another two years.)
• Does not include a historic preservation tax credit, while the House budget re-established the targeted tax credit.
• Eliminates the $737,000 state taxpayer funding for the Hunt Institute at UNC, the House budget continued to fund the Institute
• Maintains film production incentives at $10 million per year; the House wants $40 million per year for this crony handout.
• Zeroes out the taxpayer handout to the NC Biotechnology Center, whereas the House budget wanted to increase funding up to $13.6 million per year for the center. The Biotech Center is a former Civitas Waste of the Week
• Increases funding for Tryon Palace by $100,000, another Civitas Waste of the Week.