Loosening the Gordian Knot
If I had dollar for every time I was asked about when we would pass a budget, I’d make some good money. Colleagues, the media, and my constituents ask about it daily. The opening of schools make the lack of a budget even more uncomfortable and, with the passage of time, more and more issues come to into play as programs don’t receive the funding that they might have if we had adopted a budget.
Two examples illustrate that. The House and Senate budgets agree on a range of increased spending for some programs, Pre-K education and the so-called “Opportunity Scholarships” for example, but those additional funds aren’t flowing because we’re operating under a Continuing Resolution — basically the same funding as last year. And the House and the Senate budgets are very different as to how they fund Drivers Education, with the House providing funding and the Senate not providing funding. Local school systems generally don’t feel that they can spend money on Drivers Education since they don’t know whether they will eventually get state funding for the program. So most local school systems aren’t presently funding and offering Drivers Education.
Constituents are particularly puzzled as to why there is no budget. They think that because there is a Republican Governor, a Republican House and a Republican Senate that it shouldn’t be hard to pass a budget. But it is.
A look back demonstrates that Democrats had the same problem. For example, in 2001 and 2002, Democrats controlled the governorship and both chambers, although with smaller majorities than Republicans enjoy right now, but budgets were not approved until September. In 2005, 2006 and 2009, Democrats had solid majorities and the governorship, but didn’t pass budgets until August.
While the end of the fiscal year occurs on June 30, since 1990, budgets have been enacted by that date only five times, most recently in 2011, the first year that Republicans had a majority in both chambers but the Governor was a Democrat, Bev Perdue. In their last year in the majority in 2010, Democrats also passed a budget by June 30.
What becomes clear is that every year is different. More often than not, budgets are adopted in July, but it is not unusual to go until August. September is unusual but one year, 1998, when the House was majority Republican, but the Senate and the governorship were Democratic, it even went until October.
Some years the legislature was able to pass a budget for current operations and capital expenditures without a technical corrections bill, like in 2014. In other years, the legislature passed a technical corrections bill some weeks after passing operating and capital budgets, to correct mistakes or make some further changes to the adopted budget. One year, in 1996, the legislature actually went home before June 30, and then came back in a special session to adopt a budget.
A complete history of the dates budgets have been enacted since 1961 can be found at this link and click here for a chart that shows graphically how many days before or after the end of the fiscal year state operating budgets have been enacted.
So from a historical perspective, 2015 really isn’t that unusual. Even with one party controlling the legislature and the governorship, it is hard to come to agreement on a budget.
So what is the problem this year?
There is no single impediment to adoption of a budget. Rather, there have been a series of things that have delayed the process. Initially, I was quite aware that the McCrory administration was a bit slow in getting basic budget information to the legislature. When the Governor gave his budget address, like in most years, it was lacking in some level of specificity. However, these issues weren’t completely the Governor’s fault, since the larger issue was a difficulty in predicting revenues for the upcoming fiscal year.
Remember back to late 2014, when a several hundred million dollar shortfall was expected? Then jump forward to early May 2015, and the state found itself with a budget surplus of over $400 million. Well, the budget surplus was great, but one has a hard time predicting revenues for the next year when one bases those projections, in part, on the current year. In other words, the process was initially delayed by the difficulty in making revenue projections, and that difficulty was caused in some large part to the tax reform package that had been passed in previous sessions.
The budget process started in the House this year, and the House came fairly close to hitting its target for passing the budget in mid-May. Similarly, the Senate only missed its target by a week, but still that meant we were already in mid-June.
While not wanting to be too critical of the Senate, the problem for the House at that point was the Senate had constructed a budget which included significant policy provisions. While the House had adopted its education polices, its Medicaid reform proposal, and its economic incentives package for example, in separate bills, the Senate’s budget was over 500 pages and included all of its policy proposals on these subjects and more.
From the House’s perspective, the Senate had tied everything into a Gordian Knot. Basically, the last month has been spent by the House trying to understand all the policy in the budget and considering how to untie the knot without conceding some rather significant policy positions in budget negotiations.
For example, Medicaid reform has been stated by Senate leadership as its highest priority. Mostly, that is a policy issue, although how one does it does affect the numbers. However, if the House is being asked to compromise on Medicaid reform, what does it do with all of the rest of the policy that also relates to health care?
One would think that educators with school starting, for example, would be clamoring to have the two chambers compromise and pass the budget, but that hasn’t happened. Educators seem to like the House budget and they haven’t been pushing House members to compromise with the Senate.
The bottom line is there hasn’t been a lot of movement, but in one respect things are looking good. In my first two terms, it seemed that some part of the budget negotiations played out in the press with House and Senate leaders arguing their positions in the press. That hasn’t happened much this time. Senate President Pro Tempore Phil Berger (R-Rockingham) and Speaker Tim Moore (R-Cleveland) haven’t criticized each other publicly. Senate and House leaders have been communicating privately, not getting into a public debate that could poison budget negotiations.
While the House held hearings to publicize what was in the Senate budget that had moved fairly quickly with a minimum of public process, the tone of criticism has not generally been harsh or personal, and my view is that reflects a positive working relationship between senior Senate and House leaders. While formal meetings between senior appropriators from both chambers will soon begin, that doesn’t mean other conversations about budget differences weren’t occurring. For example, knowing what one’s revenues are likely to be is critical to the construction of a budget, and Finance Committee chairs have also been talking.
Yesterday was the first day that there was actually some reason for optimism, and I caught myself thinking maybe we can finish a budget in August or September. The Senate announced that it was taking the policy out of the budget and would run separate bills on Medicaid reform, economic incentives, and tax policy. Senate leaders promptly followed up on that pledge by scheduling meetings for today to take up House-passed bills on Medicaid reform and economic incentives. While I’m sure the Senate will substitute its proposals for those contained in the House bills, HB117 [NC Competes Act] and HB372 [2015 Medicaid Modernization], those issues will now be conferenced largely separate from the budget. Expectations are that other policies will either follow the same process or simply be set aside for now.
On the House side, the House’s version of the proposed bond package was debated on the House floor, HB943 [Connect NC Bond Act of 2015]. It passed second reading on a broadly bipartisan vote of 97-30 on Wednesday and by another similar vote of 76-29 today. I voted in favor of the bond package. While the interest payments on any bonds that might be approved by the voters are small, it is another one of the things that needed to be decided, and the House has now moved the McCrory administration’s proposal forward.
Even with the progress this week, there are still some huge challenges. One of them is setting the overall spending number. The two chambers and the Governor have been working from different numbers. Decisions on tax policy will also need to be made so that those changes can be reflected in the budget, and there are a myriad of transfers that are contained in one of more of the budget proposals. For example, both the Governor and the Senate proposed moving Parks from the Department of Environment and Natural Resources to a newly named Department of Natural and Cultural Affairs.
I’m telling people that we’ll pass a budget when we feel we’ve got it right. I’d previously warned my spouse that there was no more than a 50-50 chance I’ll be joining her on a long-planned vacation in September, although there may be a better chance after the developments this week. While I’m planning to spend as much time as it takes, history suggests that a budget deal will be reached in August or September.