After two weeks of negotiations between Senate and House conferees, the compromise budget was introduced late last night, starting the clock on when the House can take up the bill. Under Senate rules, the Senate can take up the bill immediately, and it will likely take up the bill today and tomorrow. Under House rules, the bill must wait two days to be heard. Presently, the House will take up the bill on Thursday and Friday. It is possible the Democrats will agree to waive the normal rules and allow it to be taken up on Wednesday and Thursday. Because the bill includes tax reform provisions, the bill is a “two day bill,” meaning it must be considered on two successive days. Accordingly, by end of week, the budget will be adopted and sent to the Governor. The conventional wisdom is that Governor Cooper will veto the bill.
The media will no doubt analyze the bill at great length, and I’m not going to try to summarize everything in the budget. This will be an outline of what is noteworthy and what will be criticized. I’ll follow that up with an outline of how the budget affects Henderson County and Western North Carolina and the issues on which I labored.
What Is Noteworthy
Depending on one’s interests, there is much within the 446 page bill that could be of interest. However, teacher pay, cost-of-living adjustment (COLA) for retirees, and state employee pay are among the topics that seem to draw the most interest. The total spend number is just over $23 billion, which represents a 3.1% increase over the most recently enacted budget and a 4.3% increase over projected actual expenditures for the current fiscal year.
Teacher salaries will continue to rise. The average teacher will receive an estimated State-funded increase of 3.3% next year and a 9.6% increase over two years. The salaries for Principals and Assistant Principals will both move sharply higher. A new principal salary schedule will be based on a school’s average daily membership and school growth performance, while assistant principal salaries will be tied to the teacher salary schedule plus 17%. With the new principal salary schedule it is hard to predict what the average percent increase is, but modeling suggests an increase of 8.6%.
Most state employees are getting a salary increase of $1,000. Excluded from these raises are legislators, judges, and Council of State officials (e.g. Governor, Lt. Governor, etc.). There are a range of targeted pay raises for correction officers, Highway Patrol officers, Assistant/Deputy Clerks of Court and Magistrates. One cost-saving provision is that the budget will eliminate retiree medical benefits for new hires after January 2021 in order to reduce long term, unfunded health care liabilities. Since neither the Senate nor the House budget included recurring monies for cost-of-living adjustment to state retirees, the most surprising provision might be a 1.0% recurring COLA.
With lottery funding, the budget includes a new Needs-Based School Capital Fund to provide grants to low wealth counties. This is of interest to high wealth counties, like Henderson County, since the goal is to get the total funding for school construction back up to 40% of the total lottery proceeds. Counties like Henderson County, while not eligible for this new lottery funding initially, will benefit from monies being more available through the other lottery pot of money for school construction.
Monies for textbooks and digital materials will rise by $11.3 million next fiscal year. A new Teaching Fellows program will be established; it is a competitive forgivable loan program that will provide students interested in pursuing teaching degrees in math or science up to $8,250 per year. The loans may be used for tuition, fees and the cost of books. Loans made to Teaching Fellows may be forgiven if the recipient serves within North Carolina in a low-performing public school for one year or a public school that is not identified as low performing for two years.
My bet is that the big news in the Health and Human Services part of the budget is the appropriation of monies to reduce the Pre-K waitlist by 75% in two years. The Child Care Subsidy market rate is also increasing for child care centers and homes. For Henderson County, the issue has been that the child care subsidy is not at the recommended market rate, and the subsidy rate will increase for infants through 2 year olds effective October 1, 2017.
The conferenced budget provides an additional $78.1 million in the first year of the biennium and $102.7 million in the second year of the biennium for the State’s criminal justice system. The funding adds new equipment for the State Crime Lab, additional monies for the State Bureau of Investigation, and will increase the number of Deputy Clerks of Court and Assistant District Attorneys, including one for the judicial district that includes Henderson County.
While monies for transportation generally do not come out of general revenues since there are trust funds using gas tax revenues to fund transportation, revenues are rising which will mean more money to build roads, repair airport runways, and maintain roads and bridges. Revenue is projected to go up 9% in the first year of the budget and 11.8 % in the second year, and that money will go directly to a wide variety of transportation projects.
Perhaps the parts of the budget that impacts most of my constituents are the tax provisions. Under the conference budget, the income tax rate will fall to 5.25% from 5.49% beginning in 2019. The standard deduction will increase to $20,000 beginning that same year. The corporate income tax rate will decline to 2.5% from the current 3%, also effective beginning in 2019.
The policy provision in the budget that will receive the most attention is Raise-the-Age, essentially the bill HB280, which I introduced. When effective on January 1, 2019, 16-and 17-years olds will be considered juveniles for all misdemeanors and some number of low-level felonies. The bill is funded in this budget to allow the addition of resources to the juvenile justice system in advance of the policy change.
What Will Be Criticized
One can expect that critics of the conference budget will say that the tax cuts are too big and the spending is not enough, although there will also be some who criticize the budget for spending too much. The first year tax cuts are minimal — only $6.9 million, which is almost a rounding error in a $23 billion budget. However, in the second year, the cuts are estimated to cut revenues by $521.8 million followed by loss of revenue of $989.1 million, $1.03 billion and $1.07 billion in successive years. The argument will be that those tax cuts reduce revenues that could be used for other things including education, public safety, and a range of human services.
The budget will be criticized because it cuts funding of legal aid, monies that go to various Legal Services offices across the state to provide legal assistance to low-income people. Cuts to funding for the Governor’s Office will no doubt be viewed as punitive, while cuts to the Department of Environmental Quality will continue the Republican legislature’s slashing of DEQ and its predecessor over the past six years. Of course, the new Republican Insurance Commissioner is gaining new employees in contrast to cuts sustained by the new Democratic Attorney General — something else that will be critiqued.
The salaries provisions will not please everyone, since some pay raises, for example, for teachers, are not across-the-board salary increases. Salary increases for teachers focused on the newest teachers two years ago, when folks were concerned about starting teacher pay. Last time, teachers who had some experience but were not the most experienced received the highest raises. This time, the more senior teachers are getting raises.
While the budget includes $100 million for additional disaster relief, the budget does not specify what will be funded. That specificity will have to wait until the legislature passes a separate funding bill.
Depending on one’s views on different issues, one might not like that the Certificate of Need (CON) process was not overhauled or abolished. CON restricts health care providers from expanding without state approval to avoid duplication of costly medical services. Similarly, those who clamor for changes in the school calendar will find nothing in the budget to change the State’s school calendar law.
While there are no pay raises for legislators, there is money in the budget for new furniture and for increased security at the legislature. No doubt there will be criticism of any money spent on the legislature no matter how bad the chairs in committee rooms are.
Critics on the right will wish the tax reform provisions looked more like the Senate budget, which had deeper tax cuts particularly in the first and second years. Critics on the left will wish the House hadn’t compromised on so many spending issues, although the spending targets for both the Senate and House budgets were the same.
Some folks will bemoan the lack of significant monies for film grants, noting the State of Georgia is doing a better job than North Carolina in enticing filmmakers to their state. Others will bemoan that we are spending any money on film grants. Some folks hate incentives to bring new businesses to the state; others think that North Carolina is not doing enough in terms of incentives for businesses to relocate or expand in North Carolina.
A close reading of the budget will disclose dozens of earmarks of all types that send money flowing to local governments and nonprofits to provide services or buy equipment or fund capital projects. This will be viewed as “pork” by many, except when it is money spent in one’s own community. Most of these projects didn’t initially appear in either budget prior to the unveiling of the conference budget.
When all the debate is over and the budget passes both chambers (which it will clearly do), Governor Cooper will have 10 days to take action. He can veto it, in which case the budget bill will return to the legislature for veto override votes. He can sign it, which it means it becomes law when signed, or he can allow it to become law without his signature — basically that will happen if he does nothing after the passage of 10 days. Meanwhile, the legislature will begin the process of closing down in anticipation of adjournment in about two weeks.