House Budget Update Dec 15

The North Carolina House got an early start on budget considerations this week.  The briefing started with an update on the state's General Fund, an overview of the 2010-11 budget spending and revenues, a briefing from Governor Perdue and a presentation from the Commerce Department.  I was only present for about half of the meeting because I needed to attend another committee meeting, but my notes from what I heard, including Governor Purdue's presentation are below.

General Fund Update
A look at the average make-up of the General Fund over the last 10 years:

• Personal Income Tax 52.6%
• Sales & Use Taxes 27.2%
• Corporate Income 5.8% (volatile)
• Franchise 3.2%
• Insurance 2.6%
• Other taxes 3.4% (e.g., tobacco, alcohol, estate, etc.)
• Non-tax and transfers 5.3%

Collections through November are meeting the $7.5 billion target but it is a little early to estimate revenues - right now revenues may be a little more than estimated ($700 mil growth).

Recent good news/bad news:

• Good: unemployment rate declining, consumer confidence increasing, existing home sales increasing, withholding and employment modest growth, total personal income up .8% (was down 2.8% this time last year), sales and use tax increasing (on par with collections level of FY 2005-06); economic conditions gradually, slowly improving

Governor Perdue's Remarks
The governor discussed the need to define the core missions of NC - investments in future; future workforce through strong education; services that make NC safe and healthy - boils down to jobs and stable economy. 

The governor asked the legislature to take 3 steps to transform how they do business as we focus on recrafting and redistributing services: 1) limit length of time they are in session - 90 days in a long session, 45 in a short session (suggestions taken from bills filed last year), costs $50K per day, $1 mil per month.  Will save money and work with efficiency.  2) Pass voter empowerment act that would create an independent bipartisan redistricting commission. 3) The legislature should become transparent and accountable.  Review public statutes that apply to the legislature and make consistent with laws related to other state agencies.

State Budget Overview and Preliminary Estimate of FY 2011-12 Budget Gap

• We are facing the ARRA cliff
• 15 states have new budget gaps since beginning of 2010-11
• Looking back for NC: $4.6 bil gap in 09-10, $4.8 in 10-11
• Preliminary availability for 2011-12 - $18.2 billion, adjusted for nonrecurring items $21 billion
• Needs for growth in 2011-12 - state retirement system contribution, state health plan, school enrollment growth, $200 mil increase in Medicaid
• General Fund Budget - dollars in HHS, JPS, Education = 2010-11 18.9 billion.  Medicaid (not HHS as a whole), Education and Justice & Public Safety = 76%
• Public schools - given lots of flexibility in making cuts (recurring).  Opportunities for change - class sizes, optional spending (salary supplements and capital), review role and number of non-instructional staff; constrained by constitution and court cases on SBE.  $3 bil goes to classroom teachers, which directly relates to class size.  Have 90K public school teachers now.
• Higher Ed - high growth in enrollment, cut $170 mil from UNC, allowed tuition increase, increased financial aid, funded community college growth, management flexibility cuts in community colleges, increased tuition (still one of lowest priced in country).  Opportunities for change: tuition, target specific programs for cuts, community colleges could move toward higher income programs like allied health,but must take into account accreditation standards and maintenance of effort requirements of federal funds.  For universities, over the past ten years, their budget has increased 48% and enrollment by 38%.
• Medicaid - recent actions: assumed county share of costs, reduced selected provider rates, reformed and reduced costs in certain services, in particular Community Support and Personal Care Services.  Opportunities for change: optional services, new payment and performance strategies; constraints - legal entitlements, almost impossible to reduce eligibility, healthcare reform, counter-cyclical program.
• Corrections - 7% of General Fund, 3.9% average annual growth, prison personnel 66% of budget.  Have closed 7 prisons, eliminated 1,033 positions.  Opportunities for change: reform sentencing policies and laws (misdemeanants and habitual felons), reform probation policies/procedures.  Constraints - shortage of prison beds, costs for use of local jail beds mounting ($40/day - over $1.8 mil/year).
• Employee Compensation and Benefits - General Fund supported payroll exceeds $11 bil, education employment is 81% of that.  Opportunity for change: look at minimum benefit eligibility requirements, alternative benefit plan designs.
• Owe 2.35 billion in unemployment debt to feds.