NC Budget Update - Week of January 31, 2011

It's early February and we are already focused on the budget down at the NC General Assembly.  Joint Senate and House Appropriations and Finance committees met this week.  Appropriations has already set an ambitious schedule to complete the 2011-12 budget by June, and the Senate took up a bill to restrict the 2010-11 budget. 
The full House and Senate Appropriations committees met on Tuesday, February 1.
Staff (Barry Boardman) gave an overview of the General Fund very similar to that given in December 2010. (See previous blog post and Fiscal Research Division handout here)

• He again discussed the state tax structure - personal income tax proportion has grown, sales tax base shrinking, rates have increased; corporate income tax and non-witholding tax volatile
• We usually use a consensus revenue process for the budget – forecasters develop forecast but a revised forecast can be requested in early May
• 2010-11 revenues so far – right on target for meeting the $9.4 billion target, key resources have started to rebound
• Sales tax collections have improved

Staff (Richard Bostic) gave an overview of the state budget, again, like the presentation given back in December. 

• Areas of Budget Growth: Medicaid caseload grew 62.6% from 2000 - 2010; UNC and community colleges grew; Increases for 2011-12 in state retirement, state health plan, education enrollment growth, medicaid - est $21.6 billion budget
• Budget drivers - Education: (increased enrollment, 99% of budget goes to LEAs) already $305 mil in Recurring cuts, Options for reduction: class sizes, optional spending like salary supplements and capital but must still provide uniform syatem of public schools; Universities: $170 mil cuts to universities but allowed tuition increases, funded $180 mil in enrollment growth to community colleges, cut $29 mil via management flexibility cuts, increased tuition costs; Medicaid - 12% of general fund; 98% of budget goes to providers, already reformed and reduced services, reduced provider rates, Options for reduction: eliminate, restructure or reduce $1.1 bil in optional services, or institute new payment and performance strategies BUT there are legal entitlement issues, almost impossible to reduce eligibility, Affordable Care Act implications; Corrections - $1.3 bil operating budget, 7% of General Fund, 3.9% growth rate, prison personnel 66% of budget, have already closed 7 prisions, eliminated 1,033 positions, reduced inmate medical costs, expanded in-house inmate medical capacity, Option for reduction: reform sentending policies and laws for misdemenanats and habitual felons, reform probation polciies/ procedures (reduce revocations), constrained by current and projected shortage of prison beds, costs of use of local jail beds are mounting ($11.8 mil/year)
• Other spending pressures - rainy day fund, transportation (highway maintenance budget short each year), unemployment debt to federal government
• Other states - 29 states cut medicaid serices.
• Estimated budget reductions for 2009-2010: $5.7 bil cut over the two years, but there were ARRA funds, fund transfers - estimated $1.4 bil actual cuts.

February 2 Meeting of Budget Chairs
On Wednesday morning Appropriations Committee Chairs released a timeline for crafting the budget and instructions for the sub-committee chairs. Sub-committee chairs are not allowed to include any expansion items or new spending in proposed budgets. ‘Management flexibility’ cuts will not be allowed; this means that legislators will have to articulate exactly what programs they plan to cut, rather than asking departments to hit large spending reduction goals.


Here’s the timeline:

• 4/22 – House passes its budget proposal
• 5/14 – Senate passes its budget proposal
• 6/1 – Conference Report is approved by both chambers and sent to the Governor

Appropriation sub-committees start meeting next week on Tuesday, February 8
8:30 AM Appropriations on Department of Transportation (Senate) 1327 LB


8:30 AM Appropriations Subcommittee on General Government (House) 1425 LB

8:30 AM Appropriations on General Government and Information Technology (Senate) 1425 LB

8:30 AM Appropriations on Justice and Public Safety (Senate) 415 LOB

8:30 AM Appropriations Subcommittee on Transportation (Joint) 1327 LB

8:30 AM Appropriations Subcommittee on Justice and Public Safety (Joint) 415 LOB

8:30 AM Appropriations Subcommittee on Education (Joint) 421 LOB

8:30 AM Appropriations Subcommittee on Natural and Economic Resources (Joint) 424 LOB

8:30 AM Appropriations Subcommittee on Health and Human Services (Joint)


Senate Bill 13, Balance Budget Act of 2011
On Thursday morning, the Senate debated SB 13, sponsored by Senators Stevens, Brunstetter and Hunt, seeking to reduce the current year's budget by at least $400 million, and directs transfers from various funds. Any savings realized from this year’s budget would offset next year’s projected deficit, but our Constitution doesn’t allow the Governor to change approved appropriations except when there are threats the budget will be out of balance at year’s end. Thus, in an effort to reduce the budget gap for the coming year, legislators are seeking to direct the Governor to make further reductions.  At this point, no one knows where the money will come from - finding $400 million over the next three months is going to be awfully difficult.

SB 13 also identifies some $165 million in savings from about 20 accounts, including $67.5 million from the Golden Leaf Foundation, $11.7 million from the Health and Wellness Trust Fund, $13.6 million in various unspent appropriations, $3 million from Job Development Investment Grants and $5.2 million from the One North Carolina Fund.
The bill is expected to be passed by the Senate on Monday evening after some further adjustments.