Budget
First, let me say that this budget was a difficult vote. No one wants to cut services or raise taxes. While not perfect, this budget is much better than an earlier proposed compromise. We all know that North Carolina, like the rest of the country, has been going through the worst economic crisis since the Great Depression. Especially in tough times, we must come together and look to the future. Considering the economic situation, this budget does a lot to protect education, health care, job creation, and public safety. The final version of the budget is $19.8 billion, $2.3 billion less than last year’s budget. In the face of a $4.5 billion budget shortfall, this budget keeps our state moving forward and competitive for the economic recovery.
There were no easy decisions when it came to this budget. In the process of making cuts, we tried to keep educational cuts to a minimum (5.4%), other areas saw cuts as high as 30%. The budget ended up eliminating over 46 programs and cut 2000 state jobs.
Education
Our school children are the future and we owed it to them to do everything we could to protect education spending and minimize impacts on the classroom. The budget maintains per-pupil spending and protecting all teachers and class sizes in kindergarten through third grade. This budget gives local school districts the maximum flexibility to keep as many teachers as possible and directs them to do whatever is necessary to protect the classrooms in grades 4-12. Teachers and parents have been loud and clear-we are eliminating state-mandated tests not required by the federal government and saving $3 million by doing it. The budget fully funds enrollment increases at the community colleges and universities.
The State, through extra funding from the Golden Leaf Foundation, is continuing to improve job training initiatives at community colleges that are so necessary right now—especially vocational and technical education.
Final Budget Cuts
This year’s budget is $2.3 billion less than last year’s, the largest budget reduction in state history. We are extremely thankful for the federal recovery funds that helped minimize cuts to education and health care, but we still were forced to make close to 600 cuts to programs. Every part of state government has been cut and we made almost $2 billion in real, tangible cuts to programs--roughly 8 percent across the board.
Programs affect people--while we eliminated a lot of waste and duplication, we also made cuts that will impact the lives of everyday North Carolinians. The cuts in health and human services were especially difficult.
Education
More than 6,000 teachers retire annually and the schools will likely be able to manage their spending cuts by not filling vacant positions and by using their stimulus funds.
Protected the early grades (K-3) from increases in class size and also gave superintendents more leeway than ever to use their resources in a way that protects classroom instruction.
Replace school buses every four years instead of every three years
Reduce the number of tests students must take every year
No salary increases or achievement bonuses for teachers
Reduce cuts to LEA system offices
Cuts 165 positions out of Department of Public Instruction and reduces additional funding for DPI operations by 15%
Eliminate 200 literacy coaches
Eliminate the dual-enrollment/Huskins program that allows high school students to take college courses tuition-free
Eliminate funds for professional development
Increase community college tuition by $8 per credit hour – and in next year’s (10-11) budget, increases university tuition by $200 or 8%, whichever is less.
Eliminate Legislators’ Schools for Leadership Development
Reduce state funding for university centers and institutes
Cuts to the universities will result in almost 1800 positions lost.
DHHS
Reduce child care subsidies by $15M
Eliminate 350 jobs within mental health/substance abuse division
Eliminate funds to help people quit smoking
Increase copayments for prescription drugs
Reduce grants to Special Olympics, ALS Association and other nonprofit entities
Eliminate state funding for 16 state-operated child support services, transitioning responsibility to the counties served by those offices.
Reduce Medicaid provider rates ($76M)
Reduce Medicaid prescription drug costs ($25M) with better utilization management, increasing rebate collections on generic drugs, and, if needed, a preferred drug list
• Reduce Community Support services by $65M and in-home personal care services by $40M
Increase copays on Medicaid services by $2
Freeze Community Alternative Program slots for adults with developmental disabilities or mental retardation
Medicaid cost-containment and fraud recovery
Environment
Reduce Clean Water Management Trust Fund by $50M
Cut funding for oyster reefs and fisheries, water quality efforts, science museums
Information Technology
Cut the state’s IT budget by 28 percent.
Justice and Public Safety
• Eliminate Superior Court Judges' annual $7,000 travel allowance
• Close seven prisons ($22,330,604), 561 jobs
• Eliminate jail misdemeanant payments to counties ($10,000,000)
• Eliminate funding for the Support Our Students (SOS) and Governor's One-on-One Programs ($8,273,077)
• Close 2 Eckerd Camps ($2,768,714)
• Reduce funding for National Guard tuition assistance ($500,000)
Commerce
• Reorganize Heritage Tourism into three regions
• Sell the state’s King Air plane and eliminates the pilot position
General Government
• Reduce funding for arts groups, historic sites, museums
• Reduce funds for statewide commissions, advisory councils and advocacy groups
• Cut the legislature’s budget by over 12 percent
Taxes in Budget
The budget cuts spending versus raising revenue by a 2-1 margin. The Senate hasn’t backed off broadening the base and lowering the rates and is still committed to reform—hopefully it will replace this finance package. The House was unwilling to consider the Senate proposal for tax reform, and in the interest of time with school starting in a few weeks, we had to plug the shortfall. There is a provision in the budget to work on this before nest year’s session.
• 87 percent of North Carolina taxpayers will not be affected by the income tax surcharge, which is only for the next 2 years.
• Individuals making under $60,000 per year and married couples filing jointly making under $100,000 per year will be exempt.
• The surcharge is 2% for individuals making between $60,000 and $150,000 per year and couples making between $100,000 and $250,000.
• For example, an individual making between $60-70K will pay about $53.00 more. A married couple making between $100-125K will pay about $81.00 more.
• The surcharge increases to 3% for individuals making over $150,000 and for married couples over $250,000.
• The surcharge applies to the tax payable on your North Carolina taxable income for the year (your taxes owed to the state or withheld) and is not an increase in the tax rate. If you are due a refund, it will be subtracted from your refund.
• The 3% corporate tax surcharge will keep our business climate competitive for attracting jobs and industry. It’s based on profits earned and does not raise the overall rate.
• An additional 1 cent sales tax, while not something anyone likes, will have a minimal impact on consumer spending and working families’ bottom line.
• It was important to include an increase in tobacco and alcohol taxes—these products contribute to our state’s rising health care costs and I could not support any revenue increases that did not include tobacco and alcohol.
• Online retailers that have sales representatives in our state will be required to charge sales tax, which is fairer to the brick-and-mortar retailers of our state.
The 1-cent increase on the sales tax is projected to increase revenue by more than $803 million; the income tax surcharges are expected to bring in $172 million, the corporate tax $23.1 million, $11.8 from digital downloads and internet purchases, and more than $68 million from the increase to the tobacco and alcohol excise taxes.
While raising taxes is tough, an additional $1 billion cut would damage the state’s ability to maintain obligations to our most vulnerable citizens and would damage the state’s ability to achieve timely economic recovery. It would have also, done irreparable harm to the education system, which makes up over half of the budget. For instance, that’s equivalent to the cost of 18,000 teachers.