North Carolina state budget

North Carolina operates on a biennium budget schedule, budgeting for two fiscal years at a time.^[1] While the General Assembly draws up a budget every two years, it then adjusts the budget prior to the state of the second fiscal year of the budget^[2] which begins on July 1.

The Assembly passed the $19.7 billion FY2012-13 state budget on June 5, 2011 budget.^[3] Gov. Bev Perdue vetoed the bill on June 12, 2011, the first time in state history that the governor has vetoed a budget. Lawmakers voted to override the veto on June 15, 2011, and the budget took effect.^[4] The legislature proposed changes to that budget for the second year, FY2013.^[5] Their $20.2 billion budget took effect after the legislature overrode the governor's veto.^[4]

North Carolina has a total state debt of approximately $94,982,155,000 when calculated by adding the total of outstanding official debt, pension and other post-employment benefits (OPEB) liabilities, Unemployment Trust Fund loans, and the FY2013 state budget gap.^[6] The FY2013 state debt total is down from the FY2012 state debt total of $97,376,318,000.^[7]

North Carolina's total state debt per capita is $9,836.19.^[8]

See also: The North Carolina State Budget on State Budget Solutions

Economic Freedom

A new Fraser Institute report on economic freedom ranks North Carolina 13th in economic Freedom. Delaware ranks 1st and New Mexico ranks 50th. The study examines the impact of economic freedom on both the level of economic activity and the growth of economic activity. According to the study, the freest economies operate with minimal government interference, relying upon personal choice and markets to answer basic economic questions. More governmental restrictions on those choices curbs economic freedom. The study looks at three major categories per state – size of government, taxes and regulations. ^[9]

Federal Aid to State Budget

The chart below represents how much of the state’s budget comes from the federal government. The number is the corresponding ranking in relation to the rest of the nation (if #1, the state receives the highest percentage of federal funding in the nation):

Figures are calculated by dividing each state’s intergovernmental revenue into its general revenue. Data is available at in U.S. Census.

Fiscal Year 2014 State Budget

Gov. Pat McCrory will introduce his proposed FY2014 state budget in March 2013. Budget writers could begin the next budget with a tiny surplus, projected to be about $100 million.^[10]

Senate leader Phil Berger said that he wants the FY2014 state budget to be smaller than the FY2013 budget, which is $20.2 billion.^[10]

Fiscal Year 2013 State Budget

Gov. Perdue vetoed the $20.2 billion FY2013 state budget the legislature sent to her, but both chambers of the legislature overrode her veto.^[4] At issue was funding for education and the state's reserves, with the governor wanting to use $100 million from the reserves on K-12 schools, probation officers and other items.^[11]

The revised budget that became law when the legislature overrode the governor's veto can be found here.

Highlights of the budget for FY2013 include:^[4]

• Raises of 1.2 percent raises for teachers and state employees and 1 percent cost-of-living increases for state retirees.
• $212.5 million for growth in Medicaid program.
• $39.7 million in monthly stipends to adult care homes for residents who do not qualify for personal care services paid by Medicaid, but whose community placements are not arranged.
• Capping the state gas tax.
• Reduces by $143.3 million the amount local school districts must return to the state. Schools will have $190 million less to spend this year.

Legislative Proposed Budget

The North Carolina House the proposed $20.3 billion budget with a vote of 73-46, which fell mostly along partisan lines.^[12]

The Senate tentatively approved on June 13, 2012 the $20.1 billion budget that was drafted by Republicans.^[13] It spends $127 million less than spending plan approved by the House and $758 million less than what Gov. Perdue proposed. The biggest difference among the plans is Republicans won't raise the state sales tax by three-quarters of a cent, as Perdue wants, to generate more revenue. The Senate's proposed budget also changes funidng for Medicaid and public education and would require 2 percent cuts elsewhere in state government. The Senate plan does not completely replace $259 million in federal funds that school districts will not receive next school year.^[14]

The Senate's proposed budget spends $466 million more than the state spent in FY2012.^[13]

Governor's Proposed Budget

Gov. Perdue unveiled her proposed adjustments to the $20.9 billion spending plan for FY2013 on May 10, 2012,^[15] and the budget can be found here.

Gov. Perdue said her spending proposal for FY2013 would include a temporary sales tax increase of three-quarters of a penny, the revenues from which would be dedicated to public education. That would raise the sales tax consumer in most counties pay from 6.75 percent to 7.5 percent.^[16]

The administration told several House subcommittees to find reductions equal to 1.5 percent of what the two-year budget directs them to spend in FY2013.^[17]

The governor's proposed budget spends $1.2 billion more than the state spent in FY2012.^[13]

Fiscal Year 2012 State Budget

• See past state budgets

As of the end of April, lawmakers learned that the state would have a revenue surplus of about $233 million for FY2012, but they expected a $150 million shortfall for the state's Medicaid program to take up a large portion of that surplus.^[17]

The House passed a $19.7 billion budget by a vote of 73-45 on June 11, 2011, matching a similar Senate plan. Gov. Perdue vetoed the bill on June 12, 2011.^[18] Lawmakers voted to override the veto on June 15, 2011, and the budget took effect.^[4] Gov. Perdue said she vetoed the budget in pat because it cuts education spending. The budget ends the expiring three quarters of a cent sales tax, eliminating $800 million in revenue Governor Perdue has relied upon to fund teachers' jobs and protect education.^[19] Democrats said that the budget cuts roughly 13,000 education jobs statewide, including nearly 9,300 in public schools.^[3] Republicans have said those numbers are exaggerated and don't take into account usual employment attrition and more than $250 million in unused federal money. Republicans also say that the budget spends almost $7.5 billion on the public schools next year, or nearly as much as Perdue's proposal in February.^[20] The budget also cuts funding to higher education, directing the University of North Carolina system to find $414 million in cuts.^[20]

The legislature considered a bill that made mover than 35 changes to the budget the week after it was passed, and the legislature typically passes a technical corrections bill after every budget that serves as a kind of clean-up bill. This bill would do a variety of things, from allowing the Lieutenant Governor to keep to his cell phone to specifying that certain prisons could not be among those closed as part of the closures called for in the budget. ^[21]

Gov. Perdue said she did not intend to raise taxes^[22] and said that she does not intend to extend a temporary 1-cent sales tax increase approved a year ago to help close a deep fiscal hole.^[23] The state sales tax would revert to 6.75%.^[23] Responding from a request from Gov. Perdue regarding the FY2012 budget, administrators from the public schools and university system told a General Assembly oversight committee how they would be affected by spending cuts of 5% or 10% to a General Assembly oversight committee.^[22]

The 342 page budget can be found here.

State government reorganization

North Carolina state government is undergoing the biggest reorganization in 40 years to streamline it and make it more efficient, and the centerpiece is the creation of a 25,000-employee criminal justice super agency. The state did not know just how much money would be saved by the reorganization.^[24]

Medicaid

As of December 2011, the state has a projected shortfall of $139 million in Medicaid funding and the governor and legislature have not reached an agreement on how to close the funding gap.^[25]

Education

Legislators spent about $258 million less on public education than Perdue proposed, or about 2.3 percent less. The budget does provide additional funds to hire more than 1,100 teachers in early grades and the framework to create a merit pay plan for teachers starting in the 2012-13 school year. ^[4]

State education officials said the budget would lead to the elimination to 13,000 public education jobs, of which 3,200 comes from the University of North Carolina system. Republicans did not agree with those numbers, saying that they fail to account for more than $250 million in federal funds for preserving education positions that the local districts have not spent. ^[4]

The budget limited enrollment in the NC Pre-Kindergarten program. Superior Court Judge Howard Manning ruled on July 18, 2011, that changes that limit enrollment in the service violate a landmark state Supreme Court ruling, the so-called Leandro II ruling, that every child has a constitutional right to an equal education.^[26]

Expiration of Taxes

The FY2012 budget permits temporary taxes expire, meaning the base sales tax consumers pay will decrease from 7.75 percent to 6.75 percent. Other taxes for the highest wage earners and corporations, approved in 2009 by Democrats, also won't be renewed.^[4]

Cuts

The budget makes many other cuts, including educe spending in the Department of Environment and Natural Resources by more than 12 percent, reducing the number of agency employees by about 160. It also gives The Clean Water Management True Fund $11.3 million, although the fund is supposed to receive $100 million annually.^[27]

Funding for more than 1,250 full-time positions would be eliminated in the courts, local prosecutor offices and prisons.^[4]

Negotiations

Legislative Budget

On May 5, 2011, the House approved a $19.3 billion budget bill by a vote of 72-47, with some Democrats supporting the Republican proposal. The bill will go to the Senate, which will create its own budget version, and then the House and Senate also will take votes on a final compromise budget before it goes to Gov. Perdue.^[28]

The budget approved by the House cuts more than $360 million for teacher assistants, janitors, clerical workers, assistant principals, and programs. IT also includes a provision that makes the State Board of Education, not local boards, responsible for setting policy on how impending school layoffs will be handled.^[29] The plan spends $650 million less than Perdue proposed for the coming year in the public schools, the University of North Carolina system and community college system and 11 percent less than what was required to keep services running at current levels.^[28]

The House budget includes the expiration of a pair of temporary tax increases -- an extra penny on the sales tax and higher income tax bills for top wage earners. Republicans ran on doing away with the taxes during the fall campaign and allowing them to expire means the state will have $1.3 billion in lost revenues.^[28]

The House plan also increases many fees, including:^[30]

• High school students would pay up to $75 for driver education classes that were previously free.

• Criminal defendants will pay up to $70 more in court fees, and pay $10 for each night they spend instead of the prior $5/night fee.

• Community college classes will cost more, and so will a variety of state licenses and inspection fees.

• Commuters who travel to work on two busy coastal river ferries, now free, will have to pay tolls or buy passes that could cost up to $100 a month.

• Drivers with speeding tickets and other defendants would pay $24 more in costs for District Court, and $52 more for Superior Court.

• parties in civil suits would be charged $20 to file motions, and $150 to $200 to file counter-claims, which could lead to the courts' collecting an additional $57 million in new or increased fees for the state, and $35 million more for counties.

Unemployment Insurance

The U.S. Labor Department notified state officials at the beginning of August that it would stop paying from the extended benefits program by April 16 because the state's recent three-month average unemployment rate had improved statistically from the depressed rates of prior years.^[31]

On April 16, 2011, the legislature passed a bill linking the state budget and state unemployment benefits, extending the benefits but forcing the Democratic governor to accept a 13 percent cut in the $19.9 billion state budget she presented in February.^[32] Gov. Perdue vetoed the bill, meaning that 37,000 state residents would lose unemployment benefits.^[33][31] On June 3, 2011, the governor issued an executive order to restore the benefit payments.^[34]

Budget transparency

• See Evaluation of North Carolina state website or find sample transparency legislation at the Sunshine Standard

North Carolina became more transparent in 2009 after the launch of NC Open Book spending transparency.

Prior to the launch of NC Open Book, the Office of the State Auditor established a searchable database that reports on private organizations receiving state funds. The database is available here.

Government tools

The following table is helpful in evaluating the level of transparency provided by a state spending and transparency database:

Criteria for evaluating spending databases

State Database	Searchability	Grants	Contracts	Line Item Expenditures	Dept/Agency Budgets	Public Employee Salary
NC Open Book	Y	Y	Y	N	Y	N

Limitations and Suggestions

NC Open Book does not list state employee salaries, nor does it provide line-item expenditures.

Multi-Measure Budget Transparency Profile

The Institute of Government and Public Affairs at the University of Illinois has created a multi-measure transparency profile for North Carolina, which measures state transparency as of September 2011 using indicators from a range of organizations, including Sunshine Review. These indicators measure both website transparency and other recognized facets of governmental transparency. In addition, IGPA presents four unique indicators of non-transparency based on the observation that transfers or reassignments between general and special funds can obscure the true fiscal condition of a state.

In addition to the individual state profile, IGPA offers a 50-state comparison and profiles for other states.

Budget Background

North Carolina ’s constitution requires that the budget enacted by the general assembly be balanced. In the second year of the biennium, the Office of State Budget and Management develops the governor’s recommended adjustments to the biennial budget. The governor releases a recommended budget every other year in February but still makes an annual update, usually in May. Once both the House and the Senate review and approve the document, then the bill is submitted to the governor for final approval.^[35]

In 2007, the legislature created the Program Evaluation Division, a watchdog group to examine state programs and their efficiency. It was one of the last state legislatures to create such a group. The Legislature or the division's 18-member bipartisan oversight committee determines what the division's 10 member staff, which is separate from the legislature's regular staff, will review.^[36] The Program Evaluation Division's recent report can be found here.

Accounting Principles

North Carolina Office of the State Auditor prepares and publishes audit reports as independent evaluations of the state's financial records and public program performance. Beth A. Wood was elected State Auditor in 2008.^[37]

The Institute for Truth in Accounting (IFTA) rates North Carolina “Timely” in filing the state’s Comprehensive Annual Financial Report (CAFR) – The annual report of state and local governmental entities. IFTA rated 22 states timely, 22 states tardy, and 6 states as worst. IFTA does not consider North Carolina's CAFRs, and those of the other states, to be accurate representations of the state’s financial condition because the Generally Accepted Accounting Principles (GAAP) basis does not include significant liabilities for the pension plans and for other post employment benefits, such as health care.^[38] North Carolina's CAFRs are prepared and published online by the North Carolina Office of State Controller.^[39]

Stimulus

North Carolina has received $3.92 billion in federal funding from the American Recovery and Reinvestment Act of 2009.^[41]

Public Employees

According to 2008 Census data, the state of North Carolina and local governments in the state employed a total of 655,598 people.^[42] Of those employees, 510,183 were full-time employees receiving a net pay of $1,839,723,835 per month and 145,415 were part-time employees paid $150,416,252 per month.^[42] More than 57% of those employees, or 377,690 employees, were in education or higher education.^[42] The state employee work force has grown less than 1 percent since July 2008, when there were 92,627 workers at state agencies and universities.^[43] As of April 2010, North Carolina employed 93,217 state workers.^[43]

External links

Additional reading

References

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