Governor Proposes Budget Revisions
Hunt Identifies $334 Million in Cuts to Existing Programs

Gov. Jim Hunt on Wednesday unveiled his proposed changes in the state budget for the coming fiscal year, submitting to the General Assembly a $13.9 billion spending plan that chops $334 million off already-approved outlays in order to cover increased spending on education and other programs. The governor's budget staunchly supports education, mainly a 6.5 percent pay raise for school teachers that is the fourth and final installment in getting their salaries up to the national average.

The pay raise for the state's 81,500 teachers would cost $255.6 million. Plus, Hunt calls for earmarking $135 million as bonuses for teachers whose students excel academically -- incentives created under the state's ABCs of Public Education program.

Hunt proposes raising spending on Smart Start by $67 million to support full funding of programs in all 100 counties. But he also recommended a one-time $49 million cut in the pre-school program to reflect the actual amount of money local programs are spending.

In other areas of education, Hunt proposed $11.4 million in need-based financial aid for in-state students enrolled in the UNC System. He also called for $57 million to fund enrollment increases of 2,460 students at universities and 7,240 students at community colleges.

But the spending cuts identified by the governor aren't enough to cover the higher spending on education and other programs -- particularly given the expected $450 million shortfall in tax revenues. To balance the budget, Hunt proposed borrowing $240 million via a judgment bond -- a revenue bond the state would pay back over five years -- to pay the remaining $240 million that the state owes because of a settlement in a 1998 court case on intangibles taxes. The state refunded $200 million in intangibles taxes last year out of the Rainy Day Fund and must pay the remaining $240 million by July 1.

That tactic quickly ran into trouble in the General Assembly. House Speaker Jim Black (D-Mecklenburg) and Senate President Pro Tem Marc Basnight (D-Dare) both said they oppose borrowing the money to pay back the intangibles taxes. "We shouldn't be borrowing money to pay back money," Basnight told reporters. He and other leaders also worried that borrowing money for intangibles might jeopardize public support for the $3.1 billion bond package for universities and community colleges. Indications were that legislative leaders would trim $240 million from other areas of the budget rather than borrow money for the intangibles tax repayment.

Hunt's budget plan assumes a 6.3 percent increase in state revenues in the fiscal year that begins July 1. Revenue growth this fiscal year should be around 3.8 percent, much lower than usual because of Hurricane Floyd and other economic problems.

Senate President Pro Tem Marc Basnight issued this statement on the governor's budget: "The governor's budget does a lot of good things for our state. It makes the right investments in education and in our children's future. It will bring teacher pay to the national average, and it increases student financial aid and helps our community colleges. However, I believe we can meet these priorities and pay the intangibles court settlement without additional borrowing."

House Speaker Jim Black said: "I commend the governor for focusing his proposed budget revisions on children and families. I have said repeatedly that raising teacher pay would be my Number One priority this year. While I have not had time to review the governor's proposal in detail, I must respectfully disagree with one recommendation. I believe that we must find a way to pay intangibles tax refunds without issuing bonds."

Here are the major spending cuts Hunt proposed:

* $42 million in previously budgeted teacher salaries made available by turnover;

* a one-time, $49 million reversion of funding for Smart Start. The reversion represents unspent funds from last year's budget that are available because of a three-month delay in their allocation, and because services were slowed after Hurricane Floyd;

* reductions of $32 million in Medicaid funding, available because the program's costs were lower than expected;

* a one-time transfer of $70 million from the Medicaid trust fund; and

* a reduction in the state's debt service of $45 million.

Other highlights of Gov. Hunt's budget:

ENVIRONMENT: Hunt proposed $1.2 million for farmland preservation -- a key part of his recently announced Million Acres Initiative to preserve one million acres of open space in the state by 2010. The budget also seeks $775,000 for inspectors to monitor stormwater and sedimentation pollution. Hunt also has stated his support for a proposed increase of $70 million over three years beginning July 1, 2001 for the state's Clean Water Management Trust Fund, to $100 million. The budget also increases transit funding for local systems by $5.2 million.

JOBS AND ECONOMIC DEVELOPMENT: Hunt allocated $2 million for the Industrial Recruitment Competitive Fund, established in 1993 to provide financial assistance to businesses and industries that are making significant efforts to locate or expand in the state. He also earmarked $2.5 million for recommendations made by the Rural Prosperity Task Force for agricultural research.

JUVENILE JUSTICE: The Governor recommended $3.7 million for Juvenile Crime Prevention Council grants to local councils helping children through prevention and treatment programs, as well as community-based alternatives to the court system. Hunt supports changing the Office of Juvenile Justice, established in the 1998 Juvenile Justice Reform Act, to a Cabinet-level Department of Juvenile Justice with no additional appropriation.

MENTAL HEALTH: Building on the progress the state has made to improve the mental health system, Hunt is proposing that the state redirect unspent funds to the next fiscal year for new initiatives. To serve more children, the budget includes funding to expand mental health services in schools, provides $1 million to area mental health programs, and expands the program to provide access to mental and physical health-care coverage to an additional 65,000 children.

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