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Senate unveils $14.6 billion budget
that falls hard on social services but
doesn’t cut education as much as feared
 Senate
leaders unveiled a $14.6 billion budget for next fiscal year
that downsizes state government and raises $180 million in new
taxes but which doesn’t cut funding for education nearly as
much as was feared. The spending plan, which emerged Thursday
from the various subcommittees of the Appropriations
Committee, a day earlier than expected, will be debated on the
Senate floor next week and then go to the House, which has
some differing views on budget priorities.
Appropriations for the public schools, which had been told to
expect a $125 million cut in its continuation budget at a time
of rising school enrollments, would be trimmed by $95 million
under the Senate spending plan. The UNC System, which also had
been told to plan for $125 million in cuts, will instead
receive a $4 million reduction but a big hike in tuition.
Instead of the $40 million in spending reductions the
Community College System had been told to plan for, the budget
writers instead knifed out just $5 million.
The Senate budget contains no mention of new revenue from a
state lottery, as Gov. Mike Easley had requested, and no
funding for the governor’s proposed pre-kindergarten
enrichment program for at-risk 4-year-olds. It includes
funding for a 2 percent increase in state employee raises plus
$8 million to give each classroom teacher a $200 stipend to
make up for their out-of-pocket expenses buying school
supplies, an idea Easley came up with. The budget includes a
$120 million contribution to the state’s Rainy Day Fund,
which has been nearly depleted during the current fiscal
crisis.
Most early comments about the Senate budget focused on its
proposal to eliminate the state Department of Crime Control
and Public Safety, the umbrella agency for the State Highway
Patrol, and its plan to close several Department of Health and
Human Services facilities serving the handicapped, the
disadvantaged and the mentally ill. Dorothea Dix, the state
psychiatric hospital in Raleigh, would be shuttered, as would
two schools for the deaf, a school for children with serious
behavioral problems and one of the state’s five mental
retardation centers. HHS would lose 342 positions out of more
than 19,000, a figure that doesn’t include the 1,200
employed at Dorothea Dix. The HHS downsizing would save about
$75 million. Those moves would save more than $50 million. The
Highway Patrol would move to the Department of Transportation.
As expected, the budget embraces many revenue-raising ideas
advanced by the governor’s Government Efficiency and
Loophole Closing Commission, including:
 Imposing a new 1
percent gross premiums tax on HMOs while exempting them from
corporate income and franchise taxes. That would raise $22.1
million next year and $25.7 million in future years. Also,
Blue Cross and Blue Shield of N.C. and Delta Dental, which now
pay a 0.5 percent insurance premiums tax, would see the rate
increased to 1 percent. That would raise $6.1 million next
year and $6.4 million in future years. And the budge plan
calls for repealing the income tax credit for taxpayers who
pay health insurance for dependent children, a deduction worth
from $100 to $300 depending on the taxpayer’s adjusted gross
income. Eliminating the tax credit would raise $18.9 million a
year.
Levying a 6
percent sales tax on out-of-state long-distance phone calls,
which now aren’t taxed, while lowering the current 6.22
percent tax on local phone service and the 6.5 percent tax on
in-state long-distance calls to 6 percent. That would
raise$68.7 million next year and $87.8 million in future
years.
Taxing satellite
television at the same 6 percent rate as cable TV service, a
proposal that would raise$22.7 million next year and $35.1
million in future years.
Levying a 6
percent sales tax on grass seed and fertilizer on everyone
except farmers, an idea that would raise $6.7 million next
year and $8 million in future years.
Adjusting
several business tax policies, including applying the
franchise tax to limited liability companies to raise $6
million a year and disallowing the deduction of royalty
payments made to a subsidiary to raise $15 million a year. The
plan also calls for reducing the allowable deduction on
corporate subsidiary dividends by making state law conform to
federal law. That would raise $30 million a year.
While education wasn’t cut as much as expected, the Senate
spending plan will require some austerity measures. It
gives the public schools $45 million to accommodate enrollment
growth next year, $20 million less than what the governor
requested, which the Department of Public Instruction said
would force it to cancel plans to hire 235 additional
teachers. A similar reduction in enrollment-growth month for
the UNC System will cause the 16 campuses to eliminate 356
non-teaching positions and 10 top administrative positions.
Tuition also would rise by 5 percent at UNC System campuses
next year on top of a 4 percent hike recently approved by the
Board of Governors.
However, the budget drops $24 million earmarked for new school
buses, eliminates 50 positions at DPI over the next two years
and calls for $42 million in reduced spending on teacher
vacation days, salaries, new schools and fuel costs.
“The Senate is to be commended for its modest reductions in
spending for programs,” said NCCBI President Phil Kirk, the
chairman of the State Board of Education, who pointed out that
there is some good news in the budget, including $38 million
in new money to reduce class size in K-3 classes in schools
with lots of low-income, high-risk students. “The
members gave additional funding to assist students and
teachers in low-performing schools, to lower class size and to
assist in the recruitment of teachers. Increases are also
being recommended for student accountability, exceptional
children’s programs, and limited English proficiency.”
Kirk said he was disappointed about the proposed staff
reductions at DPI, which he said “has seen the biggest
reduction in force of any state agency by far – going from
more than 1,000 employees to 490 in the past decade. At a time
when we are holding schools more accountable,” Kirk said,
“we can ill afford to suffer further personnel loses.”
Other budget highlights include:
a $150 million infusion to the state employee health plan,
which is barely solvent;
a $40 million
contribution to the Clean Water Management Trust Fund;
a $256 million
reduction in the contribution to the state employees
retirement fund, which is overfunded;
a $48 million reduction in Medicaid payments, mainly by
lowering doctor's reimbursements to 95 percent of the
allowable federal rate, and placing stricter controls on
prescription drugs;
a $10 million cut in the projected growth in funding for the
Smart Start early childhood initiative and delaying more than
$40 million in appropriations to expand the program for a
second straight year;
The Senate budget, which emerged Thursday in piecemeal fashion
from the six subcommittees of the Appropriations Committee, is
scheduled to be taken up by the full committee on Monday.
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