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Budget
talks reach an impasse
as House Republicans join hands
to oppose tax increases of any kind
House
Republicans this week closed ranks against any tax increase
– even an extra half-penny local option sales tax – a
development that forced budget conferees to contemplate
additional deep cuts in state spending in order to achieve a
balanced budget.
 The
standoff was apparent when House and Senate co-chairs of the
budget conference committee – all Democrats -- on Thursday
held a press conference to present a document they said
reflects their best efforts at balancing the two-year budget
with no new taxes. But accomplishing that feat requires more
deep spending cuts in a wide range of programs, the Democratic
leaders said, including no pay raises for state employees,
reducing or eliminating ABC bonuses for teachers, reducing
Medicaid payments and closing some state facilities.
Later in the day, Republican legislative leaders held their
own press conference to say the Democrats were using scare
tactics in an attempt to build support for tax increases.
With the new fiscal year three weeks old and no budget in
place, the state’s financial situation continued attracting
the attention of credit ratings agencies. Moody’s Investors
Service issued a bulletin attaching a negative outlook to the
state’s bonds and indicated it will strip North Carolina of
its Triple-A credit rating unless the budget picture improves.
See story below.
The budget conference co-chairs said it would be painful, but
possible, to make additional spending cuts (beyond the roughly
$600 already reflected in separate spending bills passed by
the
two chambers) in the fiscal 2001-02 budget but that fiscal
2002-03 was more problematic. Even more drastic measures would
have to be taken for the second year of the biennium or it
will show a $505.5 million deficit, they said.
The conference co-chairs said they began by examining the
budget bills passed earlier by the chambers and picking the
higher revenue and lower expense estimate in each line item in
the two spending plans. For example, the Senate budget assumes
$18 million in additional revenue next year from stepped-up
tax collections by the Department of Revenue and the House
budget assumes $50 million from the same action. The
conferees’ document, then assumes $50 million.
The working document includes several “must do” increases
in spending for fiscal 2001-02, including $75 million for
increased public school enrollment, $40 million for increased
UNC System enrollment, $3 million in increased private school
enrollment, $10 million in increased community college
enrollment. $300 million in higher Medicaid costs, $36 million
for debt service and $150 million in higher costs of the state
employee health plan.
That path allowed the Democratic leaders to stitch together a
budget that ends up with a remaining availability of $87.5
million at the end of the 2001-02 year. But tougher problems
emerged for fiscal 2002-03. The best they could do was to come
up with a plan in which the second year of the biennium
excludes any spending for several “sacred cow” line items,
including $95 million for ABC teacher incentive bonuses, $50
million for enrollment growth in public schools and the UNC
System, $3 million for private college enrollment growth, $5
million for prison operating funds, $190 million for a 2
percent raise in state employee pay, $100 million for the
Repairs and Renovations fund, and $150 for the Savings Reserve
account.
Such drastic measures, and possibly others, would have to be
taken or a $505.5 million hole would open in the 2002-03
budget, they said.
Other options on the table, the conferees said, include
reduced reimbursements to Medicaid service providers, no
funding for Gov. Mike Easley’s “More at Four”
pre-kindergarten program, no funding for elderly prescription
drug program, and possibly include closing the state’s
schools for the deaf and Dorothea Dix psychiatric hospital.
Beyond that, the conferees said it’s also possible to talk
about: (1) eliminating the $330 million reimbursements to
local governments; (2) not giving any salary increases for
state employees or cost of living adjustments for retirees,
saving $80 million; (3) eliminating all expansion budget
items, including class size reductions, ABC bonuses,
children’s health insurance enrollment; (4) taking all $98
million in UNC System overhead receipts from federal grants;
and (5) using $170 million from the Tobacco Trust Fund and the
Health and Wellness Trust Fund.
At their press conference, the Republican leaders released a
list of possible spending cuts, including (1) consolidating
worker training programs to save $80 million, (2) eliminating
nearly 3,000 vacant state jobs to save $89 million, (3)
forcing local school systems to cut central office staffs by
10 percent to save $25 million, and (4) reducing state
appropriations to nonprofits by 10 percent to save $48
million.
The Joint Conference Committee on the budget will meet again
on Tuesday at 8:30 a.m. to begin assessing the options that
have been presented.
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