McCrory's budget likely to target education, Medicaid
Posted March 19, 2013
Updated March 20, 2013
Raleigh, N.C. — As governor, Pat McCrory gets his first formal crack at the budget on Wednesday, but it is not the last – not by a long shot.
The Republican will offer his first spending plan at 10:30 a.m., laying out how he would spend roughly $20 billion in state tax dollars.
McCrory's staff has been tight-lipped about specifics from the proposal, although they did send out a video meant to give a broad outline of what the governor might talk about.
Legislative budget writers say they hope McCrory will address some basic needs, like paying for building maintenance and stopping overruns in the state Medicaid program for the poor and disabled.
"It's not real sexy stuff," said Sen. Pete Brunstetter, R-Forsyth, chairman of the Senate Budget Committee. "These are all basic types of things you have to get settled if your budget process is not going to be a fire drill every year."
Two years ago, Republican lawmakers encountered a roughly $2.5 billion budget deficit. They were also working with Democratic Gov. Bev Perdue, who did not see eye-to-eye on budget matters. Perdue vetoed both the two-year budget passed in 2011 and a budget revision passed in 2012. Lawmakers overrode those vetoes.
This year, the state may avoid a budget shortfall, and Republicans control the House, Senate and governor's mansion. That said, legislative leaders said Tuesday they did not know what would be in McCrory's budget proposal. And recent history puts the state on notice that just because different branches of government are controlled by members of the same party does not mean all of those individuals will see eye-to-eye.
Although the complete budget document won't become public until Wednesday at 10:30 a.m., there are some items McCrory will almost certainly include:
SCHOOL SECURITY: On Tuesday, McCrory announced the creation of the North Carolina Center for Safer Schools to examine the best school security programs nationwide and determine which fit best in school districts across the state. The new center is at least partly a response to the school shootings in Newtown, Conn., and a spokeswoman for the governor confirmed it will feature in his budget proposal.
DRUG COURTS: During the State of the State speech in February, McCrory called on lawmakers to restore funding for drug treatment courts. These specialized judicial proceedings divert certain offenders away from jail and put them in treatment programs.
MEDICAID: Overspending in the health insurance program for the poor and disabled has been a thorn in the side of both lawmakers and governor for years. Recently, McCrory ordered state agencies to hold back funding in order to back-fill a Medicaid shortfall, something that has recently been an annual occurrence. When he rejected a federal offer to expand Medicaid as part of the federal Affordable Care Act, the governor talked about the need to get the state's current Medicaid spending under control. Now, lawmakers like Brunstetter are hoping to see the governor's ideas for doing just that.
INFORMATION TECHNOLOGY: The day after he was sworn into office, McCrory declared costly and aging information technology systems "are broken in almost every department." Audits since then have been particularly critical of work on an IT project meant to assist with Medicaid billing. After spotlighting the issue for several months, it is reasonable to expect McCrory might address IT problems as part of his budget.
EDUCATION: McCrory highlighted a number of education policies during his State of the State speech. Clips in his budget tease video emphasized his calls to use technology in the classroom, including a drive to replace hardcover textbooks with electronic resources.
STATE BUILDINGS: Another theme that McCrory has repeatedly touched on is the need to better maintain existing state buildings. During his first three months in office, he has mentioned finding the funding to pay for a multi-billion dollar backlog of repair and renovation projects as well as limiting the construction of new buildings, particularly on the UNC campus.
JOBS: McCrory reveled in the recent high-profile announcement that MetLife would bring more than 2,600 jobs to the state, and he has said that recruiting jobs would be a top priority for his administration. The budget is the biggest and most sweeping policy document a governor gets to offer, so it's likely to contain some mention of this top priority. What is less clear is what kind of jobs program he might offer. One possible hint might be found in his recent travels. McCrory has been visiting small town main streets roughly once a week for more than a month, and footage of those visits was included in his budget preview video. It doesn't seem much of a stretch to imagine any new jobs program might have a "Main Street" component.
GOVERNMENT REORGANIZATION: Throughout the 2012 campaign and the opening months of his administration, McCrory has stressed the need to create what he calls "a culture of customer service" in government. His budget preview video also features a clip of him speaking about the need to streamline government. "We have the opportunity to transform our culture of government through a top-to-bottom assessment of efficiency, of effectiveness, and more than anything a culture of customer service," McCrory said during his inaugural address. Lawmakers said Tuesday they were interested in what ideas McCrory might have in terms of reorganizing government.
For those who haven't been paying attention to the budget process up until now, here is some of the context for what you will hear from McCrory and lawmakers going forward.
WHAT IT IS: The state constitution says North Carolina and its agencies can't spend any money except for that which is appropriated by the General Assembly. So, at its most basic level, the budget allocates what money may be spent for what purposes.
It is also a sweeping policy document. Governors and lawmakers regularly use the budget to order their priorities, create new programs and generally set state government up in their own vision. No other piece of legislation passed during the year will touch as many lives, deal with such a variety of subjects or have such sweeping consequences for the day-to-day management of the state as the state budget will.
FISCAL YEAR: The state's fiscal year starts on July 1 and runs through the end of June.
BIENNIUM: The draft budget McCrory offers Wednesday and the final budget lawmakers draft will technically be a two-year budget for the biennium that starts July 1, 2013, and ends June 30, 2015. However, lawmakers almost always return to Raleigh in the second year of the biennium to "adjust" the budget. Often that budget, which in this case will run from July 1, 2014, to June 30, 2015, represents a major rewrite of the budget's second year.
SIZE: The state's general fund budget, that portion of spending paid for with state tax dollars, was roughly $20.2 billion. But it's worth noting that when federal grants, special revenue funds – like highway spending paid for through gas taxes – and other non-tax-and-fee revenue is tallied, the actual amount of state spending for 2013-14 is $52.2 billion. Don't expect to hear about this bigger number much over the next few months. Politicians and news reporters will be talking about a roughly $20 billion state budget.
EDUCATION: Public schools and the university system consume more than half – $11.1 billion – of the general fund budget.
MEDICAID: The state's Medicaid budget was $3.1 billion for the current fiscal year, the biggest spending piece outside of education.
BOTTOM LINE: A February outline of the state's fiscal situation showed North Carolina will raise more money this year than in the previous fiscal year. That's good news both because there won't be a shortfall and because that means lawmakers will have money to meet the growing needs to the state.
That fiscal memo anticipates the state could have $460.5 million more during the fiscal year that starts July 1 than it did during the current fiscal year. However, that doesn't mean there will be a lot of new spending or programs in the budget.
The additional money will be eaten quickly by growing enrollments in K-12 and higher education, pressing needs to repairs buildings and roads and nagging problems in the state Medicaid system.
"There's not enough growth in the budget to allow us to do a lot of expansion," Brunstetter said. Any new programs proposed by McCrory, or anyone else, will have to be offset by spending cuts elsewhere.
WHAT ABOUT TAXES?
Both McCrory and legislative leaders have talked about undertaking a major overhaul of the state's antiquated tax system. Over the past several years, governors have included potential tax changes in their budget.
McCrory has not signaled whether he will offer tax reform as part of his budget plan or make a separate proposal. But the following points suggests tax reform will come later:
- Both McCrory and lawmakers have insisted that any tax reform effort be "revenue neutral," which simply means any tax reform proposal won't raise more or less money than the current system. In addition to easing the minds of fiscal conservatives, the approach allows them to swap out a tax system at any point. As long as the amount of availability – wonky speak for the amount of money lawmakers may spend on government programs – is the same, taxes can be handled separately from spending.
- McCrory has not been talking about tax reform recently. His last public mention appears to be his State of the State address, when he embraced calls for lowering the personal and corporate income taxes. Tax reform will require a big sales job by the governor. If he were getting ready to make a pitch, one might expect him to begin signaling his intent as he did with the school safety center, education reform and other items.
- It's controversial. Lawmakers in the House and Senate don't necessarily agree on what needs to be done. And any industry that stands to lose an exemption or pay more would immediately mobilize against any tax measure they saw as harmful to their interests. Attaching a tax measure to his budget could weigh down his spending proposals.
The budget process is really a series of estimates, negotiations, philosophical fights and good, old-fashioned backroom deals that happen over a series of months. An abbreviated outline would include:
JOINT MEETINGS: Since the legislative session began in January, lawmakers have been receiving a series of briefings on the state of the economy, status of the current budget and programs funded by the budget. Most of this work has taken place in joint budget subcommittees, meetings of House and Senate members that are focused on particular program areas such as education or economic and natural resources.
These briefings have been mainly information, meant to give lawmakers the tools they'll need to craft the budget. This has been an especially urgent task this year as more than half of the serving General Assembly was elected in the past four years, so most members don't have deep institutional knowledge about what the state funds and why.
Expect joint meetings to end in the next week.
THE GOVERNOR'S BUDGET: McCrory's budget is a key step in the process. The governor is responsible for putting any spending plan in place.
Gubernatorial budgets have received varying amounts of deference over the past two decades. Sometimes, lawmakers made a show of giving the chief executive's ideas careful consideration; other times, budgets were declared "dead on arrival" when lawmakers spied items with which they took particular exception.
In general, governors are not aiming to have their way on every little detail, but sketch up major programs they want to see as part of any final plan.
When Perdue, a Democrat, sent budgets to the General Assembly during the past two years, Republicans generally ignored her spending plans.
McCrory, it seems, will at least get the benefit of the doubt. Senate budget-writers have held off moving forward with the budget until he had a chance to formulate his spending proposal.
"I think we'll have a more realistic point to start from," said Rep. Nelson Dollar, the senior budget chairman in the state House, said in anticipation of McCrory's budget.
APRIL NUMBERS: Before lawmakers can begin budgeting in earnest, they need a firm idea of how much money they'll have to spend. While the February fiscal memo gave them some idea, the legislature won't know for sure until revenue numbers for April income tax returns come in. Better-than-expected numbers will give legislators breathing room; lower-than-expected returns will require cuts.
SETTING TARGETS: Once the amount of revenue is available, a small group of senior budget chairmen will set the "target" for each major spending area. Education, Health and Human Services, Environment and Natural Resources, Justice and Public Safety, Transportation and General Government budget subcommittees will be given specific dollar amounts to work with.
SUBCOMMITTEES: Senate budget subcommittees will meet, choosing which programs to cut and which to expand. Those recommendations will go to the full Senate budget committee.
BIG CHAIRS: In action behind closed doors, the senior budget chairmen will stitch together the various subcommittee proposals. The bulk of the budget document will look as it was written by the subcommittees, but there are almost always changes and additions not vetted by the subcommittee.
BIG COMMITTEES and THE FLOOR: The budget then gets vetted by the full Appropriations Committee, with members proposing amendments in what is sometimes a day (or days) long committee hearing. The bill then moves to the floor for approval.
LATHER, RINSE, REPEAT: The House will now have a chance to put together its version of the budget. It will follow the same process from setting budget targets to passing a bill as the Senate did. The House is expected to be done with its budget in late May or early June.
CONFERENCE: When the House votes on its final budget, the Senate has the option to accept the House changes as is. That's what happened two years ago for the first time in decades. During that budget year, the House had first crack at drafting the bill. Top leaders were able to meet and agree with a compromise before the measure left the state Senate, allowing the House to vote for concurrence on the budget.
The much more likely scenario involves a conference committee. This will happen if the Senate rejects the House changes to the budget.
Budget conference committees involve dozens of lawmakers and are designed to work out differences between the House and Senate plans. In some years, the bulk of the differences are worked out by subcommittee chairs from the two sides, only leaving a few big ticket items for "big chairs" like Brunstetter and Dollar to work out. In other years, the negotiations are handled mainly at the top level.
Expect the governor, or rather his surrogates, to be involved at this stage of the negotiations as well. In years past, when Democrats held the legislature and the governor's mansion, the governor would be lobbying to ensure his priority programs were included in the budget's final draft. There's also an opportunity for the chief executive to try to broker deals should the House and Senate reach an impasse.
DEADLINE: If the state doesn't have a new budget in place by July 1, it creates problems and lawmakers would almost certainly pass what's known as a "continuing resolution" to keep the state operating. That hasn't been an issue for several years, and budget calendars circulated among lawmakers show budget work wrapping up the first or second week of June at the latest.
FINAL BILL: Whatever bill emerges from the conference committee, it is only supposed to include items that were put forward by the governor, the House or the Senate.
The final "conference report" will be voted upon by the House and Senate and then sent to the governor for his signature or veto. While Perdue, a Democrat, vetoed two Republican-drafted budgets, it seems unlikely McCrory, a Republican, would be inclined to do so.