Raleigh, N.C. — Gov. Pat McCrory on Wednesday sent a $21 billion budget proposal to lawmakers that raises salaries for teachers and state employees while coping with an expected $70 million Medicaid cost overrun.
Technically, McCrory is making suggestions about how to adjust the second year of the two-year budget passed last year. In that spirit, McCrory has chosen to focus new spending on a few priorities, including raises and dealing with coal ash ponds.
"Nothing in our budget should come as a surprise," McCrory said at a Wednesday afternoon news conference, saying that he has previewed many of the major initiatives to the public and lawmakers over the past month.
Lawmakers are scheduled to review his recommendations Thursday morning before setting to work on their own revised spending plans. Both the House and Senate will come up with their own plans before crafting a final compromise that will go to McCrory for his signature.
“We appreciate Gov. McCrory’s leadership in crafting a balanced budget proposal that prioritizes increasing teacher pay and developing our domestic energy sector without raising taxes," Senate President Pro Tem Phil Berger said in a statement. "The Senate looks forward to reviewing the governor’s plan in greater detail as part of our appropriations process.”
House Speaker Thom Tillis also gave McCrory's budget an initial nod of approval, calling it "a great starting point" for the General Assembly.
Pushing for Medicaid reform
McCrory may find himself at odds with lawmakers over the need for Medicaid reform. He sets aside $1 million to begin moving Medicaid patients into accountable care organizations, which take a flat fee to care for all of a patient's needs.
Lawmakers have said that they do not have time this year to take on such a massive overhaul. McCrory's budget would not come close to completing the transition but would push forward with the idea.
"The longer we wait, the more difficulty we're going to have," McCrory said.
The governor's recommended budget spends nearly $360 million more than the state planned to spend during the fiscal year that ends June 30, roughly a 1.7 percent increase over the prior year's spending. By far, the most closely watched aspects of the budget are raises for teachers and state employees, most of whom have seen only one raise during the past seven years.
McCrory called for raising salaries for teachers in their first seven years by 7.1 percent, to $33,000. That a first step toward getting starting salaries for all teacher to $35,000.
His budget also gives a raise to other teachers by funding a step increase. Teachers moving to steps eight through 12 on the salary scale would receive a raise that amounts to 2.8 percent to 4.3 percent. Teachers moving to steps 13 through 26 would receive a 2 percent raise on average.
Most rank-and-file state workers would receive a raise and increase to benefits worth $1,000. For the average state worker, that amount to slightly more than $800 in extra pay, with the remainder put toward benefits. The budget also funds a partial step increase for the State Highway Patrol and a pay raise for magistrates and court clerks.
"It's a very good first step toward a long-overdue pay raise," said Ardis Watkins, a lobbyist for the State Employees Association of North Carolina, which represents many state workers.
The median salary for state workers is roughly $38,000, Watkins said. So, for many workers, the raise would represent around a 2 percent salary bump.
Retirees would get a 1.9 percent cost of living adjustment under McCrory's budget.
Cost overruns create questions
McCrory’s budget projects a Medicaid shortfall of about $70 million, smaller than the $130 million projected by lawmakers last month. But that number comes with a caveat.
"There is a possibility that the $70 million shortfall estimate we're using is wrong," said Budget Director Art Pope, adding that he is confident there is enough flexibility in the budget to deal with any unexpected expenses.
The state is also setting aside $290 million from reversions, which is money state agencies have not used during the year.
However, the budget was not universally hailed.
Alexandra Sirota, director of the liberal-leaning Budget & Tax Center, said the governor's budget makes unnecessary cuts and uses a gimmick to balance. The reversions are one-time money – funding that won't regenerate every year – but are paying for recurring expenses, she said.
"It uses one-time money that won’t be there in years to come, and it makes cuts in key areas that are the building blocks of a strong economy," Sirota said.
Senate Minority Leader Dan Blue called the spending plan a "shell game," noting that McCrory and GOP lawmakers approved tax cuts last year instead of setting aside money for teacher raises and to improve education.
During the governor's news conference, Pope insisted that McCrory's budget does not use what he termed a "very poor" budget practice that creates budget deficits. Rather, Pope and McCrory said, the state is getting money for raises by cutting budgets elsewhere.
Other areas of the budget would also be trimmed. The University of North Carolina system, for example, would have to trim its budget by 2 percent under the governor’s plan. It also requires students from outside North Carolina who have full-ride scholarships to pay out-of-state tuition. Currently, out-of-state students who have full-ride academic scholarships are given in-state tuition.
UNC President Tom Ross said he appreciates McCrory budgeting for employee raises but said university campuses cannot continue to cut costs. The state now spends nearly $1,000 less per full-time student than it did in 2007-08, he said.
"In the context of a growing economy where other states are re-investing in their public universities, this is an issue of competitiveness," Ross said in a statement. "To improve North Carolina’s economic position, attract new industry and create needed new jobs, North Carolina must continue to maintain its strong public university system. We owe our students a high-quality education, and there is no great university without great faculty. This budget would make it increasingly hard for UNC campuses to recruit and retain the best and most accomplished faculty, as well as staff."
McCrory also proposes holding back a greater share of Medicaid payments from hospitals for care they provide to the poor and disabled. That withholding will help the state's bottom line but could put hospitals in a cash crunch.
Other budget highlights include the following:
- $4 million for school districts and charter schools that have limited access to classroom materials.
- $1.9 million to establish a community college tuition waiver for military veterans.
- $3.6 million extra for North Carolina’s Pre-K program to expand access to pre-kindergarten.
- Provides 19 new positions in the Department of Environment and Natural Resources to oversee coal ash ponds.
- Refines and extends a tax credit for those who invest in the reuse of historic buildings and houses.
- Adds $50 million to the state's savings to account for unforeseen cost overruns in the Medicaid program. Additional money was put into the state's rainy day fund.
"We have provided an additional $43 million for highway maintenance, transportation and resurfacing," McCrory said. "Before we build new roads, let's take care of the roads we have."
McCrory is also changing how North Carolina lures film productions to North Carolina. Currently, the state offers a credit based on what a production spends here during taping. McCrory said his new film industry proposal would base rebates to filmmakers based on the amount of taxes they pay here.
And the governor is making another push for puppy mill legislation. As part of that, he is asking the General Assembly to transfer the Animal Welfare Section from the Department of Agriculture to the Department of Public Safety, to place emphasis more on enforcement.