Budget, tax reform will be finalized behind closed doors

The Senate is expected to formally reject the House budget proposal Monday night. That will trigger a "conference committee," a group of legislators from both chambers designated to work out differences between the two spending plans. Such committees are not required to meet in public and often hammer out differences completely behind closed doors. 

What remains is a negotiation, where lawmakers agree to trade one budget item for another. The closed-door environment, Hood and others say, allows lawmakers to cut to those deals. 

This year, lawmakers working out the budget have an added challenge. The Republicans who control the House, Senate and governor's mansion are attempting to overhaul an antiquated income and sales tax system. But House and Senate proposals would work differently and raise different amounts of money.

Without knowing which tax plan they will use, or at least how much money it will raise, it is nearly impossible for budget-writers to plan how to spend that money. 

"That is a major gateway that we have to go through before we get the budget finalized," said Sen. Pete Brunstetter, the Senate's senior budget chairman. "That's one of the unique features this year."

The Senate is scheduled to take a final vote on its tax plan Tuesday, clearing the way for formal negotiations on that bill to begin later this week. Just as plans for how to spend the money will be worked out in closed sessions, the conference committee over the tax bill will be the province of a few key lawmakers and staff.

House Speaker Thom Tillis said he expected the conference committees working out the budget and tax bills to work concurrently. They will have to if lawmakers are to meet a looming deadline. 

There has been plenty of criticism over the House and Senate budget plans.

“This budget makes it painfully clear that the House Republicans have the wrong priorities," said Rep. Larry Hall, D-Durham, the House minority leader.

Outside groups with interests in everything from education to economic development have also been critical of the tax and spending plans. But at this point, it is the differences among the different groups of Republicans who control the House, Senate and executive branch that matter the most. 

When the legislative session started in January, lawmakers talked optimistically about leaving town before the middle of June. Now, they face a two-week sprint to wrap up work before the end of the fiscal year.

North Carolina budgets run from July 1 through June 30. If lawmakers do not finish their work on the budget bill before July 1, they will have to put in place a patch known as a continuing resolution, which continues spending in the short term while a final budget bill is worked out.

"I can tell you we're going to try to be done during that period of time," said Brunstetter, R-Forsyth. "But you also have to give the governor some reasonable period of time to look at the final budget and decide whether he'll sign it or not. I would personally not be surprised if there is continuing resolution in our future."

Gov. Pat McCrory submitted his own budget proposal in March, but he has not put forward his own tax plan. Instead, the governor said, he is working behind the scenes. 

That said, McCrory didn't draw a line on any specifics that he will or won't accept in the final tax bill – "One thing I've learned in Raleigh: you don't negotiate over TV," he said – but said he believes the House and Senate have been moving closer together.

"To even get to this point is quite remarkable progress," he said. "Usually, for the past 20 years, tax reform died long before we got to this point. There are little sensitivities. We're stepping on a few toes of some very strong special interest groups."

House, Senate tax plans compared

Some of those "sensitivities" erupted last week when Sen. Bob Rucho, R-Mecklenburg, resigned from his position as Senate Finance Committee co-chairman over differences between the bill that he had helped craft over the past few months and the plan put forward by Senate leader Phil Berger, R-Rockingham.

Rucho said that, far from stepping on toes, the governor and other top leaders were failing to close loopholes favored by special interests.

"It is a huge disappointment that the governor and the speaker of the House did not provide the leadership or have the political backbone to fight the special-interest groups, who favor loopholes over a fair tax system," Rucho wrote in his resignation letter.

While both the House and Senate tax plans would slow the rate at which government budgets can grow, the Senate plan does so much more dramatically in the third, fourth and fifth years. The Senate plan also relies on shifting revenue away from local governments to the state treasury. 

"We've been very concerned with how much revenue needs to come in to take care of the basic operations of state government," said Rep. David Lewis, R-Harnett, the author of the House plan.

Lewis said he wants to hear from his Senate colleagues how their plan will work. He worries it would require budget cuts that are too deep. 

Once a deal over tax reform is done, lawmakers still have to work out their differences over the budget. 

"We are guardedly optimistic that we'll be able to get it done as quickly as we did in 2011," Tillis told reporters last week. That's a bit of a stretch, considering that, two years ago, budget negotiations went so smoothly there was not even the need to appoint a formal conference committee. 

Looking at just the amount of money spent by the two chambers, there are very few significant differences. Each spends about $20.6 billion. 

"The fact that we're close on numbers is a significant help," Brunstetter said.

In past years, the conference committees that have dragged on the longest have involved big differences between how much House and Senate budget-writers planned to spend. 

But there are some stark policy differences, particularly in the education arena. 

In general, the Senate was more generous to the state's university system, while the House put more resources toward K-12 public schools. Hood observes that's a juxtaposition that existed when Democrats controlled either chamber and seems to have carried through somehow to the new Republican leadership.

Beyond how much should be spent on various segments of education, the two chambers differ on how that money should be managed.

The House has put forward a plan to create a voucher system that would put public tax money toward paying for some low-income students to go to private school. The Senate has emphasized giving more freedom to charter schools.

The Senate plan does away with career status – sometimes referred to as tenure – for teachers in favor of a series of one-, two- or three-year contracts, while the House makes a much more modest change to the tenure system. 

"There are very different approaches taken on education that will require some additional time to work out," Brunstetter said.

Other big differences involve how the House and Senate pay for rural economic development programs. The Senate also wants to move the State Bureau of Investigation from the department controlled by Attorney General Roy Cooper, a Democrat, to a department overseen by McCrory. Both Cooper and McCrory oppose that measure, and the House did not include it in its version of the budget. 

On Medicaid, the health insurance program for the poor and disabled, both chambers are struggling to deal with escalating costs. 

Those policy differences will be hammered out in closed-door conferences over the next few weeks. 

Under legislative rules, those conference committees do not have to meet in the open, or really meet at all as long as a majority of members sign onto the final bills that head back for a vote by the full House and Senate.

"It still has to be argued out and voted again," Hood points out.

Once the behind the scenes work is finished, the budget  and tax bills will be made public and have to clear votes in the full House in the Senate. At that point, lawmakers won't be able to make any changes in advance of an up-or-down vote.