Three numbers, big question on teacher pay

Gov. Pat McCrory and Lt. Gov. Dan Forest will roll out plans to boost teacher pay today. But they will face questions about how to pay for increased salaries amid lagging revenues and increased demands for the state Medicaid program.

Posted 11:37 a.m. May 7, 2014 — Updated 5:51 p.m. May 7, 2014

Mark Binker

RALEIGH, N.C. — Wednesday's anticipated announcements from Gov. Pat McCrory and Lt. Gov. Dan Forest on teacher pay are the budgeting equivalent of eating your dessert first. Sure it will taste good, but the soggy asparagus is still sitting on the state's dinner plate waiting to be swallowed.

In this case, the offending vegetable is how to pay for a plan that McCrory says "rewards teachers, focuses on students and addresses the long term."

The governor is expected to make his announcement in Greensboro at 10 a.m. Forest will follow up in the afternoon with a separate teacher pay proposal.

As state leaders talk about what they're going to do for educators, three numbers should be top of mind:

$200 million: That's how much lawmakers and McCrory have already said they want to spend on a plan that raises salaries for teachers in the first 10 years in the classroom. During a February announcement, McCrory outlined a plan that would would raise the state's base pay for a starting teacher from $30,800 to $35,000 by the 2015-16 school year.

How much more will the moves announced in these new plans cost, and how much further will they go that what's already been announced? Will they provide a pay bump for all teachers?

$445 million: That's how much tax collections have lagged behind projections, or about 2.1 percent shy of what lawmakers say they expected to have on hand. The McCrory administration has said it expects to handle the shortfall with reserves, and the governor has asked state departments to cut back on spending as the end of the fiscal year heads toward its June 30 end.

But even if the state is able to absorb this year's shortfall, there will be questions about whether expectations for future years need to be adjusted downward. That loss of recurring revenue could hamper any plan to add recurring costs to the state budget.

$130 million or more: Last month, the state Department of Health and Human Services said the state's Medicaid health insurance program for the poor and disabled could run more than $130 million over budget. That number will eat of reserves set aside to head off unexpected budget expenditures, the same reserves that McCrory will rely upon to paper-over the lower-than-expected revenue collections.

While $130 million isn't a budget-busting number in and of itself, the real question is what it means going forward. Every year, budget writers must "re-base," or move up, the amount they anticipate Medicaid will cost every year. This year's overruns drive up the cost of that re-base. In a memo to senior budget writers obtained by WRAL News, Steve Owen, a fiscal analyst, estimates that re-base will cost between $156 million and $192 million.

However, those numbers are far from firm. The state is still struggling to get a handle on Medicaid claims data and is having to estimate the cost of the program because a new computer system is not yet able to produce accurate information.

Also worth noting: Rick Brennan, who has been the chief financial officer for the state's Medicaid program, resigned this week, less than eight days before lawmakers return to session and begin focusing on the coming year's budget in earnest.

So the big question is: How will the governor or lieutenant governor pay for any new education plan? Lawmakers cited lower revenues and increasing Medicaid costs as a reason not to give teachers raises in last year's budget. That same fiscal stew appears to be on the menu this year.

In order to pay for a new program, the governor is really left with only two choices: cut spending elsewhere in the budget or raise more revenue. It is unlikely that the Republican-led legislature would agree to increase taxes, but it is possible McCrory could ask to delay the effects of last year's tax reform bill. For example, the corporate income tax is due to drop from 6 percent to 5 percent in 2015. Delaying that drop could produce extra revenue, but it would also likely produce blow-back from tax hawks in the legislature and businesses who pushed for the reform measure.

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