The Pulse

Final budget puts North Carolina on fiscally irresponsible path as state falls further behind

By: - August 7, 2014 12:32 pm

Governor McCrory signed a final budget into law for the current 2015 fiscal year, which runs from July 2014 through June 2015, this morning. The $21.1 billion budget includes new spending initiatives – largely pay raises for teachers and state employees – but fails to include additional revenue to sustain this spending in the long-term. Contrary to fueling North Carolina’s economic comeback, as Governor McCrory claims, the final budget continues to fund core public services at diminished levels, well below pre-recession levels, and compromises the ability of the state to get ahead and prepare for the future.  Moreover, it puts North Carolina on a fiscally irresponsible path that will continue to create budget challenges in the years ahead, largely as a result of the tax plan that was little debated and discussed in the final budget.

North Carolina faces a revenue challenge, and actions taken within the final budget make this reality clear. The final budget signed by the Governor spends every available dollar and uses dollars from last year’s budget as a result of the Governor requiring agencies to cut their respective budgets. No funding is available to build up the state’s Savings Reserve fund, which is meant to position the state to weather a future economic downturn. Furthermore, the budget relies on one-time funding sources that, once depleted, cannot be replenished with such low revenue and shifts funding for core public investments such as K-12 education to lottery receipts and early childhood programming to federal block grants.

Such budget decisions are driven largely by the tax plan the governor signed into law last year, which significantly reduces revenue available for public investments. Revised analysis by the General Assembly’s Fiscal Research Division estimates that the income tax rate cuts in the plan will cost at least $200 million more annually than initially expected – more than $1 billion less in annual revenue once the plan is fully implemented. The Governor and state policymakers failed to account for this reality in the final budget, which means that, absent new revenue, more budget cuts to core public services are likely to occur in future years as the tax plan continues to be implemented. Another round of tax cuts is set to occur in January 2015.

Under the final budget signed by the Governor, state spending remains 6.6 percent below pre-recession levels (see chart below).

Final FY2015  Budget vs Original Continuation Budget

Budget and Tax Center’s analysis of the final budget for FY2015. The author modified the originally recommended base budget for FY2015 that was published last year to reflect the decline in student enrollment in all areas of education and the decline in projected base salaries for K-12 personnel. The author excludes the salary raises from the core areas of the budget and assumes they are in the Salaries and Reserves section of the budget to follow precedent and to avoid artificially inflating spending levels for the core areas of the budget.

Here are some highlights within various areas of the final budget for fiscal year 2015.


  • Provides pay raise to K-12 education teachers – salary for early career teachers are increased to at least $33,000 from $30,800 (a 7 percent pay increase) while more experienced teachers will get a much smaller pay increase. A flat $1,000 salary increase is provided to state employees, although some employees will only get $500.
  • No funding is sent to state’s Saving Reserve fund to prepare for a future economic downturn or the Repairs and Renovations fund for maintenance and upgrades to state buildings.
  • Reduces funding for the Housing Trust Funding

K-12 Education

  • Cuts portion of state funding for Classroom Teachers and replaces with lottery dollars.
  • Cuts portion of state funding for Teacher Assistant (TA) positions and replaces with lottery dollars. Cuts budget for TAs for 2014-15 school year compared to original budget enacted FY 2015.
  • Shifts funding from ongoing to one-time funding for TAs in grades K-3, meaning schools will have to fight to keep a large share of their TA funding in future years.
  • Cuts state funding for school bus replacement as a result of prolonging the amount of time school buses must be in use before being replaced.
  • Cuts state funding for transportation, which supports salaries of transportation personnel and maintenance of school buses.
  • Cuts funding for at-risk student services program by more than $9 million, making it more difficult for vulnerable populations to receive targeted assistance and graduate on time.
  • Provides funding to decrease class sizes in grades K-1.
  • Provides state funding to reinstate education-based salary supplement for certain teachers. Teachers who already have a master’s degree and meet certain criteria will be grandfathered in and receive and education-based salary supplement. However, teachers who earn a master’s degree in the years ahead will not receive an education-based salary supplement.
  • Provides a tiny boost in funding for textbooks, resulting in state funding for K-12 textbooks for current school year ($24.3 million) well below the amount needed to ensure students have access to updated textbooks in their classrooms (peak level spending was more than $110 million, adjusted for inflation, in FY 2010).
  • Adjusts projected student enrollment growth downward for FY 2014-15, for total savings of $37.4 million.
  • Provides additional $840,000 in state funding for Opportunity Scholarships, vouchers for K-12 students choosing to attend private schools (Note: This spending is presented in UNC System area of state budget).

Higher Education

Community College

  • Raises tuition at community college for in-state students (on top of tuition increase last year), thus making it more difficult to access a college education and postsecondary training.
  • Adjusts projected enrollment growth downward for FY 2014-15, for total savings of $17.2 million.
  • Creates a new tier of enrollment funding that provides greater funding for health care and technical educational programs.

University System

  • Imposes $76 million flex cut to the UNC system for the 2014-15 academic year (on top of several rounds of flex cuts in recent years).
  • Adjusts projected enrollment growth for FY 2014-15, for total savings of $1.77 million.
  • Changes enrollment growth funding model and eliminates requirement to limit budget cuts to institutional support areas when enrollment declines for total savings of $5.3 million.

Health and Human Services

  • Cuts provider rate by an additional 1 percent for the Medicaid program (on top of the 3 percent cut already approved). This rate cut could mean providers may become less likely to accept Medicaid, making it harder for vulnerable families to get the health care they need.
  • Scales back income eligibility guidelines in the child care subsidies program, making it harder for moderate income families to access this work support. As a result, many families will no longer be able to access safe, quality care settings for their children.
  • Provides funding to increase the child care market rates for the Child Care Subsidy Program. However the reimbursement to child care providers is still well below the state’s market rate price for child care, meaning families who purchase care with subsidies have far fewer options and child care providers who provide that care are not being compensated fairly.
  • Scales back income eligibility guidelines for state-county special assistance that goes to people who are aged, blind and disabled. The budget grandfathers-in current participants, but makes it more difficult for future participants to access the health care they need.
  • Reduces funding to vocational rehabilitation.
  • Cuts funding for Home and Community Care Block Grant by nearly $1 million, despite long waiting lists for in-home and community care programs and services for older adults.
  • Provides funding for additional pre-K slots as well as additional funding for child protective services and children in the foster care program.
  • Provides additional funding for statewide medical examiner system.
  • Provides funding for one year for group home residents determined to be ineligible for Medicaid.
  • Provides funding to increase community-based crisis stabilization services such as psychiatric outpatient clinics, 24-hour crisis clinics, etc.
  • Provides $2 million in state matching funds to support the Health Information Exchange.

Justice and Public Safety

  • Imposes a one-time $6.3 million management flex cut to the Department of Public Safety.
  • Imposes $2.9 million department-wide administrative reduction to the Administrative Office of the Courts.
  • Eliminates 35 vacant trooper positions in the State Highway Patrol.
  • Transfers the State Bureau of Investigation to the Department of Public Safety from the Department of Justice.
  • Eliminates all misdemeanants from State prison and shifts them to county jails for total savings of $2.66 million for FY 2015.
  • Generates $10.5 million in savings from closing, consolidating, and converting four correctional facilities.
  • Imposes a recurring $1.5 million management flex cut to the Department of Justice.
  • Reduces administration funding for Indigent Defense Services.
  • Eliminates the Access to Civil Justice Grant, which supports the representation of poor North Carolinians in civil cases (Legal Aid), thus making it harder for people who are poor to have fair access to the courts.

Natural & Economic Resources

  • Imposes a 1.2 percent flex cut to the Department of Agriculture to reduce overall spending by $1.5 million.
  • Imposes a 3 percent flex cut to the Department of Labor to reduce overall spending by $500,000.
  • Imposes a 16 percent flex cut to the Wildlife Resources Commission, which gives the Commission discretion to determine where efficiencies can be achieved to reduce overall spending by $2.3 million.
  • Imposes a 2 percent flex cut to the Department of Commerce to reduce overall spending by $1 million on a recurring basis.
  • Reduces $1.3 million in recurring funding for the Limited Resource Communities Grant program in the Rural Economic Development Division, created last year to replace the assistance formerly provided by the Rural Center. Provides an additional $500,000 in non-recurring funds to partially offset these cuts to a program supporting distressed rural communities.
  • Shifts funding for the Industrial Commission—the agency responsible for enforcing worker compensation laws and claims—to receipt support.
  • Provides $10 million for new grant program designed to promote the film industry in North Carolina — this program replaces the Film Tax Credit, which expired this year.
  • Provides $20 million for a new, special “closing fund” for incentive deals, contingent on passage of HB 1224.
  • Provides $500,000 non-recurring increase to the Clean Water Management Trust Fund, the program responsible for repairing, replacing, and upgrading water and sewer infrastructure in rural communities. The total appropriation for the Trust Fund is $14.1 million, down from $120 million in FY 2010-11.
  • Provides $1 million in non-recurring funds to support new water and sewer projects in Tier 1 and Tier 2 counties.
  • Provides $1 million in one-time funds for the N.C. Biotechnology Center. This represents a $3 million cut from last year’s budget, and a $4.25 million reduction from FY2012-13.
  • Eliminates all state funding for the Support Center, a community development financing entity that supports small business lending.

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