News: CJ Exclusives

Easley Proposes $16 Billion Budget

Adjustments would hike spending on state employee compensation, debt service, other items

Gov. Mike Easley released his mid-biennium budget term adjustments yesterday, which he said maintained his priorities for spending discipline, creating jobs, and improving public education.

“I think it sets priorities,” the governor said, “and reflects the priorities of the people of North Carolina.”

Easley’s plan states that it would increase “non-federal spending” by $876 million over last year. Because authorized General Fund spending for FY 2003-04 was reported as approximately $14.8 billion, the governor’s proposal of $15.9 billion would appear to be an annual increase of nearly $1.1 billion, or 7.4 percent. But Dan Gerlach, a key fiscal-policy aide to the governor, explained that the 2003-04 budget baseline should be expressed as approximately $15 billion, including nearly $200 million in Medicaid expenses that for one year only were financed by federal rather than state dollars.

Easley said that after only providing a miniscule raise for state employees during the last three years of economic difficulty, he most wanted to offer them something more after this year’s improvement in revenues. He proposed a 2 percent salary increase, plus a one-time bonus of $250 per employee.

“I’m most concerned about state employees in general,” Easley said at a press conference yesterday. “The dollars are just not there to do more.”

General Fund revenues are expected to exceed budget projections by $198.3 for fiscal year 2003-04, which ends June 30. Forecasters anticipate economic growth by a rate of 5.5 percent for 2004-05, which raised revenue expectations for next year by $200 million.

Easley’s revised budget includes $119 million for education enrollment, $231 million for state employee retirement and health care, $220 million for employee compensation increases, and $80 million for servicing debt and capital expenditures. Also, last year’s temporary Medicaid relief ($191 million) from the federal government was removed, so state spending on the program will increase by $182 million.

The new spending proposals mean that some across-the-board budget savings were necessary.

The governor said the budget keeps spending below the cap he proposed last year, which was limited to the previous ten-years’ average of personal income growth, though this assumes use of the $876 million spending-increase number in the calculation. His recommendations included an additional $105 million for the state’s “Rainy Day” reserve fund.

His proposals for economic development included an additional $20 million for the One North Carolina Fund, which Easley uses to clinch business deals for corporations negotiating to relocate or remain in the state. He wants $48 million in tax breaks for businesses, which includes an exemption from the corporate income tax on the first $20,000 companies earn. He also would add or increase tax credits for business research and development and for new ventures.

Easley also renewed $1.6 million in state funding for the Global TransPark in Kinston, which both he and the General Assembly planned to eliminate. He also called for $5 million to go to the North Carolina Biotechnology Center, for business development in the life sciences. Also, Easley included $500,000 in his budget to promote North Carolina “as a wonderful state to visit” at the 2005 U.S. Open golf tournament, which will be held in Pinehurst.

The governor also recommended a $15 million appropriation for the proposed North Carolina Motorsports Testing and Research Complex in Charlotte. The facility would provide a test track for NASCAR.

Bowing to political reality in an election year, Easley did not include revenues from a hypothetical state lottery in his plan, as he has done in past years. He said he had not given up on the idea.

“I’m going to push hard for the lottery every single (legislative) session,” Easley said.

A one-half percent sales tax increase and a temporary personal tax hike on the highest earners is scheduled to end in June 2005.

“We’re still going to need a source of revenue as we go forward,” the governor said.

Paul Chesser is associate editor of Carolina Journal. Contact him at [email protected]