News: CJ Exclusives

House and Senate narrow budget differences, but gap remains

North Carolina legislative building
North Carolina legislative building

With one month to go before the end of the fiscal year, at the General Assembly lawmakers are hammering out how to budget more than $25 billion in the next state spending plan. Republican leaders in the House and Senate have already agreed to spend significantly less than budget priorities submitted by Gov. Roy Cooper in March.

For the new fiscal year (2021-22) beginning July 1, Cooper has recommended spending $26.6 billion, a 7.2% increase on the way to a 12.4% spending increase over two years, which would have North Carolina spending $28 billion by 2022-23. That’s a total increase of more than $3.2 billion in state spending.

House and Senate lawmakers have committed to keeping that spending number much lower and working tax cuts into the overall budget plan. The cuts are expected to include a reduction in personal income taxes, a higher standard deduction (zero tax bracket), an increase in the per-child tax deduction, and some cuts to business taxes. But the details, including the overall top-line spending numbers, are still up for debate in the legislature.

Among the factors playing a role in the budget negotiating process is a significant budget surplus of nearly $5 billion and about $5.7 billion in additional one-time federal COVID relief money from the American Rescue Plan. Since Republicans reduced and reformed state taxes beginning in 2013, the state has had a budget surplus in six of the past seven years.

Focused on limiting growth in state spending, building a “rainy day” fund, and reducing taxes across the board, the Republican strategy has faced criticism from Democrats, including Cooper, who vetoed the state budget every year of his tenure in the executive mansion. Cooper said raises for teachers weren’t large enough and wanted to see funding for Medicaid expansion in the state budget.

This year has seen more communication between the governor’s office and the legislature than in past budget cycles, but political observers don’t expect that to materialize in a bigger spending plan from lawmakers. But the possibility of another two years without teacher raises could draw enough Democrats to cross the aisle and vote for the budget or vote to override a gubernatorial veto.

Cooper’s plan to spend $26.6 billion would increase spending faster than the increase in population and inflation, no matter how it is measured. According to documents obtained by Carolina Journal, the House is setting a total spending number at $26.1 billion in fiscal 2021-22, while the Senate is proposing total spending at $25.6 billion.

With the House and Senate almost $500 million apart for spending this coming year, it appears they have yet to begin negotiating the total spending amount for the second year of the biennium. Senate budget negotiators are concerned the higher House spending number may violate the principle of limiting spending increases to remain at or below the rate for population and inflation growth.

The clock is ticking toward July 1, and the budget agreement spending details need to be worked out and make it through legislative committees, as well as pass both chambers, in the next three weeks — roughly by June 20. This would allow enough time to try to override a possible governor’s veto by the end of the fiscal year.

If a budget agreement hasn’t been reached, under state law the previous budget remains in place. Whether the Senate or the House numbers set the course, lawmakers appear to be working toward spending less than the governor’s wish list, and North Carolinians will see some tax relief.