News: CJ Exclusives

House Budget Faces Uncertain Future

Senate, governor not enthusiastic about bipartisan spending plan

An unusual coalition of 12 liberal Democrats and 11 conservative Republicans comprised the only formal opposition to the $22.1-billion General Fund budget passed around 1:15 a.m. May 22 by the state House of Representatives.

The spending plan, approved by a 93-23 vote, is expected to undergo dramatic changes in the Senate and received a less-than-enthusiastic response by Gov. Pat McCrory, who has tended to align more closely with the lower chamber in fiscal debates.

Also unlike recent budget cycles featuring largely party-line votes on the state budget, House GOP leaders found 32 Democrats to support the spending plan.

McCrory proposed a $21.5 billion General Fund budget for 2015-16, and $22.2 billion for 2016-17. The House budget is set at $22.2 billion the first year and $22.4 billion the second. The chamber’s plan is a 6.3 percent increase for the biennium over the 2014-15 budget.

Asked for a reaction to the House proposal, McCrory spokesman Rick Martinez responded, “The governor stands by his budget.”

“I would imagine [Senate leader Phil] Berger, and the leadership of many of our senators, want to maintain what we have accomplished with tax reform, and actually move it in the direction of less credits, less deductions and exemptions, and continue lowering the rates,” said Sen. Bob Rucho, R-Mecklenburg, co-chairman of the Senate Finance Committee.

Rucho said the Senate “is more in line” with McCrory’s budget, which increases spending by slightly more than 2 percent. That increase would be lower than the expected combination of population growth and inflation over the budget cycle.

It would be “very challenging” for the Senate to support the House budget, and remain committed to controlling spending, meeting spending priorities, building the reserve fund, and repairing and renovating state buildings, he said.

Rucho also objected to several instances in the House plan that used one-time funds to pay for recurring expenses, including $40 million in annual film incentives — which was lowered from $60 million in an earlier budget version. The Senate favored a far less ambitious $10 million grant program approved last year.

The historic preservation tax credit, budgeted at $8 million annually, was another problem the Mecklenburg County Republican cited. The Senate passed an alternative bill authorizing local governments to issue their own grants to rehabilitate old buildings.

“The state of North Carolina has no reason to be in that business,” Rucho said.

He also is concerned that the House budget extended renewable tax credits for the solar industry for two more years. The credits were supposed to sunset at the end of this calendar year.

Earlier this session both chambers passed the Safe Harbor Act, extending by one year the application for solar tax credits, but only for large projects already substantially completed.

McCrory signed the bill into law, and “That was supposed to be the end of it,” Rucho said of solar tax credits. “Any further expansion of it exceeds what we were willing to do.”

A dozen Democrats also voted against the proposal. “I cannot vote at this junction for this budget because, in my book, it is fiscally irresponsible,” said Rep. Mickey Michaux, D-Durham. He cited what he considers overly optimistic revenue projections, in part, for his opposition.

The House budget keeps a promise made to teachers last year of raising beginning pay from $33,000 to $35,000.

It raises salaries for other teachers and most state employees by 2 percent. Some state employees will receive higher pay raises.

Veteran Highway Patrol troopers would get a 3 percent salary increase under the House approved bill, and entry-level troopers will see their salaries increased from $35,000 a year to $36,050 a year. The price tag on that increase is $3.7 million a year.

The budget provides $12.8 million for 2015-16 and $25.5 million for 2016-17 to increase salaries for correctional officers based on the custody level of the prisons where they work.

The budget also provides $19 million over the next two years to the Administrative Office of the Courts to provide for electronic filing in the state’s district and superior courts.

DMV fees — such as driver’s license, auto registration, and title fees — would go up by 30 percent, a reduction from the 50 percent hike proposed earlier.

The House budget also provides an additional $6.8 million for Opportunity Scholarships, to provide vouchers for children from lower income families to attend private schools. That would bring the total amount going to vouchers next year to $17.6 million.

It would raise the maximum scholarship amount awarded for disability and special needs scholarships from $6,000 to $8,000 per year.

It also would provide $1 million a year over the next two years to Parents for Educational Freedom in North Carolina to operate a “charter accelerator” program to help establish charter schools in rural areas.

Donald Bryson, state director of Americans for Prosperity, called the budget a “reverse Robin Hood,” with carve-out special items for special interests.

“Green energy companies and movie productions are benefitting from the fleecing of the average North Carolina taxpayer,” Bryson said. “Instead of taking steps to control spending and widen the tax base by eliminating targeted tax credits, the state House has gone back on their word from the 2013 tax reforms. With this vote, the state House has broken promises to North Carolina taxpayers. House members who opposed the sweetheart deals for special interests should be applauded and we thank them.”

Bryson said AFP would work with the Senate and the governor’s office to “restore some fiscal sanity to the budget process.”

Darrell Allison, president of Parents for Educational Freedom in North Carolina, said the House budget was good for education, for both traditional public schools and for alternative education.

“This budget, which is forward-thinking yet practical in the area of education, is a victory for all children — and especially those children who happen to be from low-income families, disabled or living in mostly rural or economically challenged urban areas,” Allison said. “There is no denying that North Carolina House members stressed within this budget the importance of equal access to a quality education regardless of a child’s family income status or residential zip code.”

Rep. Susi Hamilton, D-New Hanover, a vocal supporter of film incentives, was one of the Democrats praising the plan.

“Overall, this bipartisan budget signals a turn toward the policies that made North Carolina the envy of others, and is cause for us all to be optimistic,” Hamilton said in a statement.

Rep. Chris Millis, R-Pender, voted against the final proposal. “Subsidizing more expensive forms of energy production, which has no measurable environmental benefit, on the backs of our citizens is unconscionable by way of a conservative majority,” said Millis, who earlier this session sponsored an unsuccessful measure phasing out the renewable tax credits.

“The combination of hundreds of millions of dollars per year being spent outside of the role of government, and a retreat on uniform tax policy is too much for me to bear,” Millis said.

Rep. Michael Speciale, R-Craven, did not vote for the budget because it is “full of stuff that shouldn’t have been in there,” he said, and “a lot of wheeling and dealing” occurred to gain passage.

“When you’re up here it is easy to forget the promises you made,” Speciale said. “Ideologically there’s always been a divide for the last few years. It just seems like everybody’s finding their place now” in the Republican distillation.

“Republicans are just finding out that when you’re in charge, and you have a lot of members, you’re going to have a lot of different viewpoints,” said David McLennan, a visiting professor of political science at Meredith College. He called the GOP philosophical split normal politics.

“For House Republicans it’s a very bold budget, and one that’s likely to not be met with open arms from the Senate side,” McLennan said, suggesting protracted budget negotiations between the two chambers. “We may have a Thanksgiving session.”

As some House Republicans line up with Democrats in enlarging the size of the budget against the wishes of conservative GOP members, “It’s an interesting sort of story that’s being portrayed by both sides heading into 2016,” McLennan said. “This is a budget that people will remember at the beginning of an election year.”

House Rules Committee Chairman David Lewis, R-Harnett, downplayed the prospect of Republican voter backlash over what might be considered betrayal of their votes to elect lawmakers who ran on a platform of fiscal restraint.

“We think with the governor’s leadership, and the advice and direction from the General Assembly, that we are much less dependent on incentives than we’ve been in the past,” Lewis said. “But to pretend that there’s not still some need [for incentives] just isn’t realistic.”

House Speaker Tim Moore, R-Cleveland, echoed Lewis’s stance, adding that the House budget restored the medical deduction on personal income taxes for people with high medical bills.

Among items listed for economic development purposes are more than $20 million for the Rural Economic Development Division Grant and Main Street Solutions Fund; $8.5 million in 2016-17 for a Job Maintenance and Capital Development Fund to expand existing businesses; a $1 million increase in 2015-16, and $2 million in 2016-17 for tourism advertising; an additional $5 million for the North Carolina Biotechnology Center; $5 million for the One NC Small Business Fund; and $2.5 million each of the next two years for The Support Center to foster economic development in underserved communities.

In K-12 education, the budget provides $100 million next year for enrollment growth, and $207 million in 2016-17, and an additional $88 million annually for teacher assistants. It includes $48.3 million and $43.5 million, respectively, the next two years for enhanced textbook funding.

“While lawmakers made some awful decisions in other parts of the budget, the public education portion includes a number of sound, research-based recommendations,” said Terry Stoops, director of research and education studies at the John Locke Foundation.

The budget includes 2 percent raises for teachers.

“I had hoped they would revisit their proposal to distribute across-the-board raises for teachers and state employees,” Stoops said. “Ideally, legislators would have recommended a plan that boosted salaries for hard-to-fill positions and our state’s highest-performing employees.”

The House followed McCrory’s lead in raising the base pay for starting teachers from $33,000 to $35,000 a year.

“While the Senate has yet to release their budget, I suspect that this 6 percent pay increase for starting teachers is a done deal,” Stoops said.

Dan Way (@danway_carolina) and Barry Smith (@Barry_Smith) are associate editors of Carolina Journal.