News: CJ Exclusives

House Leaders See Path To Session’s End

Once budget signed, bonds, regulations, Medicaid reform remain

With the House passing a $21.735 billion General Fund budget by an 81-33 vote early Friday morning, and Gov. Pat McCrory saying he would approve the spending plan, lawmakers will shift their focus to outstanding items such as a $2 billion bond package and Medicaid reform before adjourning.

McCrory lodged objections with some portions of the budget, but he said Thursday he would sign it.

“We really have done a lot in structuring and solidifying good fiscal economics for the state, bringing us along, more jobs, lower taxes, getting rid of debt load,” said House Budget Committee Vice Chairman Chris Malone, R-Wake.

State Rep. Nelson Dollar, R-Wake, senior House budget chairman, said “significant negotiations over a number of conference reports, a number of regulatory bills” will continue.

And once the budget is passed, “you often have all sorts of interesting bills that pick up some interesting items, and they get passed from one chamber to another,” he said.

Meetings are likely to continue through the weekend into next week, “and we anticipate a bond package in that $2 billion range to emerge sometime next week,” Dollar said.

The House originally proposed a $2.8 billion bond. Money was planned for universities, community colleges, K-12 public schools, state parks, ports, the State Zoo, and highways.

“The single largest piece” was new university construction, and building rehabilitation, Dollar said.

“There’s some assumption that transportation may not be” in the final bond package because the budget included an additional $440 million in construction and resurfacing money, made possible through fee increases at the Division of Motor Vehicles and by ending the $216 million annual transfer of highway funds to the General Fund, Dollar said.

That increase is “one of the most significant bumps in recurring money for roads that we’ve seen in two or three decades,” he said.

House Budget Committee Vice Chairman Rob Bryan, R-Mecklenburg, said the bond is timely.

“We have historically low interest rates right now, and under any of these scenarios when you look at our debt five and six years out it should be lower than it is today even based on a significant bond package,” Bryan said.

Medicaid reform, which has tripped up lawmakers for years, “has reached a conclusion,” Dollar said.

“What you will see is a hybrid approach with both commercial plans as well as provider-led plans” administering Medicaid networks, he said. That was the framework pushed by the Senate.

But the Senate did not get its plan to carve Medicaid out of the state Department of Health and Human Services and make it a Cabinet level agency.

“There will be a Division of Health Benefits still under Health and Human Services,” led by a director nominated by the governor and confirmed by the General Assembly, Dollar said.

He expects the Medicaid conference report to be released in the next few days. Despite remaining differences on Medicaid issues, “I would anticipate that the bill would pass,” he said. It could be two years to get federal approval for the plan, followed by 18 months of preparation before implementation.

Under the plan, statewide and regional networks would operate under contracts based on a set monthly fee per patient, with the fees increased for patients with greater health problems. Unlike the current system, which requires taxpayers to pick up any cost overruns, the networks would be responsible for keeping costs under control. Behavioral health likely will continue to be administered for several more years by the current managed-care operators.

The budget includes significant tax reductions on the heels of major tax reforms in the 2013 budget. Further tax reforms will depend on whether revenues keep growing above projections.

“The concern will be the sufficiency of revenues particularly in 2017-18 with the beginning of the next biennium. I think that’s where you will see folks making projections that will raise concerns, and we’ll have to see where we are with respect to the economy, where we are with respect to revenue growth,” Dollar said.

Budgets “will continue to be very tight for the foreseeable future,” he said.

Bryan said the budget is good news for education.

“We fully funded enrollment growth in our community colleges, our universities, and K-12,” and increased Opportunity Scholarships by $6.8 million for low-income families to send their children to the school of their choice, Bryan said.

“We held good on our promise to raise starting teacher pay up again, so we’ve gone from $30,000 two years ago, up to $35,000. And with the $750 bonus that they’ll get this year, that’s basically a 20 percent pay increase that puts us the third-highest starting pay in the Southeast,” Bryan said.

Malone noted that the $62 million for textbook and digital materials compares to $2.2 million allocated in the 2009-10 budget.

Dollar said education spending overall is up 3.9 percent in this budget, or $462 million year-over-year.

“We’re growing at 4.2 percent in public schools, 1.8 percent in community colleges, 3.7 percent in universities,” Dollar said.

Since the 2013-14 budget, education spending has risen by $780 million, for a 6.7 percent increase overall. That breaks down to a 7.5 percent increase for K-12, 3.9 percent for community colleges, and 5.5 percent for universities, Dollar said.

House Rules Committee Chairman David Lewis, R-Harnett, said expanding the sales tax base recognizes “we are in a service-based economy now.” He doesn’t believe singling out some businesses instead of corralling all service sectors is unfair.

“The last thing that is politically palatable… is to create tens of thousands of new tax collectors,” Lewis said.

Some businesses that sell goods, such as his lawnmower company, will pay additional sales taxes if they provide installation and repair services. Lewis said that is “not picking winners and losers as much as it is easing into a tax system that truly taxes consumption, not income, not savings, not investment.”

Under the expanded sales tax base, 71 counties will get more funding. An additional 22 counties have passed local sales tax options and they will get to keep all the money raised by that local tax. The remaining seven counties will see no change in their share of the sales tax.

In 2013 the House passed the measure expanding the sales tax to cover tangible personal property, and at the time McCrory supported it, Lewis said. The Senate passed it this year. “So we’re both on record as having supported this,” he said.

The formula used to determine how much more money counties receive under the expanded sales tax base was designed to give each county the same amount of revenue as they would have received under a sales tax redistribution plan forwarded by Senate Majority Leader Harry Brown, R-Onslow, but without any county losing funds, Lewis said.

Dan Way (@danway_carolina) is an associate editor of Carolina Journal.