News: CJ Exclusives

McCrory’s Budget Raises Pay While Keeping Tax Cuts

Plan boosts spending by 1.7 percent; legislative leaders lend support

RALEIGH – Gov. Pat McCrory’s budget calls for teachers and state employees to get raises, the environmental police to add 19 positions to monitor coal ash, and budget authors to keep the state’s spending plan structurally sound.

“Nothing in our budget should come as a surprise,” said McCrory, who had telegraphed his top spending priorities in the weeks leading up to Wednesday’s unveiling of a $21 billion General Fund budget for the 2014-15 fiscal year, which begins July 1.

The proposed 2014-15 budget is $359.5 million more than the current 2013-14 budget, representing a 1.7 percent increase. The spending plan includes modest spending increases even though the 2013 session of the General Assembly enacted a sweeping tax reform package including lower marginal tax rates.

McCrory’s budget raises starting teacher pay by 7.1 percent to $33,000. Other teachers would receive increases ranging from 2 percent to 4.3 percent.

Most state employees would receive a $1,000 salary-and-benefit increase. Budget director Art Pope said that, on average, $809 of that $1,000 would constitute a salary increase, with the remainder being reflected in higher spending on employee benefits.

State Highway Patrol troopers, magistrates, and clerks of court would gain even higher pay raises.

McCrory’s budget provides $1.2 million for salary and operating expenses to 19 new employees in the Department of Environment and Natural Resources who will monitor coal ash cleanup and operations.

“There’s been one issue that has been neglected in North Carolina for the past 60 years, and that is the coal ash issue,” McCrory said. The move is a response to a Duke Energy coal ash pond spill earlier this year into the Dan River.

Pope emphasized that non-recurring (or one-time) funds are not being used to pay for continuing expenses, such as employee salaries and benefits, a funding method that Republicans criticized Democrats for using in the past.

“That is a very poor budget practice, kicking the problem down the road,” Pope said. Budgets enacted by former Gov. Bev Perdue and the Democratic-run legislature of the 2009-10 session committed one-time money from the federal stimulus plan and a temporary sales-tax increase to pay salaries for teachers and other public employees. When the temporary funding expired, structural deficits resulted.

Pope also said the governor wants to place $50 million in reserves to allow for Medicaid cost overruns.

During a press conference earlier in the day, House Speaker Thom Tillis, R-Mecklenburg, had good things to say about McCrory’s spending plan.

“We like what we see in the budget,” Tillis said. “We think it’s great progress and we think it’s something we can build on.” Tillis praised the governor for allocating money to increase pay for teachers and other public employees.

“We will absolutely place a priority on fulfilling the promise that we made back in the February time frame for teacher raises and for state employee raises,” Tillis said. He said the budget, including recent projections of a revenue shortfall, was manageable.

Likewise, Senate President Pro Tem Phil Berger, R-Rockingham, issued a statement praising McCrory’s budget.

“We appreciate Gov. McCrory’s leadership in crafting a balanced budget proposal that prioritizes increasing teacher pay and developing our domestic energy sector without raising taxes,” Berger said. “The Senate looks forward to reviewing the governor’s plan in greater detail as part of our appropriations process.”

McCrory’s budget did not include an extension of film tax credits, which are set to expire at the end of this calendar year. Instead, he said he wanted to consider a different type of incentive program that would reward film companies for longer-term capital projects that would keep people employed in the state. The current incentive regime offers refundable tax credits for film production expenses on individual projects, which provide temporary jobs and are paid even if the production company owes no taxes.

During Tillis’ press conference, Rep. Julia Howard, who co-chairs the House Finance Committee, said that a number of House members had qualms with continuing the current film tax credits. “We will continue working with the Senate and if there’s a different way that we can do the incentives, then that’s what we will be looking at,” Howard said. “What we have right now is not acceptable to the body.”

Other highlights in McCory’s budget include:

• A 1.9 percent cost of living increase for retired state employees.

• A $50 million appropriation for the state’s rainy-day reserve fund and a separate $50 million covering repairs and renovations.

• A transfer of animal welfare enforcement from the Department of Agriculture to the Department of Public Safety. That would help state officials work with local police to deal with puppy mills, a priority of first lady Ann McCrory, the governor said. He also said that he wasn’t giving up on getting puppy mill regulations passed by the General Assembly’s short session.

• A $44 million “management flexibility reduction” in the University of North Carolina system budget. The Board of Governors would be given flexibility to make the cuts.

Barry Smith (@Barry_Smith) is an associate editor of Carolina Journal.