Senate continues methodical approach of previous budget cycles, analysts say

The $22.9 billion General Fund budget plan released Tuesday by Senate Republicans would increase spending over the two-year budget cycle by less than Democratic Gov. Roy Cooper’s plan would in its first year alone.

That’s one conclusion from Joe Coletti, a senior fellow at the John Locke Foundation specializing in fiscal analysis. The Senate increase is 2.5 percent over the biennium; Cooper’s is 5.1 percent in 2017-18 only. Cooper’s percentage increase would be even higher if things such as spending on Hurricane Matthew recovery were included in appropriations, Coletti noted. Cooper’s budget would use $150 million from savings reserves for that purpose. The Senate appropriated money in the budget.

The budget plan, Senate Bill 257, is set for its initial vote Thursday on the Senate floor.

Joe Stewart, executive director of North Carolina Free Enterprise Foundation, said Republicans were continuing a methodical approach by including its priorities into the budget. That process began in 2011, when the GOP took control of the legislative branch for the first time since the 19th century and accelerated when Republican Pat McCrory became governor in 2013.

The budget plan comes well in advance of the end of the fiscal year, which is June 30.

The Republican leadership made a commitment to looking at the state system of taxation and making reductions that they felt were appropriate. “This budget honors that,” Stewart said. Senators say their $1 billion tax cut will benefit 99 percent of the state’s residents. Both corporate and personal income tax rates would be lowered.

Cooper has criticized Senate Republicans’ tax cut plan. He and legislative Democrats wanted to spend more money instead of returning it to the taxpayers, especially in light of a $580 million surplus this year.

“While Governor Cooper’s proposal makes investments necessary to raise teacher pay and increase access to quality education, create good jobs, and put more money in the pockets of middle class families, the Senate Republican budget gives massive tax breaks to the wealthy and giant corporations,” said Cooper spokesman Ford Porter.

Donald Bryson, state director of Americans for Prosperity, defended the tax cuts, which would total $3.5 billion over five years. Returning more money to taxpayers is the right thing to do, he said.

Stewart said the real debate is not about rates but whether the tax system is structured in a way that generates sufficient revenue to provide government services taxpayers want, while not discouraging economic activity necessary for employers to continue providing meaningful jobs.

Coletti said a major policy shift in the budget would eliminate retiree health benefits for state employees hired after July 1, 2018. Current state employees would not be affected. The two-tier system is a response to $32 billion in unfunded liabilities in the State Health Plan.

The Senate budget splits off some functions of the Department of Public Safety beginning July 1, 2018, by creating the Department of Adult Correction and Juvenile Justice. The former would focus on law enforcement; the latter on corrections and the penal system.

Coletti said splitting the Department of Public Safety in two would enhance administrative efficiency by allowing them to focus on core functions. He likened it to previously placing aquariums, zoos, and parks under the Department of Natural Resources, where it was a better fit, instead of housing them under the much larger Department of Environmental Quality.

For years the state’s Medicaid program was the problem child of the state budgeting process. Last-minute reports of hundreds of millions of dollars in unanticipated costs annually torpedoed the spending plans of legislative budget writers. The McCrory administration worked with legislative leaders to bring that spending under control.

The 2017-18 Medicaid spending increase over this year’s budget is $66 million, though that would be offset with $62 million in one-time receipts, Coletti said. The increase projected for fiscal 2018-19 is $174 million, with $62 million of that offset by one-time receipts.

Coletti said the smaller Medicaid increases are evidence the Department of Health and Human Services has, indeed, gotten its budget accountability and forecast mission under control.

Sen. Ralph Hise, R-Mitchell, chairman of the Joint Legislative Oversight Committee on Medicaid and NC Health Choice, said the Senate budget sets aside $75 million each of the next two years in a reserve fund for implementing Medicaid reform.

Already $225 million has been put in Medicaid reserve toward the projected $390 million needed to switch the payment system from a fee-for-service model that pays providers for every patient visit to a managed care system that pays fixed monthly amounts per enrollee. That will give providers an incentive to improve patient health.

Hise said the Medicaid reserve fund would cover payment claims that can lag for up to a year as it switches to the new payment model.

The budget probably will be altered in the House before going to a conference committee to reconcile differences. Senate leader Phil Berger, R-Rockingham, said during a Tuesday press conference he thinks the budget can be wrapped up before June 15.

Stewart said he cannot imagine the governor and the legislature agreeing on the budget given their differing agendas. He predicts Cooper will veto the budget, but the General Assembly will get the 30 votes in the Senate and 72 votes in the House necessary to override the veto.