News: CJ Exclusives

Modest Spending, More Tax Cuts Could Highlight Short Session

Much more than House Bill 2 on legislative agenda

CJ file photo
CJ file photo

The state’s top three Republicans — Gov. Pat McCrory, Senate leader Phil Berger, and House Speaker Tim Moore — agree that state General Fund spending should rise by no more than 2.9 percent in the 2016-17 budget they expect to adopt in the General Assembly’s short session. Berger and Moore say they can accomplish that goal and maintain a balanced budget while cutting taxes, too.

Late last week, the three leaders separately offered their views of how they hope the session — which opens officially at 7 p.m. — will take shape.

All three said they plan to limit spending. Moore, from Cleveland County, said spending increases should be lower than a “taxpayer bill of rights” threshold of the increase in population plus the inflation rate — calculated by the governor’s office at 2.9 percent. Berger, from Rockingham County, said Senate Republicans are committed to holding budget increases to approximately 2 percent. The governor set his target at 2.8 percent.

Governor outlines budget

McCrory, alongside state Budget Director Andrew Heath, released some details of the proposed $22.3 billion General Fund budget at a Friday press conference.

Much of the increase in the McCrory budget — $426 million — goes to teacher compensation. The budget calls for an average 5 percent pay increase for teachers and an average 3.5 percent bonus for teachers. “That’s going to boost average salaries in real dollars to more than $50,000 per teacher for the first time in state history,” Heath said.

Some state employees also would be in line for 5 percent pay increases. They include SBI and ALE agents, assistant district attorneys, and assistant public defenders. State Highway Patrol troopers, assistant and deputy clerks of court, and magistrates would also see pay increases. The budget sets aside $10 million for correctional officer pay increases.

The budget includes $27 million into a salary adjustment fund, designed to make some state employee pay ranges competitive with the private sector, Heath said. He added that each state employee would receive a one-time 3 percent bonus, capped at $3,000.

The budget deposits $300 million into the state’s rainy day fund, bring the balance to $1.4 billion. An additional $155 million will go into the state’s repair and renovation fund.

McCrory and Heath also said bringing Medicaid spending more under control made budget planning easer. Upon taking office, McCrory said he faced Medicaid overruns that hampered accurate budget projections, requiring cuts to be made from other departmental budgets.

“Now we’re expecting a third straight year in which we have a cash balance” in Medicaid, McCrory said. According to budget figures presented at the news conference, the state Department of Health and Human Services budget is set at $5 billion, and Medicaid consumes about 70 percent of that.

“We had four years of Medicaid budget shortfalls, and frankly, some mismanagement,” Heath said. He expects Medicaid to finish this year with a cash balance between $275 million and $325 million, which “brings up substantial availability” of unanticipated revenues in the coming budget year.

“That is driven by lower than expected enrollment in Medicaid, and lower than expected utilization in Medicaid,” Heath said.

McCrory’s budget calls for allocating $150 million into a Medicaid reserve fund to help shift to a managed-care system, which would require the approval of the federal Centers for Medicare and Medicaid Systems.

The budget proposes about $80 million in new health initiatives. “The showcase” of that allocation is $30 million to fund programs recommended in a report by the Governor’s Task Force on Mental Health and Substance Abuse, Heath said. There’s also additional funding for older adults with Alzheimer’s disease and expanded services for the developmentally disabled and children with autism.

“I firmly believe that we need to help those who can’t help themselves, while encouraging those who can,” McCrory said.

The governor also spoke about the $2 billion Connect NC bond package to build and improve existing facilities at state universities and community colleges, state parks, and attractions, to improve water and sewer infrastructure, and to help agricultural research.

“We’re talking about some serious dollars, and also the prioritization of how that money is spread out, and we’re trying to get it out before the interest rates rise,” McCrory said. How much of that $2 billion will be drawn down in the upcoming budget, and what projects will be targeted, have not been determined, though he added the first allocations could be made as early as this summer.

Legislative priorities

At a Wednesday press conference, Berger said Senate Republicans are committed this year to increasing teacher pay. On Thursday, Moore said he “would certainly like” to see lawmakers approve a 5 percent pay increase for teachers, as McCrory has proposed. “We just need to see what we can afford,” Moore said.

Moore also said that House and Senate budget writers are trying to reach an agreement on the magnitude of any pay raises early in the session.

Berger said he liked McCrory’s goal of bringing average teacher pay to $50,000 a year.

“It’s a goal that we will start working on during this short session,” Berger said. But he insisted the target remains “a goal to get to,” making no commitment to reach it this year.

Both legislative leaders suggested another round of tax cuts for the upcoming session.

“It’s no secret that House and Senate members on the Revenue Laws Committee have been reviewing proposals on raising the amount of tax-free income to $17,500 for married couples filing jointly,” Berger said. “That is something that I hope will be accomplished during this short session.”

Moore agreed, referring to the standard deduction as the “zero percent tax bracket.”

The governor’s budget does not include tax cuts. When asked if he’d be amenable to increasing the standard deduction, McCrory wouldn’t say.

“This is where our priorities are,” McCrory said. “Based upon the revenues that we have available, we feel like major priorities that we’ve submitted today need to be the major priorities of the state of North Carolina, both in spending reductions and also in areas that we need to increase, especially in regards to teacher pay and compensation.”

Berger and Moore support House Bill 2 — the so-called bathroom bill — that passed in late March during a special one-day session of the legislature. While they say they’re willing to listen to a request by the governor to revisit the provision of the law preventing people who claim job discrimination to sue in state courts, the leaders say they’re not interesting in changing the substance of the law.

“It was never our intent to limit access to state courts for workplace discrimination,” Moore said. “We will be looking at legislation to make very clear that plaintiffs will still have access to state courts as well as federal courts.”

Berger was clear in his defense of H.B. 2. “Let me be clear; my job is not to give in to demands of multimillionaire celebrities pushing a pet social agenda, liberal newspapers like The New York Times, big corporations who have every freedom to set whatever policies they wish under this law,” Berger said. “My job is to listen to the people who elected us to represent them. The vast majority of North Carolinians we’ve heard from understand and support this reasonable, common sense law.”

Health care, regulations

Berger said regulatory reform will continue to be a focus of Republican legislative efforts in the short session, and that could spill over to health care rules that act as barriers to entry while protecting incumbent health care providers.

“We will renew our efforts to reduce regulatory burdens that misdirect time and energy to red tape and bureaucracy, and away from growing business and getting people back to work,” Berger said.

“We have up to this point passed five regulatory reform bills over the past five years, and I anticipate we’ll do even more to simplify outdated job-killing rules and regulations during this short session,” he said.

“There will be some discussion on issues dealing with health care. I think [reforming] certificate of need is something that probably has as much if not more energy than anything else,” Berger said.

Hospitals have been the most vocal and active opponents of relaxing certificate-of-need laws, which require government permission to build or expand a variety of medical services, equipment, and facilities.

There are still some bills alive this session that would add more government mandates on insurance companies to cover various procedures and treatments.

“I don’t know where the votes are on various things. I do know that the Senate has been less inclined to add mandates to insurance coverage,” Berger said.

Renewable energy

“And with some of the stuff we’re seeing with rates going up in the amounts that they are going up for folks that are paying for their own coverage, and for businesses, and others that are paying for coverage for employees, I think it would be a mistake for us to add mandates to coverage at this time,” Berger said.

He also expects solar energy advocates to push for the renewal of tax-funded subsidies that ended Dec. 31.

“I would be surprised if you don’t see something on those issues as far as introduce, discuss, push. There are very strong interests on both sides of that issue,” Berger said.

“Whether anything would happen on that remains to be seen,” Berger said. “I haven’t heard of anything specific” about bills to revive the subsidies, or scale back on the Renewable Energy Portfolio Standards, which are state mandates on energy companies to buy ever-increasing volumes of more expensive renewable energy, costs for which are passed on to ratepayers and taxpayers.

Donald Bryson, North Carolina state director of Americans for Prosperity, said he has not heard of any specific bills to re-establish the 30 percent tax credit for renewable projects, but “it’s no secret that there are around 24, 27 lobbyists from the renewable energy industry here, and they hired those people for a reason. I think a lot of it has to do with the tax credit going away.”

He said House Bill 332 and House Bill 760, which deal with REPS, remain alive this session.

“They’re sitting in the Senate right now, so they could still move, both of which would simply put a freeze and require a study on the REPS, but I haven’t heard how willing the Senate is to move that legislation,” Bryson said.

Berger said he’s hoping the short session will be just that.

“My hope is that we will finish in time for everyone to enjoy [July 4] fireworks that don’t involve this building,” Berger said.