RALEIGH – As the Republicans’ state budget plan makes its way through the North Carolina House, some things about the plan are clear and some are unclear.
Let’s start with the latter. At this writing, it’s unclear how many of the House plan’s provisions will survive amendment attempts. It’s unclear how many Democrats, if any, will vote for it. It’s unclear if the Republican-controlled Senate will agree with most of the House plan or offer a substantially different one.
But at least two things seem clear to me. First, the House Republican plan is far more fiscally responsible and economically beneficial than the budget Gov. Beverly Perdue submitted earlier this year. And second, Perdue will veto the Republican plan.
Perdue will veto the Republican plan primarily because it does not include the $800 million and some change in sales taxes that Perdue included in hers. The governor argues that the sales-tax increase, first enacted in 2009 as a “temporary” measure to expire in 2011, should be extended for another two years. GOP leaders say they ran against the sales-tax hike and will not support its extension.
Because of this disagreement on revenue, House Republicans are proposing to spend about $800 million less than Perdue on programs traditionally located in the state’s General Fund (the published totals actually differ by about $600 million, but that’s because the House plan moves the Highway Patrol from Transportation to the General Fund, along with attached funding).
On many other matters, the governor and the House aren’t all that far apart. Both budget plans consolidate a number of agencies to streamline the state’s organizational chart. One result will be the creation of a new Department of Public Safety to include offices and services previously located in the departments of Crime Control, Justice, Correction, Juvenile Justice, and Transportation.
Both the governor and the House propose lower income taxes to encourage economic growth and job creation. Both propose significant savings in areas such as Medicaid and education. Neither budget plan eliminates classroom teacher positions, though the House plan does reduce funding for teacher-assistant positions.
The House plan does include some substantial differences with the governor’s plan on revenue items other than the sales tax. Republicans raise about $100 million in fees for services such as civil courts, and redirect some $84 million in tobacco-settlement proceeds to the General Fund. But the Republicans also set aside more than Perdue does in reserves for repair and renovation of state buildings and other contingencies.
In effect, then, the big difference is on the sales tax. Perdue wants to reimpose the 2009 tax hike. The Republicans don’t.
Another way to think about the emerging budget fight in Raleigh is to contrast three budget totals.
The first is $20.8 billion. That’s the General Fund baseline for the coming fiscal year, the amount of money that state fiscal analysts say is needed to fund current functions such as public education, public safety, and Medicaid without substantial changes in the level of service.
The second number is $19.9 billion. That’s what Perdue wants to spend on General Fund programs. It is roughly 4 percent lower than the baseline.
The third number is $19.1 billion. That’s what the House Republicans want to spend on General Fund programs (not including the Highway Patrol transfer to the General Fund, which is offset by transportation revenue). It is roughly 8 percent lower than the baseline.
Now the budget fight will begin in earnest. North Carolinians are about to hear a great deal of sound and fury. I won’t say all the sound and fury will signify nothing. That would be an overstatement. But to say the differences are irreconcilable would also be an overstatement.
Here’s what I think will happen. Perdue is on course to veto the first plan the GOP legislature presents her. Then the two sides will negotiate. The most likely outcome? Meeting in the middle, at a 6 percent overall cut. The GOP budget contains enough wiggle room – unspent revenue or other potential fee hikes – to make that deal possible without the sales-tax hike.
But perhaps what’s clear to me isn’t so clear to others.
Hood is president of the John Locke Foundation.