For those of us who follow state government, the budget is a constant conversation topic. Where will money be spent? How much will be spent on various agencies? Will there be a surplus or deficit? The list goes on and on, but one question that doesn’t come up very often is: How is the budget created? It’s a very important question that is frequently overlooked.
The upcoming legislative session will begin the state’s biennial, or two-year, budget cycle. Each biennium begins in an odd-numbered year and ends in the next odd-numbered year. For example, the 2015-17 biennium covers the period from July 1, 2015, through June 30, 2017, and includes fiscal years 2015-16 and 2016-17. Even though the new legislators won’t be sworn into office and the legislative session won’t start until January 2015, budget preparations will have started months earlier.
The last biennium started in 2013, which was also Gov. Pat McCrory’s first year in office. While you might think the new governor had complete control over his first budget, it was not the case. Outgoing Gov. Beverly Perdue was required by law to complete budget recommendations, develop a budget message, and deliver them to then Gov.-elect McCrory by Dec. 15, 2012, before the newly elected legislature convened in January. So while McCrory controlled his recommended budget, the early part of the process was out of his hands.
Normally, a change in administration wouldn’t have had a large effect on the incoming governor’s budget, but McCrory was not so fortunate. Early in his term, the secretary of Health and Human Services announced the Perdue administration had made a mistake in the Medicaid budget, resulting in a forecasting error. The state’s Medicaid deficit had increased, and there was an expected shortfall of approximately $248 million for the year.
This shortfall was not anticipated in 2012 when Perdue approved the baseline budget for each agency. Thus, when proposed budgets were drafted for each agency, the Medicaid shortfall had not been accounted for. Had the shortfall been addressed, each agency would have been required to reduce its base budget allotments to balance the overall state budget. The legislature ended up authorizing $496 million in additional funding in 2013 to cover the Medicaid budget gap.
So while 2015 marks McCrory’s third year as governor, this will be the first budget cycle under which he has complete control over the executive branch’s budget process. Each biennium begins with a set of budget instructions, which vary slightly to meet the objectives of the current administration while still adhering to the State Budget Act.
The budget instructions for 2015-17 ask agencies to prioritize their requests and focus on gaps and unmet needs for critical services. Agencies also have been asked to identify efficiencies and other ways to save in their budget requests. If an agency wishes to increase spending, it also must offer reductions in other areas for a net 2 percent reduction overall.
So, how much will the next biennium’s budget be, and will there be a surplus or deficit? We don’t know yet. According to the budget timetable, the Office of State Budget and Management began meeting with agencies in November to share the governor’s draft budget recommendations. Agencies then will have time to provide feedback on the recommendations.
The governor is scheduled to finalize his 2015-17 budget recommendations by the end of February with updated enrollment and revenue figures. He is scheduled to release his budget to the public and the legislature in March 2015.
Sarah Curry is director of fiscal policy studies for the John Locke Foundation.