BTC REPORTS: The Governor's FY2013-15 Budget Proposal

By Tazra Mitchell & Alexandra Forter Sirota
Budget & Tax Center
April 2013

  • Governor Pat McCrory proposed a $20.6 billion General Fund budget for fiscal year (FY) 2013-14 and a $21.3 billion budget for FY2014-15. While the proposal represents a 1.8-percent increase over the $20.2 billion FY2013-14 base budget, it would nonetheless spend 8.4 percent less than the last state budget approved before the onset of the Great Recession (FY2007-08) when adjusted for inflation.1 As such, this proposal would continue to significantly underfund basic public services and structures.
  • The proposal for FY2013-14 redirects the entire projected current-year credit balance of $441 million to fulfill current-year Medicaid obligations and rebuild the Rainy Day Fund and the Repair and Renovations Fund. It increases gross total revenue availability over base tax and non-tax revenues by diverting $217.5 million from non-General Fund sources to the General Fund, and it depletes gross availability by $52.0 million by repealing the estate tax. The proposal leaves $130.8 million unspent and carries forward this balance into FY2014-15.
  • The proposal deposits $181.1 million of FY2013-14 revenue into state savings accounts, including a newly established Medicaid Risk Reserve. It also provides $185.0 million for the state portion of the Medicaid rebase to address the projected growth in the number of eligible individuals and consumption of services while calling for an increase in Medicaid co-payments. It provides a 1-percent pay raise for teachers and state employees as well as a 1-percent cost-of-living adjustment for retirees.
  • Although the proposal would increase overall spending by 1.8 percent over the base budget, of the six major areas included in the budget—the K-12 system, Community Colleges, the UNC System, the Department of Health and Human Services, Justice and Public Safety, and Natural and Economic Resources—only Health and Human Services experienced a net increase. As such, the proposal would fail to maintain current service levels in several areas despite the state’s improving economic picture.
  • The proposal represents a shift away from economic development investments targeted at low-income, distressed populations and communities and toward more broad-based economic development efforts that appear more focused on business attraction.
  • The proposal includes boilerplate language that indicates support for revenue-neutral rate-reducing tax reform. Such an approach is based on the false premise that income taxes are a barrier to economic growth, although recent history and empirical research show that tax cuts have little to no bearing on economic performance. Revenue-neutral tax reform is misguided at this time because such reform would lock in historically low levels of revenue and, as a result, underfund the vital public structures that are the foundations of a strong economy.
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