The Governor’s Budget Proposal: Spending cuts limited but the plan overall is precariously balanced

BTC REPORTS, Vol. 15, No. 3
April 2009
By Meg Gray Wiehe and Elaine Mejia

Executive Summary

Governor Beverly Perdue has proposed a $20.98 billion general fund budget for fiscal year 2009-10 and a $21.65 billion budget for fiscal year 2010-11. The governor’s proposed budget, if enacted, would reduce general fund appropriations by $42 million, or 1.8%, over the authorized fiscal year 2008-09 budget. However, it is a $596 million, or 2.9%, increase after adjusting for mid-year reductions.

The governor closes the estimated $3.4 billion budget gap by using federal recovery dollars ($1.7 billion), enacting spending cuts ($1.3 billion), increasing excise taxes ($501 million), and making other small revenue and fee changes ($80 million).

The governor’s revenue plan includes a small increase in the state Earned Income Tax Credit for working families. However, the plan overall is highly regressive and will weaken North Carolina’s longterm fiscal solvency by increasing the state’s reliance on inefficient revenue sources. For example, the plan includes a $1 increase in the cigarette tax, an increased rate on other tobacco products, and a 5% surcharge on alcohol — all tax increases that more heavily impact low-income people and that are unreliable long-term revenue sources.

The governor’s $1.3 billion spending reductions are derived primarily by budgeting for less than 100% of the salary cost of agencies’ budgeted positions ($232 million), requiring agency heads to make discretionary reductions at a later date ($274 million), suspending longevity pay for two years ($173 million) and reducing costs in the Medicaid program ($147 million).