The House budget: Deteriorating revenue picture forces tough decisions

By ELAINE MEJIA and MEG GRAY WIEHE
June 2009

Executive Summary

On June 13, the NC House of Representatives passed its version of a state budget, appropriating $18.65 billion for fiscal year 2009-10 (FY09-10). The House budget has little in common with the governor’s and Senate’s proposed budgets because the anticipated budget shortfall grew substantially between the time those proposals were created and the House’s deliberations.
Facing a $4.6 billion gap between the general fund spending needed to maintain current services and the amount of tax revenue available in FY09-10, House budget writers used a combination of spending cuts, federal recovery funds, and tax and fee increases to balance their budget. The House tax plan raises $783.6 million in fiscal year 2009-10 by closing corporate tax loopholes, broadening the sales tax base slightly to include some services, increasing the sales tax rate by 0.25%, and raising income taxes on
married households earning more than $200,000 per year and singles earning more than $120,000 per year. The proposed FY09-10 budget includes $3 billion in spending reductions, the largest of which are achieved by increasing class sizes in public schools for
grades 4 through 12, eliminating third grade teacher assistants, increasing university and community college tuition, reducing payments to Medicaid providers, and making more than $500 million in unspecified cuts to the Medicaid program. The House FY09-10 spending plan also includes $927 million in expansion funding, the vast majority of which is for the state employee health plan, enrollment growth in higher education and Medicaid, and the final step in the state’s assumption of all county Medicaid costs. However, most of the expansion items are offset by large unspecified cuts to the continuation budget.