The Senate’s Budget: No big surprises in spending but some major policy shifts proposed

May 27, 2010

EXECUTIVE SUMMARY

• On May 20, the North Carolina Senate passed a budget bill that makes changes to the certified budget already in place for fiscal year (FY) 2010-11. The Senate’s proposed budget would reduce overall General Fund appropriations by $544.5 million, or 3%. Compared to the previous year (FY 2009-10), the Senate’s proposed budget is $18 million, or 0.1%, less.
• Like Governor Perdue’s proposal, the Senate’s revenue plan assumes that baseline state tax revenues will be $703 million lower next year than was projected when the two-year budget was adopted in 2009. Unlike the governor’s budget, however, the Senate’s plan includes an additional $85 million loss in state estate tax. The Senate’s revenue plan also reduces the top marginal tax rate for small businesses to 6.9%, resulting in a loss of $39 million in state revenue.
• The Senate’s budget raises $22 million by increasing several fees, including those for probation supervision, community service, courts, and attorney appointments. It also increases community college tuition.
• The Senate’s spending plan includes $823 million in reductions, the bulk ($549 million) of which are taken out of the budgets for public schools and Medicaid. It also includes $278 million in expansion spending. Community colleges, universities, the Division of Mental Health, and the Department of Commerce would all see an increase in state appropriations compared to the certified budget.
• The Senate’s budget includes some substantial changes to state policy, particularly in education. The budget bill would give local schools, community colleges and universities the option to furlough staff in order to avoid layoffs and begin spending some lottery proceeds for purposes not included in the original lottery distribution formula.
• The Senate budget, like the governor’s, includes a $20 million increase in the state’s contribution to its retirement plan – considerably less than the $180 million increase the state treasurer has recommended. Unlike the governor’s budget, however, the Senate’s plan would not reduce the transfer from the Highway Fund to the General Fund in order to create a new Mobility Fund to pay for the Yadkin River bridge overhaul and other transportation projects.