Weekly Legislative Update
Overview
On Tuesday this week Governor Bev Perdue (D-Craven) released her recommended budget for the biennium beginning on July 1. Reaction to the budget proposal and detailed study of its contents dominated the legislative work week this week. A proposal to make changes to the State Health Plan has stalled in the State Senate as no action was taken on the bill this week. Committees of the General Assembly met on a full schedule this week as the pace of the legislative session quickens.
Governor Perdue recommended a $20.9 billion spending plan that represents a nearly 2% reduction from the budget lawmakers approved last year. Governor Perdue's tax plan would increase tobacco and alcohol taxes, but generally maintain the status quo on other tax laws in order to raise $19.4 billion. To make up the difference between tax dollars and planned spending, the plan includes over $1.7 billion in Federal Recovery Funds included in economic stimulus legislation signed into law by President Barrack Obama last month. The spending portion of the plan reduces the total General Fund budget by $360 million, makes cuts to several programs in State Government and halts State borrowing during the 2009-2010 fiscal year. The Education section of the budget, the largest category of spending, was the only portion of the budget to see a recommendation of any noteworthy growth in spending with funding for K-12 growing by 1% as enrollment shrinks slightly. Community Colleges and Universities were recommended for funding at increased levels and no increases in tuition. Education was not, however, immune from the cuts recommended in other sections of the budget as Governor Perdue recommended $578 million in targeted reductions for Education spending.
Across State Government, Governor Perdue would find savings by eliminating "lapsed salary" accounts. Other significant cuts include closing seven jails and prisons across the state that are old or too small to be efficiently managed and reducing the state workforce by as many as 268 employees. Another 899 workers would be reassigned as part of an effort to eliminate a total of 967 jobs across State Government. Other significant savings come from a proposal to eliminate funding the reserve and repair fund and reduce spending on capital projects to $28 million from over $1 billion authorized during the current year. Most of that capital funding approved last year was never tapped as revenues began to decline. Also, the State will take on no additional debt for capital projects under Perdue's proposal. Funding for roads and bridges totals $3.6 billion in each year covered by the two year spending plan, a figure that includes reductions of $157 million in 2009-2010 and $173 million in 2010-2011. North Carolina stands to gain $735 million in Federal stimulus money dedicated to transportation needs, of which $466 million is dedicated to "shovel ready" projects that should begin construction work by August.
Underlying Governor Perdue's budget is a revenue and economic outlook that has drawn more criticism than any other projection in the plan. Governor Perdue's budget assumes that the economy will contract by just 2.7% in 2009 and grow by 3.5% in 2010. Critics have said both estimates are too optimistic in light of the plan's forecast of 9.4% unemployment through early 2010. Housing and construction, consumer spending, and manufacturing will lead a continuingly deepening recession in 2009, the plan says. Also included in the projections is the estimate that by 2010 and 2011 the economy should improve with education and health services helping to lead the way, and personal income growth in North Carolina should outpace the national average in 2010 and 2011.
All of this means continuing declines in State revenues during the 2009-2010 fiscal year. To fill the gap, Governor Perdue wants to raise taxes on cigarettes by $1 per pack and add an additional 5% surcharge on all alcohol purchases, and will rely on Federal Stimulus funds during 2009-2010. Together, the "sin tax" changes will add over $500 million to the State's coffers each year. The plan will count on revenues rebounding somewhat in 2010-2011, although most tax categories are not expected to return to current year estimates within the biennium. Despite dour revenue estimates, Governor Perdue made room for other tax changes that she says will help grow the economy including small business tax relief totaling $12 million in 2009-2010, an increase in the Earned Income Tax Credit by $21 million, and increased fees for annual licenses on professionals from $50 to $200.
Legislators now begin the process of remaking the Governor's proposal to fit their own priorities. Joint meetings of the appropriations sub committees were held all week to review the Governor's proposal. This year, the Senate will act first on budget legislation with the House responding to Senate proposal. Both chambers have already begun the process of crafting their budgets and taxation would be a likely point of contention between them. Senate President Pro Tempore Marc Basnight (D-Dare) has signaled his support for the tobacco and alcohol tax increases, while House Speaker Joe Hackney (D-Orange) has suggested that the Governor's budget plan did not make enough cuts to spending. The budget year ends on June 30, 2009 and lawmakers hope to enact the plan before that date.
In other action, legislation (Senate Bill 287) to provide $250 million for the State Health Plan and to make benefit changes has stalled in the State Senate. Senate Bill 287 was scheduled for consideration by the Senate Monday and then rescheduled for Thursday. By Thursday, it was clear that opposition from State Employees and Pharmacists had halted progress of the legislation. State employees object to provisions that would raise the premiums of dependants covered by the plan and pharmacists are strongly opposed to provisions that would encourage mail ordering of prescription drugs. The $250 million that Health Plan administrators say is needed to allow the Plan to continue making payments is still included in the legislation, although the money may not be needed since Governor Perdue has directed a transfer from the State's rainy day fund in that amount to the Health Plan. Nonetheless, supporters of the bill say benefit changes are needed if the State Health Plan is to remain solvent in the coming years. Action on the bill was again deferred at the Senate session on Thursday and scheduled for Tuesday of next week.
The House was actively moving legislation this week that will enhance youth employment protections and strengthen child labor violation penalties (House Bill 22 and House Bill 23) and set aside child support judgments in certain circumstances (House Bill 307). House Bill 22 and the related House Bill 23 will amend the states employment regulations by requiring a report from the Commissioner of Labor on enforcement of child labor laws and double most of the fines levied as penalties for violating the child labor laws. Both bills passed by the House this week now go to the Senate for further consideration. House Bill 307 would enact changes to the parentage laws by allowing for an affidavit of parentage to be set aside when the affidavit was entered as a result of fraud, mistake or duress or if a genetic test establishes the putative father is not the biological father. The bill was approved by the House on Wednesday and now awaits action by the Senate.
The articles published in this newsletter are intended only to provide general information on the subjects covered. The contents should not be construed as legal advice or a legal opinion. Readers should consult with legal counsel to obtain specific legal advice based on particular situations.