House lawmakers struggled to produce budget proposals this week as the Senate actively moved legislation on a range of subjects.  After a week that fractured the Majority House Democratic Caucus in several ways, the subcommittees of the House Appropriations Committee managed to approve budget proposals that would make over $4 billion in cuts to the State Budget.  In the Senate, work on legislation continued at a regular mid-session pace that brought passage on a variety of proposals.  The House was also active in moving legislation, although the budget dominated action in that chamber.  Governor Perdue (D-Craven) has made a preliminary and cautious move to enter the budget debate this week as cuts in the House budget are beginning to produce a response from interest groups. 

The House Democratic Caucus splintered this week over fundamental budget questions.  In private meetings held every day this week, House Democrats reportedly aired their disagreements over whether to raise taxes or make deep cuts to State spending.  Thus far, budget hawks have carried the day as the House seems unlikely to propose additional revenue aside from some increased fees to be released on Tuesday at the House Finance Committee.  That move means drastic cuts to state spending and Democratic members who are protecting endangered programs complicated the budget process by voicing opposition to the reduction proposals.  In several of the House Appropriations subcommittees, dissenting votes by Democratic House members jeopardized the passage of the spending plan.  Ultimately, nearly all the subcommittees did approve their reports, although most were advanced through a parliamentary procedure that reports the spending plans from the subcommittees "without prejudice," that is, neither with the subcommittee approval nor disapproval. 

Democratic members opposed to tax increases showed the first sign of bending to a compromise this week as discussion of an increase in the state sales tax was proposed as one of a few options to avoid the deepest cuts in the State budget.  Governor Perdue's Education CEO Bill Harrison entered into the debate this week by saying that he saw additional revenue as the only way to avoid devastating cuts to Education spending.  Then, later in the week, Governor Perdue told a federal stimulus work group that she is indeed considering a tax increase and reiterated her support for additional alcohol and tobacco taxes that she proposed in her recommended budget.  With the budget deficit now estimated at over $4 billion, even those tax increases, projected to raise roughly $500 million, would do little to lessen the impact of budget cuts.  Thus, talk of an increase in the sales tax and the upper income bracket of the personal income tax have emerged as an alternative to the budget deficit.  The proposal is largely seen as a palatable alternative because similar changes were used during a less severe budget deficit in 2001 and the increases were later repealed. 

A detailed review of the House's budget proposal reveals the severity of the present crisis.  The $4 billion deficit represents a reduction from last year's State budget of about 20%.  Education and Health and Human Services, the two largest budget sections would bear the deepest cuts under the House proposal.  The Education proposal would cut State spending by nearly $2 billion and rely on Federal Stimulus money to maintain programs where possible.  In K-12 education spending, the cuts will produce the most acute pain by increasing class sizes by 2 students and reducing the education workforce by laying off thousands of teachers, principals and support staff.  Other savings would be realized by delaying adoption of new textbooks, placing a one-year moratorium on teachers' performance based bonuses, reconfiguring school bus financing and reducing maintenance funding, and eliminating targeted educational improvement funds.

In Health and Human Services, the budget cuts total roughly $1.4 billion.  These savings would come from reductions in direct health care services of all types and reductions in Department staffing and spending.  The largest cuts would come from Medicaid provider rate reductions of 5.5% and the elimination of the Community Support services program.  Other Medicaid changes such as a preferred drug list and a re-write of the prescription drug reimbursement formula would also have far reaching impacts on patients and providers across the state.  Under the plan, the Department of Health and Human Services would reduce their employment ranks by 671 positions.  In the Health and Human Services budget section, hundreds of millions of dollars in Federal Stimulus money would be used to offset State spending reductions where possible. 

In the Senate this week legislation of all types was on the move.  The Senate gave final approval to legislation (House Bill 759) that would allow a stay from the recycling requirements for ABC permit holders if the permittee is located in a county that does not offer a recycling program.  Other legislation (House Bill 964) approved this week would allow the Insurance Guaranty Association to contract as a servicing facility.  In related legislation (House Bill 1294) approved by the Senate, the High Risk Health Insurance Pool would be authorized to provide premium subsidies if funds are available, the six month pre-existing condition period would apply to more enrollees and health insurers would be required insurers to notify applicants for health insurance coverage about the existence of the Pool if they are eligible.  Also, the Senate approved House changes to legislation (Senate Bill 703) that would give the State Treasurer more flexibility in choosing investment products and a bill (Senate Bill 52) that would allow various local governments to offer energy development incentives. 

Work on the budget curtailed other activity in the House this week.  The House did approve legislation (Senate Bill 200) that would set a temporary floor for the variable component of the motor fuels tax rate at 12.4%.  Also, the House moved legislation (House Bill 1508) that authorizes the use of debt financing for large State owned building projects to a conference committee between the House and Senate.