UPDATE: After this blog was posted, the final budget was unveiled and passed by the House and Senate. The large reductions in Medicaid reimbursement rates mentioned in the blog below did not materialize.
The approach of an agreement to keep North Carolina state government operating with a balanced budget, as required under the state constitution, usually brings at least a sigh of relief. Budgets seldom are approved without plenty of give and take — honest disagreements over spending priorities and how to raise the money. Settling such conflicts in line with the public interest is what representative democracy is all about.
This summer, however, with an overdue budget deal said to be just about wrapped up, the outcome might not offer much to celebrate.
The main reason is that the Republican majorities in the state House and Senate simply don’t have enough revenue to work with – that is, enough anticipated revenue enabling them to balance a $21 billion budget and at the same time address the public’s needs in a responsible fashion.
This isn’t just a matter of bad luck or a downturn in the economy, although North Carolina’s overall economy in the recession’s aftermath still isn’t hitting on all cylinders. The revenue shortage amounts to a self-inflicted hurt. The same legislators now trying to stretch the available funds across too many programs, like someone in bed trying to stay warm even thought the blanket is too short, cut taxes dramatically. Now those tax cuts are shaping up to be even more costly to state government than expected.
Cuts in personal income taxes were reckoned to mean the loss of $4.415 billion in revenue from this year through 2018. The legislature’s staff now projects the cost during that period at $5.295 billion – meaning the state would forgo an additional $880 million after already having taken a big revenue hit.
How this bears on the current budget situation is something of a head-scratcher, since budgets are pegged to July-to-June fiscal years, not the calendar years by which taxes are collected.
But according to the staff’s new analysis, personal income tax collections during calendar years 2014 and 2015 will total $1.570 billion less than what they would have been if the tax cuts hadn’t been made. That compares to the $1.155 billion revenue decline that was forecast last year, when the cuts were enacted.
Pay raise pledges
Legislators already have tightened spending to try to match the revenue losses. But now, they can expect to have to find even more savings – while at the same time, making good on promises to raise the salaries of public school teachers, which are scraping the bottom of national rankings and giving North Carolina a black eye as it seeks to employ a well-qualified teacher corps. Gov. Pat McCrory has a stake as well, since he has echoed his fellow Republicans in asserting that teachers should be paid more.
As budget maneuvering began this spring, the House and Senate took different tacks. The Senate held out the promise of teacher raises averaging 11 percent, but only for teachers who gave up their “tenure” protections against arbitrary firing. The House wanted to give 5 percent raises and keep tenure intact.
The chambers now reportedly agree on raises of about 7 percent. What strings might be attached isn’t known, though, and the Senate still is pushing for “reform” in how teachers are compensated.
What’s really problematic is figuring out how to pay for the raises. The Senate originally wanted to lay off all teacher assistants who help manage second- and third-grade classrooms, freeing up $233 million that could be put toward teacher salaries. The House and McCrory fortunately have resisted, mindful of how useful it is for teachers in the demanding early grades to have some classroom back-up. But that just underscores the revenue crunch.
The Senate’s impulse has been to squeeze a large chunk of the needed funds from Medicaid, the program that pays for health care for many of the state’s poor people, including those dealing with disabilities.
To kick thousands of elderly, blind or disabled folks off Medicaid to save money — following tax cuts chiefly benefiting the affluent — would have taken the cake for cynicism. Yet that’s what the Senate was angling to do, over protests by House members and the governor. A budget deal along those lines would have rated as a disaster, at least from the perspective of the Council of Churches, which thinks the state’s vulnerable residents deserve an extra measure of attention.
The budget deal previewed on July 29 by House Speaker Thom Tillis and Senate President Pro Tem Phil Berger avoids penalizing specific Medicaid clients. Still, it reduces Medicaid spending by $135 million through cuts in reimbursements to providers. A more cost-effective Medicaid program is a worthy goal, but it’s not clear that scrimping on provider payments leads to better health care.
Revenue responsibilities
The income tax cuts did away with brackets under which higher-income earners paid higher rates. Now everyone pays at 5.8 percent, shifting the relative tax burden lower on the income scale.
Supporters argued that a lower rate would have broad economic benefits, helping create jobs, but employment figures so far are inconclusive on that score. What’s clear is that the cuts are making it harder to fund important state programs and services. A second phase of the cuts scheduled to take place at the start of 2015 would only make matters worse.
Common sense suggests holding off on that second round of cuts. And a note of common sense is what was heard from Republican Rep. David Lewis of Dunn, a tax-cut architect. While not addressing the pending cuts specifically, Lewis commented on the latest, disappointing revenue forecasts in an interview with WRAL News.
“The decisions we made were based on those estimates,” Lewis said. “If there’s additional indication that revenue’s going to be down, we’re probably going to have to take a look at – is it a short-term thing, is it a long-term thing – what the possible fixes will do.”
Lewis added, in what comes across as a moment of striking candor from a legislative leader these days, “It does take a certain amount of money to run state government. Nobody doubts or disputes that. Of course, folks like me believe the more money you can let people keep, the better off you are. But with that said, we also recognize the responsibility to keep state government running, and we certainly take that very seriously.”
North Carolina’s low-income old people who depend on Medicaid for health care or to help them cope with blindness or disability could well say, “Amen!”
