House would spend nearly $1 billion more than McCrory

Published May 19, 2015

By Rick Henderson

by Rick Henderson and Barry Smith, Carolina Journal, May 19, 2015.

The General Fund budget proposal released Monday by GOP state House leaders for the two-year budget cycle starting July 1 would increase spending by nearly $1 billion more than the increase recommended in March by Gov. Pat McCrory, a fellow Republican.

The proposal received a chilly reception by fiscal conservatives and is likely to face major revisions in the GOP-led Senate. It’s also unclear how much of the $44.6 billion two-year spending plan will survive votes at a Tuesday meeting of the Appropriations Committee before reaching the full chamber for a vote that could happen Wednesday.

The House plan would spend $22.2 billion in the 2015-16 fiscal year, 6.3 percent more than the $20.8 billion base budget figure; in the 2016-17 fiscal year, spending would rise to $22.4 billion. McCrory proposed a General Fund budget of $43.7 billion over the two-year cycle.

Once $229 million in anticipated “reversions” — money allocated to but not spent by agencies in the current fiscal year — was returned to the state, actual General Fund spending for the current fiscal year should be $20.6 billion. Since the reversions do not reduce the baseline budget of $20.8 billion, along with $60 million in new spending for film-industry subsidies, the House budget would increase spending by 7.7 percent in the next fiscal year.

By contrast, the Office of State Management and Budget projected that the governor’s budget would increase spending by 2.1 percent in the 2015-16 fiscal year. General Fund spending in the governor's plan would remain below the anticipated rate of inflation plus population growth in each year of the two-year budget cycle (see graphic).

In a letter sent Monday to House members, Donald Bryson, state director of Americans for Prosperity North Carolina, took aim at tax credits for historic preservation and renewable energy projects that had been due to expire but were restored in the budget. The letter noted a report released in March from the Department of Environment and Natural Resources noting that the state had handed out $281.7 million in tax credits to businesses between 2010 and 2012.

“Make no mistake, the refundable portion of these tax credits are a form of direct government spending. In other words, a taxpayer-financed handout. Whenever the state government awards a refundable tax credit, it pays for that refundable tax credit by either a cut in other state programs, higher taxes, or taking on more debt (which eventually needs to get repaid through higher taxes),” Bryson wrote.

Senate leader Phil Berger, R-Rockingham, also has suggested that his chamber’s budget proposal would stick closely to the total spending in McCrory’s plan, though the details would differ. At a May 12 meeting of the NC Chamber, Berger cited the $400 million surplus projected by state budget officials. “We cannot repeat the mistakes of our [Democratic] predecessors,” Berger said. “We must maintain the budget and spending discipline that helped give us this surplus.”

Berger hinted that his chamber would direct any surpluses toward replenishing state reserves, and — potentially — additional cuts in tax rates.

Additional highlights from the House budget plan follow.

Tax credits, economic development grants

• The House budget includes $10.3 million in 2016-17 for the renewable energy tax credit in 2016-17, and $36.7 million in the renewable energy safe harbor funding in 2016-17.

• The budget resurrects the historic preservation tax credit at $8 million in each of the next two years. It also allocates $190,730 in both years for staff at Cultural Resources to manage the federal portion of the tax credit.

• There is a $60 million film and entertainment grant fund line item in 2016-17.

• The North Carolina Venture Multiplier Fund is budgeted at $40 million next year, with zero budgeted in 2016-17.

• The state tax deduction for senior medical expenses was budgeted at $23.6 million next year, and $22.9 million in 2016-17. By voice vote, the Finance Committee made the deduction available to all. Carolina Journal was unable to determine the fiscal impact of that extension.

• A research and development credit is budgeted at $44 million in 2016-17.

Direct grants

The budget also allocated:

• $1 million a year in recurring funds to Parents for Educational Freedom in North Carolina for operating the Charter School Accelerator Program, intended to help charter school development in rural North Carolina.

• $150,000 a year in recurring funds for a truck driver training program at Caldwell Community College.

• An increase of $2.5 million a year for the North Carolina Research Campus in Kannapolis, bringing total funding to $24.1 million a year.

• $367,000 for the Eastern 4H Center in Columbia.

• $1 million in 2015-16 and $2 million in 2016-17 for tourism advertising, for a marketing program directed toward consumers in key markets most likely to travel to North Carolina.

• $200,000 for the American Legion World Series baseball championship, held in Cleveland County, home of House Speaker Tim Moore.

• $5 million a year in recurring increased funding for the Biotechnology Center, bring funding to $13.6 million a year.

• $50,000 for the Brevard Station Museum in Stanley.

• $300,000 a year in additional recurring funds for Grassroots Science Museums, bringing the total appropriation to $2.7 million a year.

• $858,380 a year for the next to years to the Bent Creek Institute Inc and the Germplasm Repository in Asheville to attract, grow, and support the natural and neutraceutical (food with health-giving additives and having medicinal benefit) product industry.

• $800,000 a year for the next two years for the Research Triangle Institute to match U.S. Department of Energy grants for clean energy research and development.

• $2.5 million a year for the next two years for The Support Center to provide small business loans and financial training to start-ups and existing businesses, along with lending services to community-based organizations.

• $50,000 a year in recurring funds to Tryon Palace in New Bern, bringing total funding for 2015-16 to $2.9 million.

• $9,000 a year in recurring funds for the Roanoke Island Festival Park, restoring a 2 percent budget reduction taken in the 2014-15 fiscal year.