Work starts for the next NC budget

Published November 18, 2014

by Sarah Curry, John Locke Foundation, November 18, 2014.

For those of us who follow state government, the budget is always a topic of conversation. Where will money be spent? How much will be spent on various agencies? Will there be a surplus or deficit? The list goes on and on, but one question that doesn’t come up very often is: How is the budget created? It’s a very important question that is frequently overlooked.

The upcoming legislative session will begin the state’s biennial, or two-year, budget cycle. Each biennium begins in an odd-numbered year and ends in the next odd-numbered year. For example, the 2015-17 biennium covers the period from July 1, 2015, through June 30, 2017, and includes fiscal years 2015-16 and 2016-17. Even though the new legislators won’t be sworn into office and the legislative session won’t start until January 2015, budget preparations will have started months earlier.

The last biennium in North Carolina started in 2013, which was also Gov. Pat McCrory’s first year in office. While many think the new governor had complete control over his first budget, that was not the case. Due to the change in gubernatorial administration, outgoing Gov. Beverly Perdue was required by law to complete budget recommendations and develop a budget message, and then deliver them to then Gov.-elect McCrory by Dec. 15, 2012, before the newly elected legislature convened in January. So while McCrory had complete control over his recommended budget, he did not have control over the entire budget process.

Normally this change in administration wouldn’t have had a large effect on the next governor’s budget, but that was not the case for McCrory. Early in McCrory’s term, the N.C. secretary of Health and Human Services announced a mistake had been made by the Perdue administration, which caused a forecasting error. The state’s Medicaid deficit had increased, and there was an expected shortfall of approximately $248 million for the year.

This shortfall was not taken into consideration when Perdue approved the baseline budget for each agency in 2012. Thus when proposed budgets were drafted for each agency, those proposals did not account for the Medicaid shortfall. Had the shortfall been addressed, it would have lowered each agency’s base budget allotments due to the law requiring North Carolina to have a balanced budget. The legislature ended up authorizing a total of $496 million in additional funding to cover the Medicaid budget gap in 2013.

So while 2015 marks McCrory’s third year as governor, this will be the first budget cycle in which he has complete control over the executive branch’s budget process. Each biennium begins with a set of budget instructions, which vary slightly to meet the objectives of the current administration while still adhering to the State Budget Act.

The budget instructions for 2015-17 ask agencies to prioritize their requests to focus on gaps and unmet needs for critical services. Agencies also have been asked to identify efficiencies and other ways to save in their budget requests. If an agency wishes to increase spending, it also must offer reductions in other areas for a net 2 percent reduction overall.

So, how much will the next biennium’s budget be, and will there be a surplus or deficit? Only time will tell. According to the budget timetable, the Office of State Budget and Management begins meeting with agencies this month to share the governor’s draft budget recommendations. Agencies will then have time to provide feedback on the recommendations.

The governor is scheduled to finalize his 2015-17 budget recommendations by the end of February with updated enrollment and revenue figures. He is scheduled to release his budget to the public and the legislature in March 2015.