Politics & Government

NC lawmakers will strike deals on major issues to settle budget

Lawmakers agree there are dozens of differences in spending plans adopted for the state by the House and the Senate – starting with the amounts.

The House adopted a $22.2 billion package, which is a 5 percent increase over the current budget. The Senate on Thursday passed a $21.47 billion plan – a 2 percent increase.

Here are six other big pressure points that will be a focus of the state’s coming budget debate:

State jobs and salaries: No consensus

Paying state employees is a big part of the state budget. While both the Senate and House would increase state employee and teacher pay, they have taken different approaches. One thing is clear: Teachers stand to earn more at all levels of experience under both plans, though the Senate would give a $1,000 bonus (instead of a raise) to teachers who have 25 years or more of experience.

The Senate plan: Would spend $34 million on targeted raises for hard-to-fill and hard-to-retain positions in state government instead of an across-the-board jump.

Sen. Harry Brown, a key budget writer, said: “We feel like before you can do an across-the-board raise, you need to get the imbalance in pay taken care of first.”

The House plan: Offers a 2 percent, across-the-board pay raise to all state employees.

House Speaker Tim Moore said in an interview Thursday that he thinks raises for all state employees is the right approach. He said he wants to maintain that.

Money for schools: A priority question

Both House and Senate leaders cite education spending as a top budget priority, and they’re eager to highlight funding increases in their budget plans.

But the House proposes a higher level of spending than the Senate. For K-12 education, the Senate has proposed a 2.2 percent increase over the current year. In the House, a 3.3 percent increase has been passed.

And there’s a policy question: Lower elementary school class sizes or keep teacher assistants?

The Senate plan: The Senate wants to cut about 5,000 teacher assistant jobs over two years, using the money saved to hire more teachers and lower class sizes in kindergarten through third grade.

Factor in one-time lottery funds that are paying for teacher assistants this year, and the number of positions lost could reach about 9,000 for the 2016-2017 school year. Senate leaders say hiring more teachers for lower grades is a more effective approach for education.

The Senate budget has a $29 million increase in funding for textbooks and other instructional materials.

The House plan: The House would spend $376 million on teacher assistants to keep staffing at this year’s levels – meaning a total of 11,800 teacher assistants would remain in the classroom. Rep. Chuck McGrady, a Hendersonville Republican, said local school districts already can shift those dollars to teacher positions.

“I’m more inclined to let the school boards figure this out and not necessarily mandate one way of doing it,” he said.

Apart on paying for roads, bridges

Both chambers agreed on quick action this spring to hold off a steep drop in the state gas tax rate, which would have cost the state Department of Transportation a few hundred million dollars each year. In their budget proposals, both the House and Senate would increase motor vehicle fees for everything from a learner’s permit to a truck title. Otherwise, they have different ideas about how to collect money for transportation over the next two years, and how to spend it.

“We believe that the way we have approached the transportation funding is a very good approach,” House Speaker Tim Moore told reporters Thursday.

The Senate plan: Halts a yearly transfer of $216 million in gas tax receipts to the state’s non-transportation General Fund, where it has been used to cover the Highway Patrol budget (the House would continue that). Keep that money for DOT and use most of it to increase capital spending by about $170 million a year – enough to pay for 60 or 70 additional new highway projects.

Senate leaders say this is the best way to increase spending for highway and bridge construction, and they oppose Gov. Pat McCrory’s proposed $1.4 billion road bond issue.

The House plan: Raises DMV fees by 30 percent (compared with the Senate’s proposed increases of 20 to 25 percent). Allows the gas tax to fall by 3 cents next January to 33 cents a gallon, but holds the diesel fuel tax steady at 36 cents (the Senate does not change fuel tax rates). Instead of focusing the increased spending on highway construction, as the Senate proposes, the House would put most of the additional money in road and bridge maintenance. A portion of these new revenues would be divided equally among the state’s 100 counties, without regard to size or local need.

Healthcare, nonprofits watching closely

The Senate budget plan contains policy provisions that many in the state’s medical community fear would negatively impact health care services and hospitals.

House members have already been speaking out against the Senate plan, and say it is an area they will work to change.

The Senate plan: Lowers a current cap on sales tax refunds for nonprofits from $45 million a year to $1 million a year by 2020 – a refund used by major hospitals in the state. Also caps itemized tax deductions at $20,000, which would essentially eliminate incentives to give gifts exceeding that amount to charitable nonprofits, which depend on donations.

Kathy Bailey, president & CEO of Blue Ridge Healthcare, said the proposal “may lead to a decrease in services offered, job loss, and ultimately our ability to serve our community.”

Also effectively kills Community Care of North Carolina, the statewide doctors’ networks that enroll Medicaid patients and try to control health care costs. The Senate would prohibit the state Department of Health and Human Services from extending the current contract with the longstanding organization beyond this year.

The House plan: Does not change current sales tax or charitable tax deduction thresholds.

“We are very concerned to any adjustment to the sales tax refund cap,” Rep. David Lewis said. “When you tax nonprofits or don’t return the sales tax that they pay, you are essentially increasing their burden to raise more money to off set that to provide the same level of services in our communities.”

The House wants a Medicaid restructuring plan that would preserve and build upon the CCNC networks.

On taxes: More reforms ahead?

Republican state leaders have made no secret about their desire to shift away from income taxes as a major revenue source. Recent legislative sessions have cut personal and corporate income tax rates and added sales taxes to purchases like movie tickets.

The Senate wants to go further, but will the House agree?

The Senate plan: The personal income tax rate would be cut from from 5.75 percent to 5.5 percent beginning in 2016, while gradually increasing the standard deduction, meaning a married couple filing jointly wouldn’t owe income taxes on the first $18,500 of income by 2020.

Sales taxes would be added to advertising, veterinary and pet care services, and repairs and maintenance work on personal property such as cars. How sales taxes are distributed among counties would change to favor rural counties where few sales occur. Would phase in the “single sales factor” formula for calculating corporate taxes – effectively an additional corporate tax cut that favors companies with extensive property and payroll taxes in the state.

The House plan: Does not make changes in sales taxes or income taxes, although the House keeps corporate income tax cuts that are included in current law.

The elephant in the room: Medicaid

Last year’s legislative session was bogged down over proposed changes to the state’s Medicaid system – and legislators left Raleigh without an agreement.

This year, legislators say they’re determined to curb the growing cost of Medicaid, even if it means a longer session.

“This time, we don’t go home until this is finished,” said Sen. Ralph Hise, a Mitchell County Republican and one of the top healthcare budget writers. “We have got to control this out-of-control system.”

But much like in 2014, the House and Senate are diverging on how to reach that goal. And while the House is addressing Medicaid through a standalone bill, the Senate inserted its plan into the budget.

Senate leader Phil Berger says that was a deliberate choice to prioritize the talks. “If folks have enough wiggle room to say ‘we’ll take care of that tomorrow,’ then they’ll take that route,” he said Thursday. “I don’t think we ought to allow that to happen.”

The Senate plan: Senate leaders want Medicaid to be removed from the Department of Health and Human Services and overseen by a “Health Benefits Authority.” The new agency would be run by political appointees who would hire a CEO and contract with private insurers and healthcare firms. Medicaid users could then choose from three to five providers.

The House plan: The House budget doesn’t include changes to Medicaid, but leaders in that chamber say its members will enter budget negotiations with their own Medicaid bill that’s expected to pass in the coming weeks. The House plan would have doctors running the contracted healthcare firms, and DHHS would still have oversight duties.

Both plans would finance care on a per-person basis, rather than paying for each medical appointment or procedure as the program does now.

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