Budget cuts and taxes

If you think 2009 state revenues are weak, 2010 is forecast to be even downright anemic.

The state’s sales and corporate tax revenues are down, corresponding to the deep dip in personal take-home pay and business profits. According to State Budget Director Charlie Perusse, the state is projected to end the ’09 fiscal year on June 30 with a revenue shortfall of between $1.8 billion and $2.2 billion.

Gov. Bev Perdue has ordered state agencies to reduce spending by up to 7 percent of their budgets, though Perusse said the “seed corn”schools, public safety and health and mental health programshave been “spared the worst” thus far.

Together with a hoped-for $934 million from the federal stimulus package (Perusse: a “working estimate”), that’s enough to balance the books for ’09, as the state constitution requires.

But it’s the fiscal ’10 budget that legislators will be drawing up this spring, and the projected red ink for next year, unless the economy dramatically turns around, is even worse: Elaine Mejia of the nonprofit N.C. Budget & Tax Center has been forecasting a $3 billion budget gap for months, and the legislature’s fiscal staff has told members to expect as much as a $4 billion hole. That amount equals 20 percent of the state’s annual $21 billion budget.

Look for most of the state’s $800 million “rainy day fund” to be thrown into the breech, Triangle legislators say, as well as any other reserve accounts (though Mejia said they’ll all be gone by June, when the state essentially will be “broke”).

Specific ideas about which programs to cut are few so far. Rather, legislators point to the ones that should be cut least, or even increased.

“Be sensitive to the needs in social services,” said Sen. Floyd McKissick (D-Durham), because as people lose jobs, their need for public aid increases.

Enrollment at community colleges is also countercyclical, said Sen. Richard Stevens (R-Wake), as folks who’ve lost their jobs seek new skills. During the fall term, as the economy drooped, the community college system added the equivalent of another Appalachian State University12,000 studentsin total additional enrollments, Stevens noted.

Funding for UNC campuses, too, should be protected as much as possible, Stevens added, as “the economic engine they are.”

“Governor Perdue is the one who’s going to have to balance the budget,” said Sen. Neal Hunt (R-Wake), and legislators should resist any “potshots” if they want to be helpful. “She’s the one who has to do the work, and it’s not going to be easy,” Hunt added. “I feel sorry for her.”

There’s little talk about tax increases at this point beyond Senate President Marc Basnight’s recommendation that “sin taxes” on cigarettes and alcohol should go up.

Rep. Deborah Ross (D-Wake) recalled that when the state last faced a budget crisis in 2001, legislators tried to cut spending and avoid tax hikes but eventually, and after much gnashing of teeth, settled on a balanced package of cuts and small increases in a variety of taxes and fees. A $4 billion gap, Ross predicted, “is not a problem we can just cut our way out of.” Bob Geary

Transit and transportation

For Triangle legislators, the main question is whether any money can be found to launch a regional transit system.

A plan exists, with support from virtually all of the region’s political leaders, to beef up local bus services over the next five years while beginning constructionin short segments, initiallyof a 56-mile light-rail line that will eventually connect Raleigh to Durham and Durham to Chapel Hill. But there’s no federal money available for any of it yet; to start light rail, some combination of state and local money is needed.

But on the subject of who should paycounties, the state, or bothTriangle legislators disagree.

Sen. Richard Stevens (R-Wake) said he’ll again sponsor an intermodal transportation bill like the one he introduced, with Democratic co-sponsors, in last year’s short session. The bill would create a new trust fund for transit akin to the state highway trust fund; it would also authorize Triangle counties to enact a half-cent sales tax dedicated to transit if their voters approve in a referendum.

Durham Democratic Reps. Paul Luebke and Larry Hall and Wake Dems Deborah Ross and Jennifer Weiss also have transit funding high on their lists. While Ross is backing Stevens’ approach, however, Luebke questions why local funding for transit is needed. The state doesn’t require local funding for highways, the veteran House member and finance committee co-chair notes. “Put transit funding and highway funding on the same playing field,” Luebke said.

Weiss is seeking a middle ground. She doesn’t favor a sale-tax increase alone because it’s regressive and disproportionately impacts low-income people. She said she’s open to combining local sales-tax revenues with other funding sources such as fees from transit-linked development.

The transit funding battle will be fought against a huge backlog of unfunded highway projects around the state, many of them with strong support from their local legislators and panting developers, who cite their job-creation potential.

House Minority Leader Paul Stam (R-Wake) thinks it’s time for transportation funding reform. Highway funds should no longer be allocated by the longstanding “equity” formula, which spreads them evenly across the state, he said. Instead, Stam favors a “congestion” formula that would send more money to fast-growing areas that need it mostlike the Triangle. Bob Geary

Economic incentives or tax giveaways?

Our legislators’ priority: Protect spending and incentive programs that create jobs. “Anything that creates jobs, preserves jobs, helps recruit jobs,” is the way House Speaker Joe Hackney (D-Orange) put it. “I think we need to keep our eye on the ball.”

But in a budget crunch, such spending and incentivesalso known as tax breaks for businessare under the knife as well.

Rep. Jennifer Weiss (D-Wake) is wrestling with this problem. A member of a joint legislative committee examining the state’s incentive programs, she cites a study conducted for the committee by the UNC Center for Economic Competitiveness which concluded that state programs should be targeted to job training, workforce development and poorer areas of the state. Subsidies are often used to lure companies to high-wealth areas, but those businesses would locate there without the extra benefits because they want to draw on a university-trained workforce.

Weiss is also working on legislation that would require combined tax reporting by large multi-state and multinational corporations. The idea is to prevent big corporations that do business in North Carolina from allocating their profits to other states with low (or no) business taxes; thus these companies underpay taxes in states like North Carolina.

Most large states require combined reporting, but we don’t, Weiss noted. Thus, small businesses are forced to compensate for the large company loopholes by paying more than they should. Small businesses, she adds, generate most of the state’s job growth, so reducing their tax load can help protect workers. With a fair system of business taxes, Weiss said, tax rates could be reduced, a boon to the struggling small business owner.

Aiding small business is also a priority for Rep. Bill Faison, D-Orange; and helping rural business will be a focus for Rep. Winkie Wilkins, D-Durham.

Rep. Deborah Ross (D-Wake) said she’ll go to bat for the N.C. Housing Trust Fund, which contributes to affordable-housing projects and construction jobs around the state. Funding for the trust has increased from a mere $3 million a year to $18 million over the past few years; advocates have set a goal of $50 million. Bob Geary

Health care and mental health

After seven years of so-called “reform” by then-Gov. Mike Easley, the state’s mental health systems are in crisis, Triangle legislators agree. They await the recommendations of Gov. Bev Perdue, who has promised to fix the mess.

Whether that fix means more money is uncertain. House Minority Leader Rep. Paul Stam (R-Wake) doubts extra funding would help since the state, he noted, already spends $2 billion annually on mental-health programs (including federal funds). “Obviously, we haven’t managed it very well,” Stam said.

Part of the fix, said Rep. Jennifer Weiss (D-Wake) is that the state should back off any plan to close Dorothea Dix Hospital in Raleigh for the foreseeable future. “We should not be closing any hospital beds in a mental-health hospital,” Weiss said, “until we know that the community programs are in place” to help people with severe illness.”

The result of having fewer beds in state hospitals, Weiss argued, “is a lot of people backing up into [general] hospital emergency rooms.” She also cited a treatment program at Dix for adolescents as one that must be preserved.

Another looming issue is what to do about the state employees’ health insurance program, which has exceeded its current budget by $250 million and, unless revamped, will likely be deeper in the red next year. Cutting coverage or increasing state employees’ contributions are two options; Rep. Deborah Ross (D-Wake) points to a third: Tougher bargaining with Blue Cross Blue Shield of N.C., the very profitable nonprofit organization that manages the plan. “I would favor the third approach,” she said. Bob Geary

Criminal justice

With a N.C. Supreme Court decision pending on whether the state Medical Board can forbid its doctors from participating in executions, a de facto moratorium on the death penalty may end during this legislative session. That means a backlog of death-row inmates could be executed unless legislators ban the practice.

Rep. Joe Hackney (D-Orange, Chatham) demurred when asked if he was prepared to pass legislation responding to a state Supreme Court decision, but he and his colleagues may soon be forced to put their reputations on the line and support or oppose the death penalty. Last session, two death penalty-related bills, the Racial Justice Act and proportionality review, stalled in the judiciary committee.

Several Triangle-area legislators have been working to prevent executions for inmates whose death sentences may have a racial bias, and for defendants who can prove they were mentally disabled when they committed the crime.

The Racial Justice Act, introduced in 2007, would have made race-based death sentences illegal. This session, Rep. Paul Luebke (D-Durham), a co-sponsor of the bill, plans to carry the legislation’s mantle of criminal justice reform. Proportionality review would have examined sentencing discrepancies among counties: For example, a person convicted of murder in Orange County may receive life without parole, while someone with an identical conviction could receive the death penalty in another county.

This session, Luebke said he will also push for alternative sentencing for nonviolent crimes as a way to help alleviate the budget crisis. “The state is spending huge amounts of money building and maintaining new prisons. There’s no need to be spending $35,000 to $40,000 on a prison bed for someone who is a nonviolent felon,” he said.

On the Senate side, Ellie Kinnaird (D-Orange) will introduce a bill to outlaw executions for criminals who, based on a psychiatric evalution, were suffering from a serious mental disorder at the time of the crime. Matt Saldaña

Labor/ worker protections

In filling posts for his new administration, one of President Barack Obama’s boldest picks was Hilda Solis for labor secretary. Solis, the daughter of immigrants and a U.S. House member from California, issurprisedecidedly pro-labor, championing the Employee Free Choice Act, a bill that would make it easier for workers to unionize.

In North Carolina, the “U”-word is still considered profanity to many Republicans, and even progressive Democrats are wary to challenge the state’s anti-union, “right-to-work” status. Sen. Bob Atwater (D-Chatham) for one, has said he is “open to hearing both sides” on the debate over whether to allow collective bargaining among state employees.

But some are willing to fight: Ellie Kinnaird (D-Orange) said she will work this session to repeal the decades-old collective bargaining statute.

It remains to be seen how the Obama administration will affect North Carolina’s union lawsand whether Kinnaird can muster enough support to defeat thembut at least one area of workers’ rights should stand a chance this session: workplace safety. Citing a Charlotte Observer series that revealed how some N.C. poultry processing plants were masking their workers’ injuries, Rep. Jennifer Weiss (D-Wake) said she will seek to strengthen the lax regulations that made such practices possible. She added better safety protections should extend across North Carolina’s food-processing industrywhich, not coincidentally, has been resistant to unionization. Matt Saldaña

Protecting the needy

As the recession hits everybody from CEOs to schoolteachers, it may be hitting the poor hardest. While banks spend bailout money on corporate bonuses and vacations, low-income families and the joblessdemographics rapidly on the riseworry about feeding and clothing their families. In North Carolina, nonprofit agencies’ funds are dwindling as private donors and municipalities struggle to balance their own budgets. Durham County recently announced an across-the-board 3-percent cut to the nonprofit agencies it funds, including Urban Ministries of Durham, which serves 600 meals daily and provides beds to 150 people each night. And government programssuch as food stamps and Medicaidrisk being edged out, even as they are needed the most.

Despite the gloomy budgetary forecast, House Speaker Joe Hackney (D-Orange, Chatham) listed social services as one of his top priorities this session. “We will do the best we can, in this environment, to protect public safety, and public education, and our safety net for our neediest citizens,” he said.

Meanwhile, Sen. Floyd McKissick (D-Durham) argued that social services funding should be a priority, not in spite of the recession, but because of it. “We need to understand the need for some things are countercyclical,” he said. “When the economy gets bad, demand for social services goes up. They not only need to maintain the status quo, in all reality they need an increase. It’s only appropriate to do so when times are bad.”

The times certainly are bad. It remains to be seen whether our representatives see that as a reason to help the needyor an excuse not to. Matt Saldaña

Environment

There’s hope among some legislators that going green could save the state some much-needed cash and open up job opportunities.

Rep. Grier Martin (D-Wake) plans to sponsor a bill to adopt the Clean Cars Program in North Carolina, which would require new cars and trucks sold in the state to be more fuel-efficient and pollute less. The bill would save consumers money at the pump$8 billion, according to estimates from Environment North Carolina. Fourteen other states, including California, have adopted Clean Cars. While the Bush administration blocked the program, President Obama has instructed the Environmental Protection Agency to revisit its decision.

A second bill would require the state to purchase fuel-efficient vehicles for its own fleet. Not only would it improve air quality, Martin said, “we also found it would likely save taxpayers money”hundreds of thousands of dollars in fuel costs right away, and more than a million within two years, according to fiscal estimates.

Both bills were introduced last session but stalled after frantic lobbying from domestic car manufacturersthe same ones who went to Washington, D.C., for the bailout.

Martin thinks the bills have a better shot this year. “The good news is,” he said, “our domestic automakers will do just fine. They’re moving forward with fuel-efficient models and are well positioned to win the contracts that would be required under this law.”

Freshman Sen. Josh Stein (D-Wake) said he plans to advocate for tax credits for commercial and residential builders who incorporate green and sustainable building practices. “I’m interested in creating green jobs and positioning our state for the future.” Stein also wants to improve the energy efficiency of public buildings.

These proposals are part of Environment North Carolina’s legislative agenda, which also includes tax credits to consumers who buy energy-efficient appliances and funding to preserve farmland, wetlands and animal habitat. Proposals that cost money will be a tough sell this year. Fiona Morgan

Education

While no politician wants to take credit for cutting education, an across-the-board 7 percent budget cut at state agencies hasn’t spared the state’s schools.

Yet President Obama’s economic plan could help bail classrooms out of crisis. According to the latest estimates from the National Conference of State Legislatures, North Carolina plans to use significant portions of its $934 million in federal stimulus money on education. That includes $363 million for K-12 and $365 million for special education (for programs mandated, but not previously funded, by the federal government) over the next 27 months. (A total of $5.45 billion in federal funds has been allocated for state spending, and federal aid to county and local governments.)

Most state lawmakers expressed a commitment to education not only as an essential service, but as a vehicle to drive us out of the recession.

“We all want to have a growing state,” said House Speaker Joe Hackney (D-Orange, Chatham). “What that means is, you need significant numbers of new school teachers, new community college professors, new university employees, new public safety employees.” He said North Carolina must continue to invest in early childhood education, public schools, community colleges and universities because “that’s what’s put our economy ahead of many others.”

Sen. Bob Atwater (D-Chatham, Durham) said it’s crucial for North Carolina to reduce its dropout rate and to preserve worker retraining at community colleges and universities. “We’re trying to transform our economy through our higher educational system,” he said. “You can’t back away from what you know is a proven formula to let your citizens live a good life and get a good job.”

“We’re probably going to have to put more of a focus on matching our resources with our needs,” said Rep. Larry Hall (D-Durham). He advocates moving some existing education resources into more job training for teachers, nurses and probation and parole officersall fields with a shortage of qualified workers.

House Minority Leader Paul Stam (R-Wake) continues to advocate lifting the cap on the number of charter schools in the state (there are currently 100) and otherwise expanding “choices” for students and their parents, including vocational options. He also supports merit pay for teachers and “differential” payhigher salaries for those who opt to teach in low-performing schools. “Instead of moving the kids” through reassignment, Stam suggested, “move the teachers.” Fiona Morgan

Comprehensive sex education

Nearly 20,000 teenage girls became pregnant in North Carolina in 2007. The state ranks eighth in the nation in teen pregnancynot a category where it’s good to be in the top 10.

Rep. Ty Harrell (D-Wake) plans to push for a bill to make it easier for counties to adopt comprehensive sex-education programs that go beyond the abstinence-only approach favored by former President Bush. “Abstinence alone is not a cure,” Harrell said. “It’s a tool that we have in our toolbox, but it shouldn’t be the only tool. With teen pregnancy on the rise, we also have an increase in sexually transmitted diseases. We want to give the counties, the school boards and the parents the option to be able to offer comprehensive sex education.” The proposal would allow parents to opt out if they don’t want their kids to participate. Fiona Morgan

Broadband

President Obama has put high-speed Internet access high on his list of goals for transforming the economy, and the U.S. House of Representatives recently unveiled $6 billion for broadband deployment, largely for rural areas, as part of its economic stimulus plan. North Carolina is well positioned to receive some of that money. While more than 80 percent of households in the state have broadband access, the e-NC Authority reports that 17 counties are “critically underserved,” with 30 percent of homes stuck with dial-up or satellite services that are much slower and/ or more expensive than DSL, cable or fiber-optic lines.

Rep. Winkie Wilkins (D-Durham, Person) recently brought constituents from Person County to speak to the House Select Committee on High Speed Internet Access in Rural Areas about their frustrations living on the other side of the digital divide. In Person County little more than half of households have broadband access. “Fifty-four percent in a rural county is not acceptable, and that is a stumbling block to economic development,” Wilkins said.

Rep. Bill Faison (D-Orange, Caswell), who chairs the committee, said broadband access is his top priority. He wants a legislative study committee to evaluate whether high-speed Internet should be a public utility. “Everybody probably now thinks it is a public utility, just like telephone,” Faison said, “but it’s not. It’s a completely private effort with a lot of public funding back it up.” If Internet service were subject to the same laws and regulations that govern electricity and telephone service, the state could require Internet service providers to extend access to certain areas that currently don’t have it as a condition of a state franchise. Faison said his goal, realistically, is to stimulate “extensive public debate” of the topic. “I’m not saying we need to do such a thing,” Faison said. “I am saying we need to talk about it and try to find out what’s the best way to go.” Fiona Morgan