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State budget battle is looming

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RALEIGH — The single most important issue during every legislative session is the approval or revision of North Carolina’s state budget. For the 2019-20 session about to get underway, the political implications of the budget debate are going to be nearly as important as the policy implications.

For the first time since the administration of Gov. Beverly Perdue, the state capital will feature a Democratic governor tussling over the budget with Republican legislative leaders who do not command a veto-proof majority.

Gov. Roy Cooper’s budget proposals in 2017 and 2018 weren’t exactly dead-on-arrival, because as a practical matter much of what any General Assembly ends up approving was originally requested by executive agencies. But where the two sides’ priorities were in conflict, the GOP legislature generally prevailed.

That’s not the scenario we face in 2019. If — or perhaps I should say when — Cooper vetoes the state spending and revenue plan the General Assembly enacts for the 2019-21 budget biennium, Democratic lawmakers will have enough potential votes to sustain the veto. Republicans will either have to compromise with Cooper or peel off enough Democrats in both chambers to override the veto.

As we saw during the latter Perdue administration, I suspect there will be a partisan standoff over the state budget this summer. But it won’t resemble a federal-style government shutdown. Existing law will allow state government to enter its 2019-20 fiscal year on July 1 under spending levels previously enacted for 2018-19.

In other words, while state employees and vendors may grumble, they’ll keep working and keep getting paid if no budget is passed by July 1. North Carolinians won’t see an interruption of core services or the kind of spectacle we’ve been watching lately on the national news. While good for governance in the short run, that means there won’t be as much public pressure to resolve any budgetary impasse.

Perhaps you are a progressive who thinks North Carolina should increase spending dramatically in 2019 even if it would require a tax hike. Perhaps you are a conservative who thinks, as I do, that the state should maintain spending discipline, eschew higher taxes and save prudently for a rainy day. Whatever your views, don’t expect some last-minute surplus bonanza to resolve the conflict.

Just to put things in context, our state government spends around $57 billion a year, including state revenue, federal revenue, user charges and other funds. Some $24 billion of that amount forms the General Fund budget, the share of total spending that draws the most attention and is funded primarily by state income and sales taxes.

Expenditures on education, health and human services and public safety combined account for more than 90 percent of the General Fund. What about the other $33 billion in the total state budget? It includes lots of additional federal money for Medicaid and other social services, as well as spending on transportation, unemployment insurance and other jointly funded but state-administered programs.

As of the first half of the 2018-19 fiscal year, North Carolina’s budget is clearly in a healthy condition. General Fund revenues are exceeding projections by a bit over $200 million. If you compare revenue collected with money spent so far, the General Fund is running a cash surplus of nearly $400 million.

We can’t count on a straight-line extrapolation to tell us what will happen during the final six months of the first year, however. State revenues and expenditures are lumpy. As North Carolinians file their income taxes by April 15, for example, state government will receive a disproportionate share of all the income tax revenues for the year. That influx could exceed expectations. It could fall short of them.

And even under a best-case scenario, the resulting surpluses could not possibly finance every spending promise made by every politician running for office last fall. We already know we’ll have to spend more on Medicaid and the state employee health plan under existing law, for example. There’s a budget battle looming. You can bet on it.

John Hood (@JohnHoodNC) is chairman of the John Locke Foundation and appears on “N.C. Spin,” broadcast statewide Fridays at 7:30 p.m. and Sundays at 12:30 p.m. on UNC-TV.

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