REPUBLICAN RESPONSE TO THE BUDGET SUBMITTED BY GOVERNOR HUNT TO THE GENERAL ASSEMBLY

February 18, 1999

THE GOVERNOR HAS SUBMITTED AN INCOMPLETE BUDGET PACKAGE WHICH DOES NOT MEET THE STATE'S CONSTITUTIONAL REQUIREMENTS OF A BALANCED BUDGET

House Republicans share the Governor's goal of raising the salaries of our teachers to the national average and expanding the benefits of Smart Start in an accountable fashion to children all across North Carolina. We understand and agree that we must make significant efforts to improve education opportunities for our children.

We are very concerned, however, that the budget package submitted by the Governor to the General Assembly this week is both incomplete and, while focusing on teacher pay and Smart Start, fails to adequately address many other important needs of the State. In addition, as submitted to the General Assembly, we believe the Governor has failed to provide a balanced budget as required by our State's constitution.

Governor Hunt's budget package reflects an Operating Budget for the coming year of $13,061,000,755, an increase of $802,474,781 over the projected Operating Budget expenditures of $12,258,525,974 for the current year. The proposed Operating Budget utilizes all but about $7 million of the projected available revenue. If that alone met the State's needs, we would have a balanced budget.

WHILE FOCUSING ON FUNDING SPECIFIC INITIATIVES, THE GOVERNOR'S BUDGET IGNORES OTHER IMPORTANT ISSUES

But the Governor's proposed 6.55% increase in spending falls short in a number of areas and does not provide funding for teachers' bonuses under the ABC Program, does not provide any funds for the maintenance of State owned buildings, does not reserve any funds for the Clean Water Management Trust Fund, and does not provide the necessary dollars to make the tax refunds which have been ordered by the courts. While failing to make a specific proposal on how to deal with these important issues, his proposal presents some potential options for consideration. We find those options unacceptable.

The following demonstrates some of the specific concerns Republicans have with the Governor's incomplete budget package:

MEDICAID CUTS RISK REDUCTION IN ACCESS TO HEALTH CARE FOR OUR LOW-INCOME ELDERLY AND DISABLED CITIZENS

The Governor's budget package proposes a reduction in State funding for Medicaid of over $84 million, which results in an additional reduction of Federal funds of almost $150 million. While such reductions can not reduce the number of eligibles for Medicaid, they will remove almost all reimbursement flexibility in the system. That flexibility is urgently needed to maintain and improve access to health care for our low-income elderly and disabled citizens who depend on Medicaid. We expanded Medicaid just last year to cover our elderly and disabled up to 100% of the Federal poverty level. We are concerned that the amount of the Governor's reduction in Medicaid funding is too deep and might ultimately result in a reduced access to care. We simply cannot ignore the waiting lists and needs of our elderly and disabled.

CRIMINAL JUSTICE FUNDING CUTS RISK RETURN OF DANGEROUS CRIMINALS TO OUR STREETS

The Governor's budget package proposes the closure of nine prisons across the State, the elimination of double celling, and the elimination of expanded operating capacity positions. These proposals come at a time when our prison system is operating at 15% above capacity. These proposed changes will further reduce our prison capacity. We are very concerned that this will result in criminals being released on our streets without having served their sentences. It is the Republican's intention to work to keep our citizens safe from crime and avoid returning to a criminal justice system with revolving prison doors like we had just a few years ago.

INADEQUATE FUNDING MEANS STATE EMPLOYEES AND TEACHERS FACE REDUCTIONS IN HEALTH CARE BENEFITS

The Governor's budget package fails to provide the total amount of funding necessary to keep the State Employee's Comprehensive Health Care Plan on solid financial footing. Fiscal Research told us just last week that it would take $129 million additional funding this year to meet the needs of the Plan. The Governor's proposal provides just over $100 million and states "the Health Plan Administrator will present cost containment and other modifications for consideration by the General Assembly". If it is the intention of the Governor to reduce the Plan's cost by reducing benefits available to the State's teachers and employees under the Plan, or reducing access to care, we believe he should make it clear that is his intention. If not, we must make certain the increase in funding is adequate to keep the Plan on firm financial footing.

NORTH CAROLINA CANNOT AFFORD TO DEPLETE ITS EMERGENCY RESERVES (RAINY DAY FUND) IN GOOD ECONOMIC TIMES WHILE STATE REVENUES ARE GROWING

The Governor proposes the use of the State's Rainy Day Fund as one potential option for dealing with the funding issues he failed to address in a balanced budget proposal. Republicans believe that the Rainy Day Fund should be reserved as a financial cushion for when we face the next economic downturn. We believe that was the primary reason the General Assembly established the reserve fund after the economic downturn in the early 1990's. We believe the fund should actually be increased to closer to 8% of the General Fund Operating Budget as we require of the counties, rather than the current 5% reserve. We are very concerned that if we drain our emergency reserves now and face an economic downturn within the next several years, we will be forced to make severe budget adjustments, including reduction in staffing, which might otherwise be delayed or avoided. It simply is not prudent to eliminate our emergency reserves at this time.

IGNORING $1.3 BILLION IN REPAIR AND RENOVATION NEEDS, A PART OF WHICH IS A $677 MILLION BACKLOG INCLUDING FIRE AND SAFETY PROJECTS ON OUR UNIVERSITY CAMPUSES, IS UNIMAGINABLE

The Governor also proposes the elimination of any repairs and renovations to our State owned properties for two years as a potential option for addressing the items he has failed to address. Fiscal Research has advised us that the University System currently has over $677 million of repairs and renovation needs. The State has total anticipated repair and renovation needs of almost $1.3 billion. The needs include fire and safety projects on our University campuses and in other state facilities. The General Assembly appropriated $145 million for the 1998-99 fiscal year, none of which has been disbursed. The projected appropriation for the coming year would be approximately $150 million. These appropriations are substantially less than actually needed to properly maintain the State's properties, but at least make a continued effort toward maintaining our University buildings, psychiatric hospitals and other State buildings. We believe it would be absolutely unimaginable to fail to provide continued funding to maintain our buildings and allow the State to fall even farther behind in meeting urgent needs.

TO KEEP OUR HIGHWAYS AND BRIDGES SAFE FOR OUR FAMILIES TO TRAVEL, WE MUST MAKE HIGHWAY MAINTENANCE ONE OF OUR PRIORITIES

Legislation was introduced last week to provide additional funds for highway maintenance. House Bill 69 would annually retain $170 million of Highway Trust Fund dollars in the Trust Fund and designate those funds for highway maintenance. In the past ten years we have increased the number of miles of State maintained roads by 13%. The number of miles traveled on our highways has increased by 42%. During the same time, the dollars we are spending on highway maintenance have decreased by 3%. Just as we should not build buildings if we are not going to maintain them, we should not build new roads and highways if we are unwilling to make necessary maintenance dollars available to maintain them and keep them safe for our citizens to travel. While the Governor has provided for some increase in maintenance funds, it falls far short of what is needed.

North Carolina's economy is strong. Our tax revenues continue to grow at a healthy rate. This year we do face the extraordinary costs that resulted from two court ordered tax refunds. We obviously have to deal with those issues this year, and we must be careful not to place the State in a more severe financial position in future years by being aggressive on some issues this year while ignoring other important needs of the State. We must work to establish a budget that is fair to all citizens of our state.

We suggest that the Governor provide the General Assembly with a complete and balanced budget as required by our State's Constitution. In completing that budget, we suggest Governor Hunt give additional consideration to these important issues.