House Appropriations subcommittees met at the end of last week as members returned from their spring break to roll out their policy area budget proposals. The full Appropriations committee meets Wednesday to discuss the final budget proposal that will be brought to the House floor for a vote, possibly as early as Thursday, Speaker Time Moore (R-Cleveland) has noted. The House Appropriations Committee proposal, HB 966: 2019 Appropriations Act, contains a $23.9 billion budget for FY 2019-20, an increase of 3%, or $689 million, from the 2018-2019 budget. In the second year of the biennium, the House proposal lays out a budget of $24.9 billion, a 4% increase from FY 2018-19.
Friday, the House Education subcommittee proposed a budget rounding off at $14 billion in the first year of the biennium and $14.3 billion in the second, resulting in a $270 million increase from the previous fiscal year’s budget. Laid out in the education section of the budget, teachers and principals would both see salary increases. The proposal provides $47.5 million in both years to fund an increase in the average salary for teachers at a rate of 4.8%. It also includes a 6.3% average raise for assistant principals and 10% for principals. An additional $30 million in FY 2019-20 and $53.2 million the following year would be used to fund five School Safety Grants, one of which requires the dollars to be used towards hiring more school psychologists.
After facing a great deal of opposition, as well as support, following the unveiling of a new plan by Superintendent Mark Johnson last month, the budget would eliminate the current classroom and teacher supply fund and replace it with a $15 million appropriation each year to establish the Teacher Directed Classroom Supplies Allotment. Rather than the state purchasing materials in bulk and then distributing materials to local LEAs, teachers would use an app to purchase textbooks and other supplies specifically for their classrooms. $1 million will be allocated in FY 2019-20 for a virtual early learning pilot program aimed at providing access to a quality preschool education for at risk children. Another provision included in this year’s budget proposal would maintain the 15-point grading scale to measure school performance, changing the weighting of both school achievement and school growth components to 51% and 49%, respectively.
Health and Human Services Budget
The Department of Health and Human Services’ proposed appropriation for FY 2019-20 increases from the last biennium by 3.6% to a total $5.6 billion in the first year. In the second year, the Department will receive a $5.8 billion appropriation, a 3.7% increase from FY 2018-19. Medicaid Transformation projects will receive a nonrecurring appropriation of $232.9 million in the first year of the biennium and $198.4 million in order to support the efforts of transitioning the state to a managed care system. Additionally, the House as budgeted $150.2 million and $11.4 million in respective years of the budget to pay for the runout of claims for individuals transitioning to managed care. Medicaid recipient copayments will increase to $4 from the current $2 or $3 amount beginning in November of this year, generating an estimated $3.5 million in the first year alone.
A 4% increase from the enacted 2018-19 budget is proposed, appropriating $2.3 billion in the first year of biennium and $2.4 billion in the second year. The Highway Trust Fund will receive $1.6 billion, followed by $1.7 billion the next year, due to continued growth of highway use tax revenues generated from new and used cars, adjusted higher tax rates for gas and diesel, and the indexing of DMV fees. The Department of Transportation will receive $98 million in additional funds for the contract resurfacing of roads and other general maintenance projects. The budget will also allocate approximately $58 million in funding to be used for Rail Infrastructure efforts and includes provisions to remove restrictions to specific light rail projects.
Additional Budget Items
The House Agriculture and Natural and Economic Resources committee has appropriated $2.5 million nonrecurring funds to the Carolina Small Business Development Fund, which provides low-interest funds to small businesses across North Carolina and teaches responsible business finance practices, and $3.5 million recurring for the State match of the federal Clean Water and Drinking Water State Revolving Fund. The Justice and Public Safety Committee proposed several components of budgeting for Raise the Age, including over a million dollars in funding for additional personnel and $88,000 in the first year to fund a juvenile resource defender position to aid in implementation of the program. In all, funds to support the implementation of Raise the Age round out to be $29 million in FY 2019-20 and $44 million the following fiscal year. $15 million recurring dollars from the State Capital and Infrastructure Fund will be used for the GREAT grant program to help bring broadband providers to rural areas of the state. The proposed budget also includes a transfer of $953 million for the General Fund tax revenue and $249 million from the General Fund unreserved balance to fund the new State Capital and Infrastructure Fund (SCIF).
House Tax Law Changes
The budget contains several provisions to change North Carolina’s tax laws. The changes include a 3.75% increase in the standard deduction for married filing jointly taxpayers, reduces the state’s franchise tax rate from $1.50 to $1.00 over two years, and eliminates one of the three current franchise tax bases. Multistate corporations would be required to calculate their sales based on the percentage of their income that is due to products and services provided throughout the state. Marketplace facilitators would be required to calculate and collect sales tax on behalf of a third-party seller, following the 2018 U.S. Supreme Court decision held in the Wayfair, Inc. case. Tax and regulatory relief would also be granted to out-of-state businesses conducting disaster related work in North Carolina after a natural disaster, such as Hurricane Florence.
Several tax-related items that were adopted by subcommittees' area-specific budget proposals were repealed through the House Finance committee’s adoption of the budget. The committee repealed a 7% privilege tax that would be placed in intrastate transportation network companies, like Uber and Lyft. A provision to increase the fee for electric vehicles and establish a new additional fee for plug-in hybrid vehicles was also repealed in the Finance version. The Finance committee’s version of the bill will be discussed and voted on in the full House Appropriations committee Wednesday before moving to the floor for a final vote and then being sent over to the Senate.