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. Beverly Perdue was governor, the state capital will feature a Democratic governor tussling over the budget with GOP legislative leaders who don’t 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 approves was requested by executive agencies.Where the two sides’ priorities were in conflict, the GOP legislature mostly prevailed. That’s not the scenario we face in 2019. If or when Cooper vetoes the state spending and revenue plan the legislature enacts for the 2019-21 budget biennium, Democratic lawmakers will have enough potential votes to sustain the veto. Republicans will 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, there will be a partisan standoff over the state budget. But it won’t resemble a federal-style government shutdown. Existing law will allow state government to enter its 2018-19 fiscal year on July 1 under spending levels previously enacted for 2017-18.
While state employees and vendors grumble, they’ll keep working and 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.
Whatever your spending views, don’t expect a 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 account for over 90 percent of the General Fund. What about the other $33 billion? It includes lots of additional federal money for Medicaid and other social services and spending on transportation, unemployment insurance and other jointly funded state programs.
As of the first half of the 2018-19 fiscal year, the state budget is healthy. 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 in the last six months of the first year. State revenues and expenditures are lumpy. As North Carolinians file their income taxes by April 15, 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.
Even under a best-case scenario, the resulting surpluses couldn’t possibly finance all spending promises by all politicians running 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.
John Hood chairs the John Locke Foundation.