On April 20, Governor Perdue released her proposed recommended adjustments to the fiscal year (FY) 2010-11 budget. The governor faced a new state budget shortfall for FY 2010-11 of approximately $1.2 billion – $703 million due to a downward revision of the revenue forecast and $564 million due to increased costs to maintain state services at current levels. This is on top of the $4.6 billion shortfall previously addressed.
The governor’s proposed budget would address the new shortfall by reducing net appropriations by $396 million, increasing revenue availability by $213 million, and relying on $578 million in additional federal recovery assistance through an increase in federal Medicaid funds.
The proposed adjusted budget represents a reduction of $410 million, or 2 percent, to the certified General Fund budget already in place for FY 2010-11, which begins on July 1. When federal recovery assistance is accounted for, the spending in the proposal is $168 million, or 0.8 percent, more than in the certified budget.
The governor’s proposed spending reductions are a combination of savings from increased efficiency in state government, discretionary cuts that local school districts and state agency heads would have to make, and outright cuts to certain programs that would result in fewer services. (See Figure 3 for a summary of proposed spending cuts.)
The governor’s proposed budget also includes an additional $1.1 billion in so-called expansion spending, more than half of which will cover enrollment growth in Medicaid and higher education, boost the state’s rainy day fund, and increase investments in the state’s retirement system. It includes funding for a few new initiatives, including $40 million for handheld electronic testing devices that help teachers gauge student progress and $15 million for a fund to provide grants to small businesses that add jobs and hire workers who have been unemployed for more than two months. (See Figure 4 for a summary of proposed expansion items.)
The budget now heads to the state Senate. Legislative staff’s estimates show a larger budget hole than what the governor worked with, including $85 million in lost estate tax revenue due to federal changes to the tax code and an additional $160 million to fully fund the state retirement system. These additions bring the new adjusted budget shortfall for FY 2010-11 to $1.4 billion, nearly $300 million larger than the governor’s projected gap.
NC Budget & Tax Center estimates show that the net effect of the recession on the scope of state services is approximately 10 percent, meaning that even when accounting for additional federal assistance the state budget is now 10 percent smaller than it would need to be to bring services back to pre-recession levels.