The Great Recession has increased demand for services at the same time that it has reduced available revenue, putting pressure on our public systems at the exact time when their rapid response is critical to the state’s economic recovery. Heading into this year’s budget process, policymakers in North Carolina were facing a budget shortfall of $1.2 billion, $703 million due to a downward revision of the revenue forecast and $539 million due to increased costs to maintain state services.
Last year, state leaders addressed the shortfall of $4.6 billion through a balanced approach of spending cuts, tax increases and federal aid. This year, the range of tools employed by policymakers was narrowed due to the unreliability of federal aid and the fact that leaders decided before the session that raising revenue was “off the table.” Ultimately, the final FY 2010- 2011 adjusted budget limits cuts to critical services essential for the state’s recovery by employing a series of one-time, unsustainable fixes.
Policymakers relied on spending reductions, technical adjustments and federal recovery dollars to close the gap–reducing the 2010-2011 budget by $601 million to $18.96 billion (See Figures 1 and 3). The result is that the state is making the lowest level of investment per capita in fourteen years. For North Carolinians and the state economy as a whole, such low levels of spending reduce economic activity that contributes to the state’s economic recovery. Accounting for the contribution of federal recovery dollars, the state’s ability to deliver services at 2008-2009 levels was reduced by 8.6 percent.
Policymakers made significant cuts to programs and services fundamental to education, safety and health. The public school system received $275 million less in state funds including teachers’ salary adjustments and cuts to technology systems that can facilitate classroom learning. The Health and Human Services system reductions in state funding totaled $553 million and included an array of cuts and changes to mental health programs that will likely impact services. Funding changes in the budget will result in an estimated loss of 573 filled and vacant positions in the public sector.
Nevertheless policymakers made a significant effort to preserve a number of investments that train and educate the workforce of tomorrow and protect the health of the state’s citizens. Notably, policymakers fully funded the increased enrollment in community colleges and the surging demand for Medicaid services, partially restored funding for mental health community services funds, as well as expanded enrollment in the NC Health Choice children’s health insurance program. In addition, K-12 classroom funding was largely insulated from significant cuts. The state’s only education program for prison inmates—a key tool for successful re-entry into the community and participation in the workforce — was reinstated with partial funding.
North Carolina’s budget represents an essential tool for supporting economic life. In this report, the Budget and Tax Center provides an analysis of the decisions made during today’s difficult economic times. Due to the changing economic forecasts that arose throughout the budget process, this report will focus on the ultimate priorities set out in the final budget rather than comparing the final budget to those offered by the Governor, Senate and House. An in-depth analysis of the impact budget decisions will have for low- and moderate-income families in North Carolina and on the state’s long-term economic prospects will require a longer time frame to conduct. However, the public systems that can best connect North Carolinians to opportunity and prosperity have no doubt been affected by the Great Recession and the difficult decisions that were required in this year’s budget.