House passes budget with cap on county Medicaid costs and $35 million in targeted relief

Heeding county commissioner pleas for Medicaid relief, the House passed its version of the state’s 2006-07 budget by including a permanent cap on county Medicaid costs at 2005-06 levels and one-time targeted relief of $35 million. All tolled, the House sets aside $53 million in county Medicaid relief. By a vote of 90-30, the House completed its $18.9 billion budget in record time with the third and final reading on June 15. The House proposes a $0.025 decrease in the state sales tax rate and reduces the upper income tax bracket by 0.15 percent, effective Jan. 1, 2007. Both of these taxes are scheduled to return to pre-2001 levels next July. Like the governor and Senate versions, the House’s budget emphasizes community mental health improvements, new court funding initiatives and higher salary increases.

The House’s Medicaid relief package caps county Medicaid costs at a county’s actual 2005-06 Medicaid expenditure, and keeps it at that level “regardless of growth in Medical Assistance Program expenditures for the 2007-08 fiscal year and thereafter” (Sec. 10.9E). Furthermore, the House appropriates $35 million in one-time targeted relief monies, which are allocated based on a county’s Medicaid eligible population. Forty percent ($14 million) is allocated to those 20 counties with Medicaid-eligible populations equal to or greater than 25 percent; 55 percent ($19.25 million) is allocated to those 65 counties with Medicaid-eligible populations between 15 and 25 percent; and 5 percent ($1.75 million) is allocated to those 10 counties with Medicaid-eligible populations less than 15 percent (Sec. 6.12). NCACC offered up this methodology for targeted relief to ensure that those counties hardest hit by Medicaid would receive the greatest help while minimizing a cliff effect.

The House accepts the governor’s and Senate’s recommendations to reduce the Highway Trust Fund transfer to the general fund by $195 million, thereby increasing funding available for road construction. While forgoing a cap on the gas tax, it does provide a tax credit for small business health insurance. By statute, the state’s Rainy Day Fund receives 25 percent of the credit balance or $324 million, while the House sets aside $211 million for the state’s renovations and repairs, splitting the difference between the governor and the Senate.

The House also accepts the governor’s “reprogramming” of the $212 million in state proceeds from the state lottery to pay for teacher salary increases and high school improvements and accepts the governor’s full funding for Low Wealth. It agrees with the Senate to restore the $44.3 million in school discretionary cuts but excludes the $26.7 million in disadvantaged student funding recommended by both the governor and the Senate. Like the governor and the Senate, the House leaves intact corporate tax receipts flowing to the ADM Fund. The House identifies $40 million in capital funds for community colleges.

The House follows Senate and gubernatorial recommendations to increase teacher salaries by an average of 8 percent, including a step increase plus a flat $2,250, to bring their salaries above the national average by 2008-09. The House also adds a new top step to the teacher salary schedule to encourage teacher retention. School administrators would receive a 7 percent increase. All state-funded non-certified school employees would be paid at least $20,112, comparable to the minimum salary set in 2005-06 for other state employees. State employees would receive 5 percent with a $300 one-time bonus, while university and community college faculty and professional staff would get 6 percent, with a $600 one-time bonus for community college faculty. In all, state salary enhancements would consume nearly $700 million of the general fund. State retirees would receive a 3.1 percent COLA, requiring a $29.65 million appropriation.

The House was adamant about limiting its special provisions to those that direct state spending, thereby excluding the Senate’s provisions to raise the minimum wage from $5.15 to $6.15, to impose a moratorium on new landfills for 18 months and to move the state’s 457 Plan from the Department of Administration to the Department of State Treasurer, which currently administers the state’s 401(k) Plan. The House passed the minimum wage increase in a separate bill.

Of special interest to counties, the House proposes additional funding for schools, mental health, courts and private well testing, and sets aside $20 million for emergency disasters. These and other items are outlined below.

Education

Much of the House’s new education dollars are targeted at increased enrollment in public schools, community colleges and universities. The state expects more than 38,000 new K-12 students next year, nearly doubling its original estimate for growth. The House accepts Easley’s call for full funding of the low-wealth formula but rejects additional funding for disadvantaged students. Like the Senate, the House’s budget supports the governor’s emphasis on high school performance by expanding the Gates Foundation’s Learn and Earn program, his virtual high school initiative and his high school within a high school program.

Funding is provided to restore the $44.3 million in the LEA negative reserve, and a special provision clarifies that LEAs can seek local sales tax refunds (Sec. 7.20). The House rejects the governor’s recommendation to move “More at Four” from the Department of Health and Human Services to the Department of Public Instruction. The House also rejects the Senate’s provision that would require community college and university enrollment be made a part of the continuation budget, rather than as expansion items.

*nr = non-recurring

Human Services

The House accepts the governor’s lowering of the state’s 2006-07 Medicaid costs by $150 million based on higher federal payments, greater federal drug costs coverage, and lower overall expenses from the General Assembly’s cost containment efforts. Since the $150 million was already a part of the base budget for 2006-07, these freed-up monies are being used to support county Medicaid relief, provider inflationary increases and other expansion items found elsewhere in the budget.

The House’s budget also provides additional funding to get mental health reform back on track. The House recommends $120.7 million in increased spending, including $24.2 million for the Mental Health Trust Fund (no required set-aside of the alcohol excise tax), $29.6 million to expand community capacity (other dollars in trust fund), $12.5 million for housing, and $4 million to expand substance abuse treatment at ADATCs. New state dollars would support the 5,500 developmentally disabled clients who were threatened with the loss of Medicaid services or place these in new CAP-MR/DD slots. The House concurs with many of the governor’s “Healthy Families” initiatives by adding millions more for child care subsidies, foster care, early intervention and universal vaccines.

Counties will be asked to enforce statewide private water supply well construction standards, and funding is recommended for state technical assistance and water testing. Legislation requiring mandatory eye exams for children entering public schools is kept, in opposition to the Senate’s recommendations.

Two special provisions contained in the House budget are especially troubling for counties. Sec. 5.1(s) would require counties to replace any lost TANF federal funds if North Carolina is penalized for not meeting work participation rates. The Senate called for using $19.6 million in the federal TANF block grant for county demonstration grants to improve work participation rates (Sec.5.1(n)). Sec. 10.36 would require counties to match reallocated state/federal day care subsidies by 25 percent for allocations in excess of $25,000, netting the program an additional $2.8 million in county funds. Currently, day care funding is a state/federal responsibility. The House concurs with requiring community health centers to provide after-hours access in order to qualifying for grants (Sec.10.16), and including fees charged to subsidized parents in setting child care subsidy rates (Sec.10.34).

Like the Senate’s budget, numerous special provisions address mental health reform – many of which implement the LOC’s recommendations. While the Senate is more prescriptive, the House, in keeping with its rule to limit special provisions to those directing fund expenditures, has embedded many of these in separate legislation. Both chambers direct hiring a consultant to help LMEs to organize crisis services but the House requires the consultant to develop an urban and rural model for continuum of crisis services while the Senate authorizes the LMEs to organize themselves into 21 crisis regions (Sec. 10.26). The House is less prescriptive regarding departmental state mental health reform plans and performance measures but both houses follow LOC recommendations to have consultants help the division implement standard forms, contracts, and processes for all LMEs (Sec.10.28).

Justice and Public Safety

The House concurs with the Senate in funding the governor’s “Secure Communities” initiative by funneling tens of millions for additional judicial staff, assistant attorneys, and deputy clerks of courts to handle case backlogs. Counties are required to find and fund office space for these additional state workers. Millions more will support new and expanded technologies such as the upgraded Statewide Fingerprint Identification System (SAFIS) and new courtroom and criminal history information systems. The House does not include the $10 million for the voice interoperability project (VIPER).

Natural and Economic Resources

The House concurs with the Senate in accepting the governor’s proposal for a private well water safety program by having counties enforce statewide private water supply well construction standards. The House does increase public water systems’ annual operating permit fees to strengthen state oversight of water quality issues (Sec. 27B.2). No funding changes are requested in the state’s clean water management trust fund with a continuation of $100 million. The One NC Fund — for economic development incentives — would receive $11 million annually, and $5 million is recommended for matching federal program funds for small business development.

House and Senate conferees have been meeting in appropriation subcommittees this week to hammer out differences in budget expansion line items. Many of the above items showing differences have been reconciled through this process. House and Senate leadership continue work to complete and adopt a state budget by next week’s end. Our counties’ continued advocacy for the House position on Medicaid is crucial.