Senate passes budget with no funding for county Medicaid relief

The Senate on May 24 offered up its response (S1741) to Gov. Easley’s recommended adjustments to the 2006-07 state certified budget, keeping to an accelerated, self-imposed calendar. Flush with a $2.4 billion budget surplus, the Senate proposes a quarter-cent sales tax decrease in the state sales tax rate and reduces the upper income tax bracket by 0.25 percent, effective Jan. 1, 2007. Both of these taxes are scheduled to return to pre-2001 levels next July. The Senate’s $18.8 billion budget emphasizes community mental health improvements, new court funding initiatives and higher salary increases than those proposed by the governor, but like the governor, fails to provide county Medicaid relief.

The Senate also recommends reducing the Highway Trust Fund transfer to the general fund by $195 million, thereby increasing funding available for road construction. It caps the gas tax at July 2006 levels, but makes allowances for replacing the lost highway monies with a general fund appropriation if needed. By statute, the state’s Rainy Day Fund receives 25 percent of the credit balance or $324 million, while the Senate sets aside $225 million for the state’s renovations and repairs.

The Senate 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 but substitutes restoration of the $44.3 million in school discretionary cuts rather than full funding for Low Wealth. Like the governor, the Senate left intact corporate tax receipts flowing to the ADM Fund.

Teachers would receive salary increases averaging 8 percent, with a step increase plus a flat $2,250, to bring their salaries above the national average by 2008-09. 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, while university and community college faculty and professional staff would get 6 percent, with an additional two percent one-time bonus. In all, state salary enhancements would consume nearly $700 million in general fund dollars. State retirees would receive a 3 percent COLA, requiring a $27.1 million appropriation.

A special provision raises the minimum wage from $5.15 to $6.15, effective Sept. 1, 2006. Another would impose a moratorium on new landfills for 18 months (Sec. 11.4).

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

Education
Much of the Senate’s new education initiatives 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 Senate rejects Easley’s call for full funding of the low-wealth formula but does provide additional funding for disadvantaged students to be distributed in all school districts. A special provision allocates these funds based on an LEA’s percent of wealth, as calculated by the low wealth formula, relative to the statewide average (Sec 7.8). The Senate’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 Jason (Sec. 7.20). The Senate accepts the governor’s recommendation to move “More at Four” from the Department of Health and Human Services to the Department of Public Instruction. Current law dictates that public school enrollment must be included in the continuation budget, but the Senate budget also requires that community college and university enrollment be made a part of the continuation budget, rather than as expansion items (Sec. 6.10).

*nr = non-recurring

Special provisions impacting community colleges would permit a carry forward of $10 million for equipment (Sec. 8.4), and allow “low-wealth” community colleges to use monies for maintenance of plant (Sec. 8.9).

Human Services
The Senate 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 other expansion items found elsewhere in the budget, despite the House Select Committee on Health Care’s recommendation for $65 million of state Medicaid savings to be targeted for county Medicaid relief.

The Senate’s budget more closely tracks the Legislative Oversight Committee for Mental Health’s plans for additional funding to get mental health reform back on track. The Senate recommends $104 million in increased spending, including $14.4 million for the Mental Health Trust Fund with a required set-aside of the alcohol excise tax, $41.7 million to expand community capacity, $13.6 million for housing, and $5 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. The Senate 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 repealed.

Special provisions include using $19.6 million in the federal TANF block grant for county demonstration grants to improve work participation rates (Sec.5.1(n)), requiring community health centers to provide after-hours access in order to qualify for grants (Sec.10.16), and including fees charged to subsidized parents in setting child-care subsidy rates (Sec.10.34). Numerous special provisions address mental health reform – many of which implement the LOC’s recommendations. These include allowing LME transfers between funding categories (Sec.10.25), organizing crisis services regions (Sec. 10.26), clarifying the state’s plan purpose and performance (Sec.10.28), requiring LME quarterly financial reports to be reviewed by county finance officers (Sec.10.31), and requiring DHHS to fund 24x7 LME screening, triage and referral with LME review of person-centered plans (Sec.10.32).

Justice and Public Safety
The Senate concurs with 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), $10 million for the voice interoperability project (VIPER), and new courtroom and criminal history information systems.

Special provisions include establishing a permanency mediation program to resolve issues between juvenile victims of abuse, neglect and dependency and their parents (Sec.14.10) and GPS monitoring of the most serious sex offenders (Sec.16.7).

Natural and Economic Resources
The Senate accepts the governor’s proposal for a private well water safety program by having counties enforce statewide private water supply well construction standards. No funding changes are requested in the state’s clean water management trust fund with a continuation of $100 million in the second year of the biennium.

Like the governor’s budget, the One NC Fund — for economic development incentives — would receive $10 million annually, and $5 million is recommended for matching federal program funds for small business development. It is uncertain whether other economic development incentives such as the governor’s proposed sales tax reductions and refunds for research and development and motor sports are included. Local governments would help fund these incentives through loss of sales tax receipts.

The Senate pares downs the governor’s recommended spending of $764 million in capital improvements ($330 million general fund appropriation) to $253 million, although some projects are financed with certificates of participation.

A special provision moves the state’s 457 program to the Office of the State Treasurer (Sec. 20.1).

The House has already scheduled its appropriations subcommittees for next week to begin consideration of the Senate’s proposal. We understand that the House intends to complete its work by June 15. We applaud them in their diligence and continue our plea for county Medicaid relief.