Senate budget promises county Medicaid relief

With little floor debate and a surprising show of bipartisanship, the Senate adopted its $20 billion version of H1473, spending fewer operating dollars and increasing capital debt while allowing the quarter-cent sales tax and upper income tax bracket to sunset as scheduled.

As expected, the Senate budget did not contain county Medicaid relief – rather a special provision (Section 6.16) that acknowledges the burden Medicaid places on county finances and outlines the Senate’s intent to provide for permanent and complete Medicaid relief. Senate Appropriations leaders voiced their support of Medicaid relief during the full committee meeting. “We’re all interested in this,” said Co-Chair Kay Hagan. “It will be solved this session, this year. We will not adjourn until this is taken care of." Co-Chair Walter Dalton concluded his opening remarks by adding that “we're working on a solution. A one time fix is not sufficient. Our solution must be sustainable and provide state and local governments with the ability for to fund education in the future."

The Senate changes the allocation of lottery proceeds for operating funds, increasing the allocation for More at Four, and lowers the allocation for reduced class size. This change will provide More at Four with the amount of funds expected – yet unrealized – in this year’s lottery revenues. The Senate appropriates an additional $37.5 million to offset the loss in classroom size reduction. Additionally, the Senate concurs with a special provision (Section 5.2) that authorizes the state’s budget director to decide which of the four permissible categories would receive any revenues in excess of the appropriation. The Senate concurs with the House in appropriating $350 million of anticipated lottery proceeds to education, with $140 million set aside for school construction. This is lower than the appropriated amounts of $425 million and $170 million for 2006-07, reflecting revised (and lower) sales estimates.

The Senate would allow the temporary quarter-cent sales tax and the 8 percent upper income personal tax bracket to sunset July 1 – costing the state $300 million in revenue. Legislative action must occur prior to July 1 to keep the taxes in place – current law dictates that both will expire June 30. The Senate would not eliminate or lower state income taxes for individuals and families making $25,000 or less, or set the earned income tax credit program at 5 percent of the federal EITC, but does reserve $30 million in tax adjustments.

A special provision (Section 14.16) would require counties to fund the courthouse telephone systems out of facilities fees. Traditionally, state coordination and funding have grown increasingly important as the telephone systems have integrated with computer networks. To free up recurring dollars and to ensure greater program oversight, the Senate substitutes non-recurring dollars for recurring in a number of programs, and requires a “continuation review,” to be led by the Appropriations Committee during off-session meetings (Section 6.21). Of concern to counties are the Criminal Justice Partnership and Juvenile Crime Prevention programs. Funding for the regional councils of governments would also be made non-recurring and would be reduced 5 percent.

Like the House, the Senate would eliminate state positions vacant six months or more but excludes universities, community colleges and schools from its plan.

All proposals are in agreement regarding teacher, principal and community college faculty salary adjustments. Teachers would receive salary increases averaging 5 percent, with a step increase plus a flat $1,240, to bring their salaries above the national average by 2008-09. School administrators would receive an average 4.44 percent increase. Community college faculty and professional staff would also receive a 5 percent bump in pay. Employer contribution rates for retirement and other benefits are set at 7.96 percent, while annual contributions for health coverage are $4,238 for indemnity and $4,061 for PPO.

State employees would see an increase in their salaries by 4 percent. Under both proposals, state retirees would receive a 2 percent Cost of Living Adjustment (COLA), requiring a $27.2 million appropriation. State employer contributions for employee and retiree health costs would cost $247 million over the biennium, including hefty co-payments and deductible increases. Savings accrue primarily from the Senate’s plan to eliminate the state’s health indemnity plan in 2008-09.

The Senate seeks $1.2 billion in Certificates of Participation (COPs), principally to be used for prisons and university facilities.

The following highlights those budget items of interest to counties.

Education

The Senate directs the majority of new funding to education initiatives and increased enrollment in public schools, community colleges and universities. The Senate funds a focused education reform pilot program in five LEAs, in cooperation with the Public School Forum. The Senate provides greater public school allotment funding in the academically gifted and talented, children with disabilities, instructional supplies, and small LEA allotments, but also includes non-recurring funding for low wealth.

The governor’s plans for Learn and Earn expansion would move forward with the Senate providing $4,000 in college tuition grants to eligible students. Funding for the scholarship program, $50 million in 2007-08 and $50 million in 2008-09, comes from the Escheats Fund.

The Senate excludes Section 7.16 in the special provisions that set forth six objectives by which the State Board of Education is to evaluate charter schools, and Section 7.31, which creates a Joint Legislative Study Committee on Public School Funding Formulas. A study of allotments may be embedded in the annual study bill.

*nr = non-recurring

In lieu of a House special provision that suspends approval of new multi-campus centers (Section 8.6), the Senate calls for a study of community college access to determine if the current structure provides geographic access while minimizing overhead costs. Section 8.8 elaborates study components to the community colleges’ FTE funding formula, including equipment funding per FTE.

Human Services

The Senate delays implementation to 2008-09 of the governor’s plan to create a new healthcare plan for the working poor by expanding Medicaid to cover children whose family incomes are between 200 percent and 300 percent of federal poverty standards. The Senate would also limit coverage to those at 225 percent of poverty. (A special provision in both proposals exempts counties from participating in the funding of this new program.) NC Kids’ Care would provide a limited benefit medical assistance program upon federal approval of Medicaid waivers (Section 10.48 outlines DHHS areas of study for the new program).

Mental health dollars are realigned in keeping with the new cost model. Reductions in the Dorothea Dix and Umstead hospitals budgets are offset by the opening of the Central Regional Hospital in late Fall 2007.

The Senate, like the House, sets aside millions for preventive healthcare, screening and monitoring – many of these programs provide additional funding to county health departments.

Senate special provisions also call for an inventory of state and local health department activities that address health promotion and disease prevention with an eye to combining these functions into a single funding stream allocation to local health departments (Section 10.25). Section 10.45 directs that families will pay part of CAP-MR/DD services, whereby the House calls on the department to study a means-tested cost-sharing requirement for CAP-MR/DD.

A general special provision regarding mental health authorities clarifies terms and conditions of a LME director (Section 6.20). Other mental health programs and LME administration are covered in numerous special provisions – each looking to build community infrastructure (Section 10.49). Section 10.49 (d) allows an LME to use up to 1 percent of its substance abuse treatment funds to provide nominal incentives for consumers who achieve treatment benchmarks, while (f) requires LMEs to work with county health departments and sheriffs to provide medical assessments and medication for inmates housed in county jails that are suicidal, hallucinating or delusional. A designated LME employee is to be responsible for screening the daily jail log. Section 10.49 (i) requires DHHS to develop a transitional residential treatment service to provide 24-hour residential treatment and rehabilitation. Section 10.49 (l) allows LMEs to provide and bill for case management services.

LMEs must report monthly on remaining gaps in crisis services and reductions in acute admissions to state psychiatric hospitals (o). DHHS must develop a reporting system to provide LMEs information on all visits to community hospital emergency departments by crisis individuals (r). Section 10.49 (s) requires the department to set up a pilot program to test whether holding a LME clinically and financially responsible for psychiatric hospital use, coupled with greater resources to build community capacity, will reduce hospital use.

The Mental Health Trust Fund is limited to increasing community-based services and can only be allocated to area programs (w). Any additional savings from consolidating state psychiatric hospital beds can be used to fund LME administration (w2). Section 10.49 (y-aa) requires DHHS to designate four additional LMEs to receive all state allocations through a single funding stream.

Section 10.49 (ee) attempts to reign in community support services by requiring DHHS to immediately conduct an in-depth evaluation of the use and cost of community support and implement management practices to increase oversight, monitoring, and prior authorization. DHHS is also directed to develop a tier of rates based on individual provider qualifications.

Finding that counties budget nearly $121 million to LMEs, LMEs must report annually to DHHS on all county fund expenditures and collect income data for all individuals receiving services (ff). Section 10.49 (gg) states that the General Assembly intends to eliminate the LME administrative deficit through hospital downsizing and that the full funding should be available by the 2009-2011 biennium, while (hh) prevents the DHHS secretary from designating another entity to perform LME activities. Section 10.49 (ii) calls on the state auditor to conduct performance auditors on LME billing and screening, triage, and referral functions, while (kk) requires DHHS to ensure that each LME receives no fewer service dollars than it expended in 2006-07, when allocating administrative funding.

DHHS must also rework the revised system of allocating state and federal funds to area authorities to better reflect projected needs rather than historical allocation practices and spending patterns (Section 10.51 (b)).

Justice and Public Safety

The Senate increases court fees by $37 million to fund more than 550 new court positions and recurring dollars for court technology. However, a special provision would require that all new court telephone systems are to be funded through county dollars, allowing use of the facilities fees for such an expense (Section 14.16).

The Senate also substitutes recurring state dollars for non-recurring, requiring an expansion request each year for funding, for the Criminal Justice Partnership Program and the Juvenile Crime Prevention Program. Noting that an additional $106 million is needed to complete the VIPER statewide 800 megahertz radio system, the Senate sets aside $12.25 million in capital funds and concurs with operating support for VIPER.

Section 15.8 sets forth additional definitions and penalties for Medicaid fraud, including allowing civil actions filed by private persons and reward of same. Section 16.8 calls on the Governor’s Crime Commission to study gang activity.

In lieu of a House study of available prosecutorial resources and the use of those resources, including caseload management, adequacy of space and equipment, geographical equity, criminal prosecution, automation, cost management practices and how current use impacts access to justice, accountability, timely resolution, complexity, and reduction in backlogs (Section 14.15), the Senate calls on AOC to measure the impacts of the Senate’s additional funding, including performance measurements and caseload standards (Section 14.18).

Natural and Economic Resources

The Senate rejects the House’s plans to redirect some Tobacco Trust monies to fund the Agricultural Development and Farmland Preservation Trust Fund to preserve the state’s farmland and to protect natural resources, wildlife habitat and water resources. Sixteen million in Tobacco Trust Funds may be used to seed a UNC cancer research fund (Section 6.23). The Senate does transfer all research stations to the university system for oversight and consolidation, and provides $2 million for swine farm waste management system conversion efforts. All three proposals contain level funding for the Clean Water Management Trust Fund at $100 million.

A general special provision, effective July 1, 2008, requires that any new parking lot surface must be at least 20 percent pervious (Section 6.22).

The Senate concurs with the House’s plans to extend and establish some economic development activities such as film industry recruitment, viticulture promotion, home furnishing marketing, and the NC Green Business. The One NC Fund — for economic development incentives — would receive $14 million, and $5 million is recommended for matching federal program funds for small business development. The Rural Center would receive an additional $19 million to establish and implement the rural economic transition program, a grants program to “carry out transformative economic development and agricultural enhancement projects … with priority to applicants in tier one areas” (Section 13.14).

The Senate concurs with the House budget to allocate an additional $200,000 or $425,000 from each disposal tax program – scrap tire and white goods – to the Department of Revenue for administrative expenses (Sections 24.1 and 24.2). The Senate also concurs with changes to the “Grassroots Arts Program,” distributing 20 percent of the total equally among counties, with the remaining 80 percent allocated based on county population (Section 21.1). Section 22.1 directs the N.C. Housing Finance Agency to continue its development of a pilot “Home Protection” program, directed at residents in counties with greater than 7 percent unemployment, same as the House provision. Once a homeowner qualifies under the program, the mortgage holder cannot begin foreclosure or other legal action. The Senate excludes the House provision, Section 27.12, which phases out general fund transfers from the Highway Fund and the Highway Trust Fund, 2009 – 2013.

The House voted not to concur with the Senate’s H1473 substitute on June 4, leading both chambers to appoint conference committee members to negotiate differences. Again, the major differences include sunsetting of the sales and income tax rates, capital funding, and strategies for county Medicaid relief.