The Associated Press May 24, 2010, 9:55AM ET

2010 NC budget debate brings 2011 into view

Republicans complained during Senate debate last week over the chamber's $19 billion budget for next year that Democrats haven't prepared North Carolina state government for the fiscal woes facing the state in 2011.

That's when lawmakers won't have more than $1.6 billion in federal stimulus funds currently used to fill holes for increasing Medicaid costs, the public schools and universities. Temporary income and sales tax increases generating $1.3 billion annually also are set to expire. And pent-up demands from the state employee pension funds and health insurance will have to be resolved.

"This budget total ignores the $3-plus billion cliff the state is about to go over in the next fiscal year," Senate Minority Leader Phil Berger, R-Rockingham, said last week on the day the bill passed largely along party lines.

Democrats acknowledge the trouble ahead but argue they're cutting spending and making tough choices so the state can jump out of the blocks as the economy recovers -- helping tax collections in 2011 rebound and partially fix the problem.

"I believe this is the budget that we need for this day and time," said Sen. Linda Garrou, D-Forsyth, the Senate's chief budget-writer.

But with interest groups howling about a second year of painful cuts and voters looking for someone to blame this November, Democrats are choosing political survival over instituting sweeping changes in the "short" session. Any dramatic changes will wait until next year, when they hope to still have the majority in the chambers and perhaps get a little more stimulus money from Capitol Hill.

Republicans are "absolutely right, it's going to be worse next time, and I do wish that we could do more," said Rep. Jim Crawford, D-Granville, co-chairman of the House Appropriations Committee, which will offer its version in two weeks, but "we're not going to cut everybody off in an election year."

The partisan budget rhetoric is similar to discussions during last year's session. Democrats said they're closing large budget gaps in part through stimulus money and spending cuts. They also approved tax increases in 2009 that will expire in 2011 to make up the rest. Republicans countered the true gaps were much lower and didn't require higher taxes.

This year, Democrats put the gap at between $800 million and $1 billion. The Senate budget cut the spending plan already approved to start July 1 by another 3 percent. But Republicans argued the $19 billion plan actually raises spending by more than $400 million compared to what Gov. Beverly Perdue actually will spend in the year ending June 30 because she delayed spending to have enough cash to pay the state's bills.

Members of both parties agree about next year's budget gap -- it will probably be $3 billion unless the economy roars back to life soon. They differ about just what they can do to prepare for it.

Crawford said there's very little the General Assembly can do beyond refusing to expand budget items that aren't part of entitlement programs like Medicaid and protect public education. Berger said freezing spending at the current year's levels would possibly save another $450 million. But Republicans presented only two amendments during last week's Senate budget debate and haven't rolled out a plan on how they would do things differently.

"It's a little bit disingenuous of them to say that we could spend at last year's levels," said Chris Fitzsimon, executive director of the liberal political watchdog group NC Policy Watch. "Would they rather lay off thousands of teachers to prepare for next year?"

Democrats don't feel the need to make rash decisions because the state retained the top credit rating of the three major bond-rating agencies -- a sign of fiscal stability -- which they attribute to prudent fiscal decisions in 2009.

Still, they haven't exactly been willing to make bold decisions that say would put the state's tax base on firmer footing in the years ahead.

They've punted for a decade on overhauling the tax system, which would have probably narrowed the revenue shortfall by tapping into the growing service economy. They've also declined to reduce the scope of the state's $10 billion Medicaid program by eliminating optional services other states don't provide.

Democrats appear willing to wait to until 2011 before deciding on difficult choices, said John Hood with the conservative John Locke Foundation: "It is a reasonable argument to make that the Democrats are simply waiting until next year to raise taxes and wait for a partial (federal) bailout."

But Crawford said Republican complaints are partially selfish, too -- the GOP doesn't want a $3 billion problem on its hands if it wins a majority in the House or Senate. The problem will be "painful for whoever is going to have it," he said.


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