Gov. Bev Perdue would keep most of a temporary sales tax increase in place and use other cuts and shifts to protect teacher jobs in a budget she released Thursday.
Now the Republican-run legislature will pick away at the governor's $19.9 billion plan, starting, quite likely, with the sales tax. An extra penny-on-the-dollar was put in place two years ago to help balance the budget, and it's supposed to expire later this year. Perdue proposed leaving three quarters of that penny in place, giving the state $826 million in the coming year.
Perdue said she'd use that money to avoid cutting any state-funded teaching jobs in K-12 schools. But legislative Republicans campaigned on a promise to let this tax increase sunset, and Senate President Pro Tem Phil Berger quickly accused the governor of "breaking her promise to end the taxes she raised."
The governor's budget does cut 10,000 state jobs across a variety of departments. But only about 3,000 of those positions are currently filled, according to Charlie Perusse, the governor's budget director. The state will also offer $10,000 and $20,000 early retirement incentives to nudge higher-paid employees into retirement and there's $30 million included in the budget to pay severance costs.
Though teaching jobs appear to be protected, K-12 schools are not held harmless. There are continued cuts for textbooks, teacher training and school technology purchases. Funding for school clerical and custodial positions would be cut by 15 percent, potentially eliminating some 1,700 positions. Dropout prevention grants would be eliminated. The state wouldn't buy any new school buses, saving $56 million, and it would shift other costs to local systems as well, including worker's compensation responsibilities.
Combined, these cuts could push local systems to shift millions around in their own budgets, potentially affecting teachers. They could also raise local taxes or simply go without new computers, buses and some jobs.
Perdue also gave more detail Thursday on her state-of-the-state speech promise to fund free two-year degrees for high school students. The scholarships won't cost the state anything, the governor said, because they're basically an amalgamation and repackaging of existing dual enrollment programs, including Learn and Earn. Starting with the next school year any high school junior with a B average would be offered a free two-year community college degree, with some of the classes coming while they're in high school and others the year after they graduate, the governor said.
Other community college students would see a cost increase, though, with tuition going up $5.50 a credit hour in the governor's budget.
To spur job creation, small businesses would get an unemployment insurance tax credit, costing the state about $65 million in revenue. There are also plans to partner with the federal government in a "Capital Access Program" meant to help small businesses get loans and expand. Also as promised during her state-of-the-state speech Monday, the governor would lower the state's corporate income tax rate from 6.9 percent to 4.9 percent starting Jan. 1. That would make it the lowest i the southeast and one of the lowest in the nation.
"This would make us the talk of the economic world," Perdue said.
While this is likely to be popular with Republicans, Perdue may have a hard time selling the cut to her own party, since it will be offset with the continued sales tax increase, which affects people with lower incomes. Income tax rates for people making more than $100,000 a year would also go down as a second temporary tax sunsets. These 2 and 3 percent surcharges were put in place two years ago, at the same time the sales tax was raised.
The governor said she and her staff also "looked hard" at legalizing and taxing the video poker machines the state has tried repeatedly to outlaw. But Perdue said she decided against the move because she didn't want a "philosophical and moral debate" over gambling to sidetrack the legislature.
Other details from the governor's budget proposal:
- Most programs face 7 to 15 percent reduction, though state funding for public schools would be cut just 3.8 percent and the university system 6 percent.
- Perdue said her budget totally eliminates funding for 68 "nonesssential" programs saving $142 million by cutting 235 positions. It reduces funding for another 71 programs, saving $442 million.
- No raises are included for state employees or teachers. And Republican legislative leaders said widespread salary cuts are still a possibility as they work to remove the temporary sales tax from the budget.
- Perdue recommended closing most state parks two days a week to cover a 10 percent cut in the Division of Parks of Recreation.
- The state's inheritance tax would go up under Perdue's budget, hitting estates of more than $1 million in the coming year instead of $5 million, as it has been. That would net the state an extra $100 million, Perdue's budget predicts.
- Hospital's and other health facilities would face a voluntary tax of up to 5.5 percent. That money would be used to draw down more federal Medicaid funding and keep from cutting reimbursement rates to hospitals.
- Perdue has proposed $75 million in additional funding for mental health care and $25 million in new funding to help local governments and state-funded non-profits reorganize, consolidate and find other efficiencies.
- There's an $11 million, or 25 percent, cut for charity care at university hospitals.
- The proposed general fund budget totals $19.9 billion for fiscal 2011-2012, about $1 billion more than the current year's budget. Most of that increase is to make up for the loss of federal stimulus dollars and to cover new costs from population growth, mostly in schools and colleges. And though budget discussions generally deal with just the state's general fund, that's not nearly all the money that flows through state coffers. When transportation funds, much of which comes from gasoline taxes, and federal funds, largely earmarked for Medicaid programs, are included the total budget for the coming year is more than $50.9 billion.