The Associated Press
© February 18, 2011

By Gary D. Robertson

RALEIGH, N.C.

Gov. Beverly Perdue unveiled a spending plan Thursday that would eliminate 10,000 employee positions next year and keep mostly in place a temporary sales tax to close a $2.4 billion gap, saying it would make North Carolina government more efficient and protect teacher jobs.

The $19.9 billion spending plan for the year starting July 1 tracks a previously announced plan to narrow 14 agencies and departments into eight, while cutting or eliminating 139 additional programs. If Perdue’s bill became law, school bus replacement would shift to local districts and all highway welcome centers and most state parks would be closed two days a week.

While her two-year budget proposal to the Legislature would pay for all teachers and teacher assistants currently funded by the state, other public employees wouldn’t be as protected. As many as 3,000 of the positions designated for elimination are currently filled, Perdue’s budget office said. There are currently about 266,000 state-funded positions.

“I don’t sleep well at night, worried about (workers), but at the end of the day, I do know, quite frankly as the governor, that this is the right decision as we move forward with a leaner state government,” Perdue said at a news conference.

GOP leaders newly in charge of the General Assembly and forming their own spending plan said there were positive steps in the incumbent Democrat’s proposal which spends less than the current budget year when $1.6 in federal stimulus funds are added. But they said it doesn’t cut far enough and breaks a promise by keeping intact through mid-2013 three-quarters of a penny of the one-cent sales tax set to expire June 30.

While the measure would lower the base tax most consumers currently pay from 7.75 percent to 7.5 percent, and still generate $827 million next year, the change is still a tax increase, said Senate leader Phil Berger, R-Rockingham, who had pledged with other Republicans to let the one-cent sales tax expire.

“The people of North Carolina in November sent a strong message, and that message was balance the budget and don’t raise taxes. The governor sent a message back to the people today: ‘I’m balancing the budget by raising your taxes,'” Berger said.

Perdue defended the sales tax, saying it helped her avoid eliminating funds for an additional combined 12,500 teachers and teacher assistants. Democrats in charge of the Legislature in 2009 and Perdue agreed to the penny sales-tax increase to help close shortfalls during the Great Recession.

“North Carolina, as we speak, has 5,000-plus K-12 students. Somebody has to pay for those students,” Perdue told reporters.

She also took heat from local government leaders who said her budget would reduce public education funding by $350 million, shifting more responsibility to the districts and the counties.

Funding for clerical and custodial positions would be reduced by 15 percent, or 1,700 positions, and for school bus transportation by 10 percent, or 1,900 positions. Local governments also would be required to replace their own school buses. County commissioners are worried the changes could lead to local property tax increases.

“We hear ‘we are not going to touch the classroom,'” said Joe White, a Charlotte-Mecklenburg Board of Education member and president of the North Carolina School Boards Association. “Unfortunately, those of us who are in the (education) business know that when you cut so many people that support the classroom … you have literally had a great impact on the classroom.”

Perdue said it was time to reconsider the delineation of responsibilities between state and local governments on school funding. House Speaker Thom Tillis, R-Mecklenburg, said he was concerned about putting that kind of burden on counties all at once.

The proposal didn’t contain an effort to revive the video poker industry through heavy regulation. Perdue earlier had sounded intrigued by the idea, which could have generated several hundred million dollars annually.

“I didn’t want the next six months, quite frankly when so much is at stake for North Carolina … to be distracted by this philosophical and moral debate over gambling and other video poker and the lottery,” she said.

The two-year budget would place cuts of 7 percent to 15 percent on most state programs compared to last year’s recurring funding levels, while the public schools and higher education would see 4 to 6 percent reductions.

State employees and teachers would get not pay raises for the third year in a row and give up to $20,000 early retirement bonuses. Some workers would be required to pay a monthly premium for their own health insurance for the first time.

“The governor has outlined a budget plan that will throw North Carolina into a race to the bottom,” said Dana Cope, executive of the State Employees Association of North Carolina, which offered ideas this week that would have protected jobs. “She could have implemented enough of them so that she’d prevent any North Carolinian from being in the unemployment line.”

As previously announced, Perdue said she wants the Legislature to reduce the corporate income tax rate from 6.9 percent to 4.9 percent. She also wants to provide an unemployment tax credit for 135,000 small businesses, spend $75 million on improvements to university and government buildings and set aside $150 million for the state’s rainy-day reserve fund.

Highlights of Gov. Beverly Perdue’s $19.9 billion budget released Tuesday for the 2011-12 fiscal year. For tax changes, figures are for the amount of revenue generated or lost. For spending changes, figures are for amount spent or saved compared to what was projected to maintain current services.

Taxes, reserves or salaries
— extend 0.75 cents of the temporary penny sales tax for another two years: $827 million.
— reduce corporate income tax rate from 6.9 percent to 4.9 percent: -$115 million.
— repeal law giving portion of corporate income tax for public school construction: $72 million.
— provide unemployment insurance tax credit for 135,000 small businesses: -$65 million.
— no salary increases for state employees, teachers.
— cover expected 7.1 percent premium increase for state employee health insurance plan: $117.1 million.
— require state employees on more generous health insurance plan to pay $21.50-per-month premium for individual coverage: -$89 million.
— provide $10,000-$20,000 incentive bonus for eligible workers to retire, allocated in limited amounts throughout state government.
— set aside $75 million from year-end credit balance for repairs, renovations of government buildings.
— contribute more to state retirement system: $115 million.
— severance reserve for laid-off state workers: $30 million.
— rainy-day reserve fund: $150 million.
— set aside $25 million from year-end credit balance to help local governments and nonprofits interested in consolidating or regionalizing services.

K-12 education
— require local school district to pay for workers’ compensation claims: -$34.7 million.
— make payments of tort claims a local responsibility: -$4.6 million.
— reduce allotment for local central office staff by 10 percent, potentially eliminating 140 positions: -$10.8 million.
— reduce instructional support allotment by 5 percent, potentially eliminating 290 positions: -$23 million.
— reduce school building administration funds by 7.5 percent, potentially eliminating 380 positions: -$24.6 million.
— 35 percent allotment reduction for textbooks: -$40 million.
— reduce allotment to districts for custodial and clerical positions by 15 percent, or 1,700 positions: -$59.6 million.
— reduce school bus transportation allotment by 10 percent, or potentially 1,900 positions: -$40.3 million.
— make school bus replacement a local responsibility: -$56.9 million.
— direct 10 percent reduction in Department of Public Instruction, or 40 positions: -$4.4 million.
— eliminate dropout prevention grants: -$13 million.
— pay for instruction supplies and positions to teach an extra 5,323 students in 2011-12 school year: $38.3 million.

University of North Carolina system
— direct University of North Carolina system to reduce combined spending in operating budget by 9.5 percent, with 1,900 positions to be eliminated, partially offset by tuition increases: -$252.6 million.
— reduce legislative aid to residents who attend private college by 6.5 percent: -$12.2 million.
— reduce 25 percent charity care subsidy to UNC Hospitals: -$11 million.
— operation and maintenance of new system building coming online next year, including 283 positions: $18.5 million.
— pay for instruction of additional 2,337 students in 2011-12 school year: $23.3 million.
— consolidate research stations and farms at N.C. State University: $8.7 million.
— use N.C. Education Lottery Funds to help pay for need-based financial aid: $34.9 million.

Community colleges
— eliminate eight specialized centers and programs: -$3.8 million.
— raise tuition by $5.50 per credit hour, or $176 per year: -$25.3 million.
— direct 3 percent reduction in state aid budget to community college system, with as many as 620 position eliminated: -$32.3 million.
— pay for instruction of additional 9,712 full-time equivalent students in 2011-12 school year: $17.9 million.

Health and Human Services
— find efficiencies in department budget to reduce 25 positions: -$1 million.
— reduce Smart Start early childhood initiative by 10 percent: -$9.4 million.
— create up to 5.5 percent assessment on hospital and other Medicaid providers as a way to draw down more federal funds: -$60.2 million.
— adjusting Medicaid provide reimbursement rates, for private duty nursing, imaging and ultrasounds: -$8.4 million.
— modify Medicaid pharmacy services to find efficiencies: -$15.9 million.
— modify optional and mandatory Medicaid services: -$16.5 million.
— set aside $75 million in year-end credit balance for mental health trust fund.
— reduce administrative funds to operate local mental health management offices: -$3.3 million.

Justice and Public Safety
— consolidate Departments of Juvenile Justice, Correction and Crime Control and Public Safety into one Department of Public Safety. Sixty positions would be eliminated.
— reduce administrative functions in judicial branch by 16 percent, or 54 positions: -$9.1 million.
— reduce funds for family and drug treatment courts, dispute resolution and other programs: -$1.9 million.
— reduce courthouse operations expenses by 1 percent, or 71 positions: -$3.3 million.
— shift requirement that sheriffs check whereabouts of registered sex offenders by first-class mail, not certified mail: -$93,000.
— close Woodson Wilderness Camp for juvenile offenders, eliminate 20 positions: -$970,000.
— close Swannanoa Youth Development Center, affecting 26 positions: -$1.4 million.
— eliminate 77 correction positions: -$2.9 million.
— find $12.4 million in savings, eliminate 237 positions from Justice Reinvestment recommendations.
— fund operations and staffing for four new prisons, including 280 positions: $10 million.

Natural and Economic Resources
— merge Employment Security Commission into Department of Commerce, resulting in 53 position eliminations.
— close welcome centers two days a week, privatize them in 2012-13 fiscal year: -$600,000
— One North Carolina Fund economic incentives initiative: $10 million.
— Job Maintenance and Capital Development Program: $8.5 million.
— direct reductions at Department of Agriculture at agency’s discretion: -$5.2 million.
— reduce Department of Environment and Natural Resources by 68 positions, largely in permitting offices: -$418,000.
— close Rendezvous and Turnbull Creek educational state forests due to low attendance: -$131,000.
— reduce Division of Parks and Recreation budget by 10 percent, requiring most parks to close two days a week: -$3.1 million.
— matching money for clean and drinking water revolving funds: $14.5 million.
— Clean Water Management Trust Fund: -$50 million.

Transportation
— reduce public transportation, aviation and ferry funds: -$6.9 million.
— repair, replace and maintain ferry vessels: -$2.1 million.

Other state agencies
— consolidate Department of Administration, State Controller’s Office, Office of Information Technology Services and Office of State Personnel into a new Department of Administration and Management, reducing 21 positions and other human resources jobs.
— delay filling intern positions at the General Assembly: -$1.25 million.
— eliminate four positions from the Officer of the Governor: -$433,000.
— purchase land buffers for military installations: $1 million.
— reduce six positions in State Auditor’s Office: -$784,000.
— increase Department of Insurance company and insurance adjuster licensing fees: -$4.5 million.
— pay for new Department of Revenue tax computer system: $3 million.
— reduce grants for arts, libraries, NC Symphony by 10 percent: -$2.3 million.
— consolidate, reduce management layers at North Carolina State Library, eliminating nine positions: -$500,000.
— centralize human resources functions, cutting 92 positions: -$2.8 million.

Source: Office of State Budget and Management / The Associated Press