Raises for state employees, preparations for recession in proposed state budget

28 June 2022

Legislative Republicans rolled out a restrained new state budget proposal Tuesday, pairing small new raises for teachers and state employees with preparations for an economic recession.

Much of the state’s recent surplus tax collections, due in part to an economy that has outperformed predictions throughout the pandemic, will go to the bottom line, including $1 billion lawmakers want to set aside for an “inflationary reserve.”

They also plan to dip into normal sales tax revenues to boost transportation spending, an acknowledgment that falling gasoline tax revenues can’t cover road construction costs. The proposal would also remake part of downtown Raleigh by tearing down and renovating buildings near the capitol complex and building a new campus for the state’s K-12, university and community college administrations.

Teachers and state employees would generally get an extra 1% salary increase in the budget, on top of the 2.5% they were already scheduled to receive in the coming fiscal year, which begins July 1. Republican budget writers said the average teacher raise, including step increases, would be 4.2%, but total raises will vary by experience, with younger teachers generally seeing larger increases. The proposal also expands a teacher salary supplement in rural counties that would add up to $5,000 to teacher salaries in those counties.

Retired state employees would get another one-time, 1% cost-of-living bonus on top of the 3% already approved for this year. The proposal also has $80 million in a salary reserve allowing state agencies to provide targeted salary increases to attract and retain employees.

There are no new tax cuts in the proposal, despite multibillion-dollar surpluses and weeks of conversations about returning money to the taxpayers. Previously planned cuts in both business and personal income tax rates, which were agreed to last year, will continue, though.

Altogether, GOP leaders said they wrote this $27.9 billion budget to prepare for the coming economic storms that they believe may cut into state revenues. They pledged not to make the mistakes Democratic lawmakers made heading into the deep recession of the late 2000s, when diminished state reserves led to pay cuts and furloughs.

Senate President Pro Tempore Phil Berger called the proposal, backed by the GOP majorities in the House and Senate, “the right budget for North Carolina at this time.” It focuses primarily on adjustments and limited additions to the second year of a two-year budget that lawmakers passed last year, he said, instead of a wholesale rewrite or an endorsement of large new programs.

The proposal has several elements designed to deal with inflation, or with concerns that a recession is on its way. The state’s regular rainy day fund would total $4.75 billion in this budget, but lawmakers also want to create a separate “Stabilization and Inflation Reserve” of $1 billion.

The budget doesn’t include a number of policy initiatives lawmakers are wrangling over as this legislative session approaches a weekend adjournment. It doesn’t expand Medicaid health insurance, though lawmakers are considering that in separate bills. Nor does it legalize sports gambling across the state, a proposal that once had momentum this session but may have fallen by the wayside.

Legislative Building

The House and Senate are expected to pass this budget, contained in House Bill 103, in the coming days. It’s unclear whether Gov. Roy Cooper will sign it. Cooper wanted higher teacher salaries and more education funding in general.

The legislative budget would also expand an education program Cooper has opposed, increasing funding for private school vouchers through the Opportunity Scholarship program by $56 million in the coming fiscal year, taking the total to $176.5 million.

That program would also expand its eligibility, opening to families who make up to 200% of the threshold income for free or reduced price lunches. The current rule is 175%.

Cooper also wants Medicaid expansion. All he would promise Tuesday was to review the legislative budget proposal. Some General Assembly Democrats said they wouldn’t be surprised if the governor vetoed this budget, as he has in past years.

“I think it’s going to be a fight,” House Democratic Leader Robert Reives said.

Education. Starting teacher pay would increase to at least $37,000 under this budget. That’s the state’s share, in addition to whatever local supplements local school districts pay.

Every teacher would get an increase, but the raises are front-loaded in the pay scale, so that younger teachers see more of the benefit.

Classroom generic

Lawmakers also want to add another $70 million to a program they created last year meant to boost local supplements in lower-income counties. The maximum supplement under that program would increase to $5,000 per teacher.

Noncertified school employees, such as custodians and cafeteria workers, would get either a 4% raise or a bump up to $15 an hour, whichever is larger.

Lawmakers said the budget has $100 million in it for school construction and $32 million in new money for school safety grants, which would boost that program to $41 million for the coming year.

Government complex. The Republican budget sets aside money to demolish the Bath building in downtown Raleigh, renovate other government buildings and move a number of state agency offices around in a $295 million construction spree.

The biggest change: A new education campus to house administrators for the University of North Carolina System, Community Colleges System, the Department of Public Instruction and the Department of Commerce.

This budget also contemplates selling the former Department of Motor Vehicles headquarters in downtown Raleigh, and it calls for a new executive headquarters to house the governor’s staff.

Speaker of the House Tim Moore said that, taken together, the moves should be transformative and make up for neglect. “The can was kicked down the road for years and years,” he said.

Lawmakers also set aside $250 million to cover cost increases in already-approved construction projects on an as-needed basis.

Transportation. GOP lawmakers want to bolster transportation spending by dipping into state sales tax revenues. This budget would move 2% of those revenues to transportation in the coming fiscal year, with plans to take that to 4% the next year and 6% the year after that, budget writers said.

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