State budget has plenty of surprises, including lots of earmarks and lower raises than state employees wanted   

Developing a state spending plan in secret, North Carolina Republicans used most of the state’s water and sewer improvement money for earmarked projects, lifted financial limits for families who want private school vouchers, and helped subsidize hog industry biogas plans.  

Republicans released their $27.9 billion budget late Tuesday afternoon and plan to have it pass both House and Senate by the end of the week.  

Legislators had more money to spend than they thought they would. Economists with the legislature’s Fiscal Research Division and the Office of State Budget and Management said in a May financial forecast that the state will take in more than 10% over two years, or $6.2 billion more, than was estimated in June 2021.  

In a joint statement, House Speaker Tim Moore and Senate leader Phil Berger said, “This is a responsible budget that responds to our current needs and plans for an uncertain future.” 

Democrats got their first chance to ask detailed questions about the budget Wednesday morning. Even then, they could not suggest changes. Republicans are passing the budget in such a way that legislators must vote up or down on the document as written.  

Alexandra Sirota, executive director of the NC Budget and Tax Center, criticized the secrecy and said a open process would have generated better ideas.  

The budget does not do enough “to make sure our communities and people have enough for a full and just recovery,” she said in the statement.  

Secret budget writing “cannot possibly consider the range of needs in communities,” her statement said. “Transparency and opportunities for public input can strengthen our understanding of what is needed and what works.” 

Budget has millions in earmarks 

Some communities did better than others.  

Of $611 million included for water and sewer improvements, the budget funnels $411 million to about 90 specific projects. The other $200 million would be used for competitive grants.  

Rep. Pricey Harrison, a Guilford County Democrat, said it was frustrating to see the criteria established to determine which communities most needed the money circumvented by politics.  

“This is just earmarks for members’ districts,” she said in an interview. “It’s very troubling to me.”

The budget also sends money to specific companies.  

For example, the state is giving $6 million to a Durham-based company called EmitBio to develop “a light-based treatment option for COVID-19 patients.”  Former President Donald Trump infamously suggested using UV light to treat COVID. but according to the EmitBio website, its device shines visible light on the back of the throat. The company said in a January 2021 press release that it requested Emergency Use Authorization from the FDA. As of now, its device is not an FDA-authorized COVID treatment.  

In another example, hog farmers will get $1.5 million to help them install equipment to produce biogas from swine waste. Align RNG, a project of Smithfield Foods and Dominion Energy, is going to collect gas from 19 North Carolina farms. As Policy Watch has reported, the plan has received criticism from impacted residents and environmental advocates.

Harrison objected to the biogas subsidy. 

“First, taxpayers shouldn’t subsidize Smithfield’s new profit scheme,” she said in an email. “Second, taxpayers shouldn’t subsidize systems that pollute EVEN MORE. Third, EPA and USDA have several existing incentive programs for digesters. NC doesn’t need to further subsidize these operations. And finally there is nothing in here that protects communities or the environment from additional pollution.” 

State Employees Association calls raises “meager” 

The budget includes pay raises for state employees of 1% more than the 2.5% they were already slated to get. Gov. Roy Cooper wanted bigger raises for state employees and had proposed to add another 2.5% this year to bring the total to 5%. Cooper also wanted bonuses for state employees and teachers. 

Ardis Watkins, executive director of the State Employees Association of North Carolina, said the budgeted raises are way too low. 

“Considering the enormous surplus and the pressures of inflation, giving meager raises is disrespectful,” she said. SEANC was hoping for raises higher than Cooper proposed, and bonuses.  

Three and a half percent with no bonuses “was shocking to us,” she said.  

Budget writers put $1 billion into a new fund called the State Inflationary Reserve. Legislative leaders said the money prepares the state for a recession.  

While legislators are hoarding money, Watkins said, state employees are being left without their own financial cushions.  “What do they think the employees are going to do in inflation and potentially a recession?” she said.  “They won’t have anything put aside.” 

The budget includes raises for teachers that average 4.2%, with a range of 2.5% to 7%.  

Budget writers said the budget has $806 million in spending that would count toward the $998 million needed this year to satisfy the plan to have the state meet its constitutional obligation to ensure all children have access to a sound basic education. A consultant developed the plan that would have the state comply with the ruling in a court case dating back to 1994 called Leandro.  

Last year, Superior Court Judge David Lee ordered the state to put $1.7 billion toward Leandro funding. Republican legislators objected. The state Court of Appeal blocked the order, saying Lee could not require the transfer of state money. The state Supreme Court will hear the case in August.  

Public school advocates said the amount in the budget for Leandro compliance was considerably lower than Republicans maintain. An analysis prepared by Kris Nordstrom at the NC Justice Center put Leandro spending this year at about $554 million. (NC Policy Watch is a project of the Justice Center.) 

The budget does not do all the things Leandro requires for children who are not achieving, said Sen. Gladys Robinson, a Guilford County Democrat.  “There are a lot of pieces that are not there.” 

The budget does expand the state’s controversial private school voucher program to more children by raising the family income eligibility limit to about $103,000 a year for a family of four.  

Sales tax to help pay for roads 

Budget writers also decided to start using sales tax revenue to help pay for roads. Starting this year, 2% of the revenue collected via the sales tax, or $193.1 million, will go to transportation. That sales tax transfer to transportation funds will increase to 6% in 2024.  

The state gas tax, DMV fees, and taxes on car sales and rentals are the traditional state funding sources for transportation.  

The state Department of Transportation expects gas tax revenue to decline as cars become more efficient and travel patterns change.  

The NC Chamber of Commerce praised the move in a press release, calling it “a major step forward” in creating a new transportation funding model.  

Rep. Wesley Harris, a Charlotte Democrat and an economist, said using sales tax revenue for roads makes sense until the state comes up with a long-term plan.  

“I think it’s a good starting point,” he said. “Obviously we need a long-term fix for transportation funding because the gas tax isn’t enough. In the short-term taking money from the General Fund is a good fix. But we do need a longer-term specific source for transportation funding.” 

Using sales tax revenue won’t have much of an impact on general spending in the short term, he said, because the state has considerable reserves.