Nine ways the Senate budget falls well short of what North Carolina needs

As we wait for the House budget proposal, it is worth digging deeper into the shortcomings of the Senate budget proposal, the passage of which marks the first completed step in the process during which the Senate, House, and Governor must come to agreement about how to fund the needs of a growing state more than a year into the COVID-19 pandemic.

The budget proposed would leave North Carolina more than $7 billion below historical investment levels as a share of the state’s economy during a time of unprecedented and ongoing need. The proposal also includes a suite of tax cuts that would overwhelmingly benefit wealthy North Carolinians and corporations along with their shareholders, and the full impact of the revenue loss when the tax changes are fully implemented — while not completely yet known — would exceed $5 billion annually.

The Senate’s two-year plan once again chooses corporations and the richest over everyday North Carolinians — a vision that has yet to result in tangible improvements in a host of areas where people continue to be blocked from their full potential and greater well-being. Investments in the sound, basic education that the state has a constitutional obligation to provide will go woefully unmet if this plan becomes law, as will the need for our state to finally expand Medicaid to ensure that hundreds of thousands more North Carolinians can receive care when they need it. These and many other opportunities have been missed through this first major step in the budget process, and should the ideas from the Senate be agreed to by the House and the Governor, North Carolina will continue down a harmful path for its people.

• Failing to make progress toward ensuring a sound, basic education. The Senate budget fails to make meaningful progress toward providing North Carolina students the education they are owed under our constitution in direct violation of a June 7 court order issued as part of the long-running Leandro school funding case. That order requires the General Assembly to fully implement the first two years of a seven-year plan to deliver a constitutional education system by the 2027-28 school year. The Senate budget would fund just 13 percent of the plan, eschewing the evidence-based, court-ordered plan to improve the recruitment and retention of diverse teachers and principals, create a finance system that’s adequate and equitable, support low-performing schools and districts, overhaul a discriminatory school accountability system, and create improved connections to college and careers.
• Short-term and inadequate funds for equitable early education. The Senate budget fails to meaningfully ramp up investments in NC Pre-K, Smart Start, childcare subsidies, or boosting pay for childcare workers and pre-kindergarten teachers, that is also required by a June 7 Leandro cort order. The Senate budget marginally increases per-slot funding for NC Pre-K but does not increase the number of available slots. While it provides some funding for Smart Start, these funds are one-time only, so the system does not receive continued investment. State dollars would have provided ongoing support to North Carolina’s youngest children and their families and would have helped ensure that federal funds lead to transformative change. Instead, the Senate budget relies on American Rescue Plan funding, which does not meet our state’s long-term needs or Leandro requirements.
• Choosing to pass on a key fiscal incentive to expand health care access. Senate leaders failed to address the lack of affordable health care access for more than 500,000 North Carolinians. While the Senate plan includes the expansion of full Medicaid benefits to women for 12 months postpartum — rather than the current 60 days of postpartum coverage of limited pregnancy Medicaid — this carve-out demonstrates a failure to recognize the link between pregnancy-related health and long-term health, as well as the need for all individuals and family members to be able to access care whenever they need it. General Assembly leaders have also rejected the net estimated $1.2 billion that North Carolina would receive as an incentive to expand Medicaid over two years, made possible by the American Rescue Plan Act.
• Short-term and insufficient support for small businesses. The NC Office of Historically Underutilized Businesses (HUBs) conducted a disparity study in 2020, which found that there were significant disparities in contracting opportunities for HUB-certified businesses, even when controlling for race-neutral factors (capital, time in business, employees, etc.). The Office of HUBs does not have the capacity to address issues by itself, and more funding is needed. Despite the study’s findings, no additional appropriations were made for the Office of HUBs. The Senate budget includes $20 million in American Rescue Plan funds for ReToolNC, which provides recovery grants to HUB firms. While this will help, these funds will only address some of the near-term challenges from the pandemic instead of committing state dollars to mitigate harm to minority-owned businesses and address underlying systemic issues that created the disparities.
• Prioritizing tax cuts for the wealthy instead a targeted, bottom-up tax credit. The Senate budget failed to include state tax credits for working families, which would provide a bottom-up tax cut by benefiting low- and middle-income households with incomes no more than approximately $57,000 for a family with three or more children. Instead, the Senate proposal raises the standard deduction, a provision that would deliver 24 percent of the tax cut to the wealthiest 20 percent of North Carolina taxpayers. This tax change, in addition to an elimination of the corporate income tax and a reduction of the personal income tax — both which overwhelmingly benefit the wealthiest — reflects a failure to recognize that people having what they need will drive a healthier economy.
• Low levels of investment that will worsen NC’s housing affordability crisis. Currently North Carolina has a shortage of nearly 200,000 affordable housing units for renters with extremely low incomes, and with 1 in 3 renters with extremely low incomes spending 50 percent or more of their income on housing. The Senate budget proposal includes provisions that would change the NC Housing Finance Agency’s operations, which will make it more difficult for homeowners to receive much needed assistance, in addition to the absence of additional funds to support the agency. As investments remain low, North Carolina’s affordable housing crisis will continue to worsen as the state’s projected population growth continues to rise.
• Undermining our democracy by weakening the state’s election infrastructure. North Carolina is one of several states with Republican legislatures that is proposing restrictions on elections administration that would alter state election officials’ ability to settle election lawsuits — instead, giving power to elected officials, including leaders in the General Assembly. In an attempt to mitigate the impact, the NCGA recommends allocating $5 million in mobile programs to assist individuals who will need photo identification, rather than the removal of ID requirements that disproportionately harm Black and women voters.
• One-time funds for environmental-related spending where long-term investments are needed. Environment-related spending in the Senate budget is primarily in the form of one-time funding for projects that needed at least multi-year, if not long-term, funding, as well as earmarks for specific projects. While the budget includes an allocation to fulfill the state match for FEMA disaster funds in the event of a major storm this year, it does little to advance the state’s environmental resiliency, including flood management.
• Limited spending on local re-entry programs and disinvestment in state and local re-entry infrastructure and programs. Funding for re-entry supports is critical to preventing recidivism of the more than 22,000 people who return home each year from state prisons. The budget fails to include adequate funding to support this population, such as providing limited funds for diversion and treatment of individuals with substance use disorder but making no additional funds available for operation of local reentry councils, transitional housing programs, or job training and job placement assistance. While the budget creates a Justice Reinvestment Council, it must also allocate adequate funding for that entity to do the work of reinvesting funds into community-based re-entry programs.

Kris Nordstrom of the Education and Law Project, Laura Holland and Quisha Mallette of the Fair Chance Criminal Justice Project, and Parker Martin and Logan Harris of the Budget & Tax Center, all projects of the NC Justice Center, contributed to this piece.