Gov. Roy Cooper unveiled what he called his “First in Opportunity” budget at a press conference Wednesday, proposing to spend $32.95 billion in the first year of the biennium and $34.23 billion in the second year. The budget keeps $7 billion in reserve and doesn’t raise taxes, but halts some planned tax cuts.
While the N.C. governor does not create the official state budget, his budget recommendations establish his spending and fiscal management priorities and, in this case, take into account the projected $3 billion revenue surplus.
“This is a historic moment for our state,” he said. “We have an unprecedented amount of funding to invest for the next two years from state and federal funds, yet the revenue projections for the following years level off dramatically, showing there will likely be insufficient funds to meet the needs of our rapidly growing state. We must continue to meet those needs, balance the budget, and make sure we have significant reserves to handle an economic downturn.”
Cooper’s plan includes stopping the scheduled income tax cuts for households earning $200,000 or more, and stopping the scheduled phase out of state corporate tax.
“This is an 18% increase from our current budget, which clocks in at $27.9 billion,” said Paige Terryberry, senior fiscal policy analyst at the John Locke Foundation. “This would be the largest year-over-year spending increase in the state’s history.”
Cooper’s budget calls to spend $4.5 billion to cover years 2-5 of the Leandro Comprehensive Remedial Plan. Citing 5,000 teacher vacancies statewide, Cooper calls to spend $1.8 billion to recruit and retain teachers by proposing raising teacher and principal pay by an average of 18% over the next two years. His proposed budget would bring a starting teacher’s salary to $46,000 in the second year. Masters pay would also be restored, and teaching fellow scholarships would be expanded.
However, Cooper’s budget would again phase out the Opportunity Scholarships program, something that he has proposed in past budgets. The school choice program provides low income families with funding to choose another educational environment for their children. More than 3,850 applications have applied for the program as of Feb. 3.
“This is an irresponsible, unserious proposal from a lame-duck governor who wants future North Carolinians to pick up his tab,” said Senate Leader Phil Berger in a statement Wednesday. “Gov. Cooper wants to go on a reckless spending spree by raising taxes, raiding the state’s savings account, and proposing the largest increase in year-over-year spending in the state’s history. He is following the same failed Democratic playbook that is causing residents to flee blue states like New York, California, and Illinois.”
Bus drivers and counselors would get a 9.5% raise over the next two years. It also provides a $1500 retention bonus for all school employees making under $75,000 and $1000 for those making over $75,000. Cooper also said his budget would support getting more licensed school bus drivers.
When asked why not give an 18% raise to bus drivers and counselors as he proposes for teachers, Cooper said the main problem right now is making sure they have enough quality teachers in the classroom.
Bus driver shortages have become the norm this school year across the state.
In addition, the budget calls to fund hiring 1,000 more nurses, counselors, and social workers, 2,700 teaching assistants, and access to school psychologists. It would also spend $1 billion in school construction and renovation.
$1.5 billion is also being proposed for early childhood education and childcare. It includes $500 million for childcare stabilization grants and $200 million to increase childcare subsidy rates in rural and lower-wealth areas.
On average, there is a currently a 38% vacancy rate in state jobs. To draw and keep state employees, Cooper proposes an 8% across-the-board pay increase over the next two years (5% the first year and 3% the second) with retention bonuses of either $1000 or $1500 (paid in two installments – November and April) depending on salary, with additional pay increases of 1.5% for those in step plans (law enforcement and corrections officers) along with 3% that agencies can use to increase pay and bonuses for 50% of employees and attract others for hard to fill jobs.
State retirees would see a 2% recurring cost of living increase with a 2% supplement additional in the first year and a 1% supplement in the second.
The state has had difficulty retaining and keeping employees, with a turnover rate of 17%. The average state employee’s salary has increased by 20% since 2010. On Monday, Cooper signed an executive order to remove the college degree requirement for most state jobs.
In Wednesday’s press conference, Cooper ignored a reporter’s question about the justification for giving 18% pay raises over two years to teachers but only giving 8% over the same timeframe to state employees when it doesn’t keep up with inflation. Instead, he reiterated the increases for state employees that were previously mentioned and that the education system has been historically underfunded.
Cooper said his budget also builds in “tax fairness” by keeping the scheduled income tax cuts for families making less than $200,000 annually, but stopping those cuts from going into effect for families earning more than $200,000. Families earning less than $200,000 would see their taxes drop to 4.5%. Families earning $200,000 or more would pay the current tax rate of 4.75%.
The state income tax rate for all taxpayers is already scheduled to drop to 3.99% by 2027.
The corporate income tax rate of 2.5% would stay the same, rather than phase out, as is currently scheduled. Cooper said North Carolina has the lowest corporate income tax rate among 44 states that have a corporate tax, and that companies are coming to North Carolina in “droves,” and says giving more tax breaks is unnecessary.
“More corporate tax breaks mostly help out the large out-of-state or multinational corporations and not our homegrown businesses, Cooper stated. “Giving even more tax breaks to big corporations and the wealthiest earners will stunt our growth, starve our schools, and keep our state from reaching its full potential.”
According to the U.S. Small Business Administration in North Carolina, 99.6% of businesses are considered small, having 500 employees or fewer.
Cooper said the recent agreement from the General Assembly on Medicaid expansion enables him to propose using a portion of the $1.7 billion Medicaid expansion signing bonus to create the IHOPE Fund, which stands for Improving Health Outcomes For People Everywhere.
The fund designates $1 billion for mental health and substance abuse with funding for inpatient and community care facilities and support for those in a mental health crisis, integrating mental health and primary care practices and schools, and addressing mental health in the justice system.
Other items of note on the budget include money for on-the-job training, credentialing internships, and pre-apprenticeships. In the proposal there is also higher pay and bonuses for community college instructors and scholarships for those that want to attend.
In the proposal Cooper also wants to match federal government money for clean water, economic development, electric grid improvement, transportation, and high-speed internet infrastructure. The budget also spends on mega sites to recruit major manufacturers, budgets to spend more on building up the clean energy industry and spends on land and water preservation, and flood protection.
North Carolina House Speaker Tim Moore said Wednesday in a statement, “Governor Cooper’s budget proposal takes the same reckless approach to spending that his fellow Democrats have taken in Washington. Unfortunately, this kind of runaway spending has resulted in a failing economy that has left millions of Americans behind.”
Cooper also calls for better pay and bonuses for law enforcement, school safety grants, a fentanyl prosecution team, violence intervention, and body cameras for local law enforcement, and proposes adding 40 cyber security state employees.
Cooper mentioned that $5 million had been earmarked for the people of Canton, which recently suffered a devastating blow to its economy with the loss of 1,300 jobs when a paper mill closes in June. He said it has been structured so federal and private funds can be accepted or any additional funds the legislature might also put in place.
The N.C. legislature is responsible create the state budget and appropriating funds. Legislative committees in the General Assembly have been working on the budget, and announced an agreed upon a spending increase of 10.5% for the biennium, which would bring the next budget to an estimated $2.8 billion.
“The General Assembly will continue on the fiscally responsible path that has made our state attractive to so many,” said Moore. “Now Governor Cooper is proposing a budget that effectively eliminates the tax cuts that will help North Carolinians make ends meet and have attracted families and businesses to our state. Over a decade of Republican budget leadership has put North Carolina on solid financial ground. This is no coincidence– our fiscally responsible approach to spending works.”