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OVERVIEW: _________________________________ FISCAL AND BUDGETARY ACTIONS NORTH CAROLINA GENERAL ASSEMBLY 2002 SESSION PREPARED BY THE FISCAL RESEARCH DIVISION OF THE NORTH CAROLINA GENERAL ASSEMBLY RALEIGH, NORTH CAROLINA Departments/Coverage Analysts Budget Development Appropriations Bill Coordination Andy Willis - Senate Governmental Operations Mona Moon - Senate Capital Budgeting/Planning Lynn Muchmore - House State Lands/Building Karen Hammonds-Blanks - House Salaries and Benefits Sam Byrd Stanley Moore Mark Trogdon General Government Administration Michele Nelson Administrative Rules Review Commission Marilyn Chism Board of Elections Cultural Resources General Assembly Governor’s Office Insurance Licensing Boards Lieutenant Governor Office of Administrative Hearings Revenue Secretary of State State Auditor State Budget and Management State Treasurer Office of Information Technology Services Doug Holbrook Justice and Public Safety Correction Jim Mills Crime Control & Public Safety Denise Thomas FISCAL RESEARCH DIVISION JAMES D. JOHNSON, DIRECTOR Rm. 619, Legislative Office Building Raleigh, North Carolina 27603-5925 Telephone: (919) 733-4910 Fax: (919) 715-3589 Judicial Elisa Wolper Justice Chloe Gossage Departments/Coverage Analysts Health and Human Services Department of Health and Human Services Carol Shaw Lisa Hollowell Susan Morgan Jim Klingler Natural and Economic Resources Department of Environment, Health, and Natural Resources Jennifer Hoffman Department of Agriculture Kelly Huffstetler Department of Commerce Adam Levinson Department of Labor Transportation Evan Rodewald Bob Weiss Education Department of Public Instruction Jim Newlin Philip Price UNC-Board of Governors Charlotte Todd Community Colleges Kristine Leggett Higher Ed Bond Oversight Reyna Walters Economy and Taxation Revenue Estimates Finance Committees Richard Bostic Revenue Laws Study Committee David Crotts Economic Issues Linda Millsaps State Bond Proposals Martha Walston Fiscal Trends Commission Support Staff Word Processing Agnes Perry Graphics, Databases, Bonnie Trivette Spread Sheet Preparation Debora Bridgers Page INTRODUCTION............................................................................................................................ i GLOSSARY.................................................................................................................................A-1 TOTAL STATE BUDGET Budget Reform Statement (General Fund Availability) .................................................................B-1 Summary Total State Budget....................................................................................................B-2 Total State Budget by Agency ..................................................................................................B-3 Budgeted Position Summary……………………………………………………………………................B-6 ECONOMY AND REVENUES Economic Outlook and General Fund Revenues .........................................................................C-1 Economic Outlook Comparison.................................................................................................C-7 Growth Rates for Major Revenue Sources ..................................................................................C-9 General Fund Revenue Forecast .............................................................................................C-11 Highway Fund Revenue..........................................................................................................C-13 Highway Trust Fund Revenue..................................................................................................C-14 FEDERAL BLOCK GRANTS & SUMMARY OF MEDICAID CHANGES Federal Block Grant Programs..................................................................................................D-1 Changes to the Medicaid Program ............................................................................................D-4 SUMMARY: GENERAL FUND APPROPRIATIONS General Fund Appropriations 2002-2003 Fiscal Year, 2002 Session .............................................E-1 EDUCATION Community Colleges................................................................................................................F-1 Public Education .....................................................................................................................F-6 University of North Carolina System ........................................................................................ F-20 HEALTH & HUMAN SERVICES..................................................................................................... G-1 NATURAL AND ECONOMIC RESOURCES Agriculture and Consumer Services ...........................................................................................H-1 Commerce...........................................................................................................................H-10 Commerce – State Aid...........................................................................................................H-16 Environment and Natural Resources ........................................................................................H-19 Environment and Natural Resources – Clean Water Management Trust Fund..............................H-32 Housing Finance Agency .......................................................................................................H-34 Labor...................................................................................................................................H-36 N.C. Biotechnology Center .....................................................................................................H-40 Rural Economic Development Center.......................................................................................H-42 JUSTICE AND PUBLIC SAFETY Correction............................................................................................................................... I-1 Crime Control and Public Safety .............................................................................................. I-15 Judicial................................................................................................................................. I-20 Judicial – Indigent Defense...................................................................................................... I-26 Justice ................................................................................................................................. I-29 Juvenile Justice and Delinquency Prevention ............................................................................. I-32 TABLE OF CONTENTS Page GENERAL GOVERNMENT Administration........................................................................................................................ J-1 Auditor .................................................................................................................................J-10 Cultural Resources .................................................................................................................J-12 Cultural Resources – Roanoke Island Commission ....................................................................J-21 General Assembly..................................................................................................................J-23 Governor...............................................................................................................................J-27 Insurance..............................................................................................................................J-29 Insurance – Volunteer Safety Workers’ Compensation Fund.......................................................J-33 Lieutenant Governor................................................................................................................J-35 Office of Administrative Hearings ..............................................................................................J-37 Revenue ...............................................................................................................................J-39 Rules Review Commission ......................................................................................................J-44 Secretary of State ..................................................................................................................J-46 State Board of Elections .........................................................................................................J-49 State Budget and Management................................................................................................J-51 State Budget and Management – Special Appropriations ...........................................................J-53 State Controller ......................................................................................................................J-55 Treasurer ...............................................................................................................................J-58 Treasurer – Retirement for Fire and Rescue Squad Workers .......................................................J-61 TRANSPORTATION Transportation – General Fund..................................................................................................K-1 Transportation – Highway Fund.................................................................................................K-3 INFORMATION TECHNOLOGY: INTERNAL SERVICE FUND Office of Information Technology Services .................................................................................. L-1 RESERVES, DEBT SERVICE AND ADJUSTMENTS/GENERAL PROVISIONS .................................M-1 CAPITAL.....................................................................................................................................N-1 SALARIES AND BENEFITS Salary Changes for Employees Supported by the State ............................................................. O-1 Retirement and Pension Changes for State and Local Personnel ................................................ O-6 Benefit Changes for State and Local Personnel ........................................................................O-11 State Employee Health Benefit Changes .................................................................................O-12 REVENUE/FEE BILLS Bills Affecting General Fund Revenue ........................................................................................P-1 Bills Affecting Highway Fund Revenue .....................................................................................P-25 Bills Affecting Special Revenue Funds .....................................................................................P-28 Bills Affecting All Local Governments ......................................................................................P-31 APPENDIX Total State Budget by Source of Funds .................................................................................... Q-1 Total General Fund Authorizations as Adjusted to Determine Total Current Operations .................................................................................... Q-2 Earmarking of the Credit Balance by Fiscal Year....................................................................... Q-4 Savings Reserve at Year Ending June 30 .................................................................................. Q-5 Tax Revenues by Major Schedules (Actual) .............................................................................. Q-6 Page APPENDIX (CONTINUED) Authorized and Actual Revenue Collections by Fiscal Year ($ in Thousands) ............................... Q-7 North Carolina General Fund Operating Appropriations ............................................................... Q-8 Capital Improvement Authorizations.........................................................................................Q-12 General Obligation Bond Acts Since 1971 ...............................................................................Q-13 Total North Carolina Budget for Debt Service............................................................................Q-14 North Carolina Bond Indebtedness ..........................................................................................Q-16 Across-The-Board Salary Cost for Each 1% Increase (Millions)..................................................Q-18 Legislative Increases..............................................................................................................Q-19 Average Salary of Employees Subject to the Personnel Act ......................................................Q-21 Page A-1 Adjusted Appropriation: An appropriation altered to reflect the distribution of reserves or other transfers authorized by the General Assembly. Appropriation: An action by the General Assembly authorizing withdrawal of funds from the state treasury pursuant to Article V, Section 7 of the North Carolina Constitution. Beginning/Ending Balance or Credit Balance: The funds available at the beginning or end of the fiscal year based upon revenue collections and expenditures. Capital Improvements: One-time appropriations for new construction, renovations, repairs and land purchases. Carryforward: Funds appropriated, but unspent in the first fiscal year of a biennium that are brought forward for expenditure in the second fiscal year of the same biennium. Certified Appropriation: An appropriation as officially recorded by the Office of State Budget, Planning, and Management. Contingency and Emergency Fund: A special reserve required by G.S. 143-12 which the Director of the Budget may expend for emergencies or other unanticipated needs with approval by the Council of State. Continuation Budget: The part of the State budget necessary to continue the current level of services when adjusted for inflation, mandated rate increases such as social security, annualization of programs and operation of new facilities. Current Operations: Cost associated with the daily activity of programs supported by the State, such as salaries, utilities, and travel. Departmental Receipts: Monies received by State agencies and institutions as federal grants, charges for services performed, transfers from other governmental units, license fees, gifts and donations, or similar sources. Disproportionate Share Funds: Share (DSH) funds are Medicaid payments made to health care providers who deliver services to large numbers of uninsured patients. GLOSSARY Page A-2 GLOSSARY (Continued) Entitlements: Payment or benefit granted by law to individuals or political subdivisions. Expansion Budget: The part of the State budget which provides for new programs, expansion of existing programs, and salary and benefit increases. Federal Revenue Sharing: Program instituted by the federal government in 1972-73 and discontinued in 1982-83 to assist state/local governments. General Fund: The fund to which revenues are deposited that are not designated for special purposes and are therefore available to support the general operations of State government. Highway Fund: The special fund to which revenues are deposited that are designated for transportation-related operations and capital improvements. Highway Trust Fund: A fund established in 1989 for the completion of certain specified highway construction projects. Lapsed Salaries: Unexpended appropriations that accrue because funds have been budgeted for positions that are temporarily vacant. Negative Reserve: A method by which a budget reduction is imposed without detailing the specific lines of expenditure to be decreased. Nonrecurring: A term applied to revenues or expenditures that are not repeated in future years. Reversion: The portion of an appropriation that is not expended and is returned to the fund from which the appropriation is made when the appropriation either expires or is cancelled. Savings Reserve: An account established in G.S. 143-15.3 to reserve General Fund monies as a safeguard against economic fluctuations or major fiscal exigencies. Commonly referred to as the “Rainy Day Fund.” Special Funds: Accounts to which revenues are deposited that are designated for a specific purpose and remain in the account until expended for that purpose. Tax Reimbursements: State revenues disbursed to local governments as reimbursements due to State-mandated tax relief measures which have a local financial impact on locals. Total General Fund Availability: The sum of the beginning General Fund credit balance and General Fund revenues for a fiscal period. i This document is divided into sections as follows: Section A - Glossary Section B - Total State Budget summarizes the composition of General Fund Availability (i.e. Budget Reform Statement) and the total state budget including federal funds and receipts. Section C – Economy and Revenues describes the economic and financial backdrop against which the actions detailed in subsequent sections are conducted. Includes information on General Fund, Highway Fund and Highway Trust Fund revenues. Section D – Federal Block Grants and Summary of Medicaid Changes gives a brief history of federal block grant programs and allocations for the fiscal year. Also provides a summary of recent Medicaid funding and program changes. Section E – Summary: General Fund Appropriations summarizes actions taken by the General Assembly to adjust the continuation or base budget recommended by the Governor (applies to the Overview of budgetary actions taken in the long session) or to adjust the budget previously approved by the General Assembly for the second year of the biennium (applies to the Overview of budgetary actions taken in the short session). Sections F through L – Budget adjustments (i.e. reductions and expansion) by state agency are outlined in detail and organized by appropriations subcommittee. Also summarizes special provisions in the appropriations act and other related legislation governing state agencies. Section M –Reserves, Debt Service and Adjustments lists actions with statewide impact (i.e. affecting all state agencies). Also includes a summary of availability and general provisions included in the appropriations act. Section N – Capital provides a list of agencies receiving appropriations for capital improvement projects. Also includes a summary of capital related special provisions. Section O - Salaries and Benefits identifies salary increases, as approved, together with changes in retirement and pension plans, health insurance programs, and other benefit programs. Section P – Revenue/Fee Bills provides a summary of bills authorizing various tax changes and fee increases. Section Q – Appendix provides historical data relating to state revenues and expenditures, capital improvements, reversions, indebtedness, debt service and salaries. INTRODUCTION TOTAL STATE BUDGET 2002-2003 Beginning Unreserved Credit Balance 25,000,000 Revenues Based on Existing Tax Structure 12,793,950,000 Non-tax Revenues Investment Income 115,300,000 Judicial Fees 111,300,000 Disproportionate Share 107,000,000 Insurance 46,600,000 Other Non-Tax Revenues 98,900,000 Highway Trust Fund Transfer 172,400,000 Highway Fund Transfer 15,300,000 Subtotal Non-tax Revenues 666,800,000 Total General Fund Availability 13,485,750,000 Adjustments to Availability: 2002 Session IRC Conformity (Pensions/Education Changes, Estate Tax Credit, Accelerated Depreciated) 15,800,000 Delay 2001 Tax Breaks (Standard Deduction/Marriage Penalty, Child Tax Credit) 51,700,000 Conform Business Income 70,000,000 Correct LLC Franchise Tax 20,000,000 Conform Gift Tax Indexing (230,000) Low Income Housing Credit (2,200,000) Repeal Reimbursements to Local Governments 333,400,000 Project Tax Collect 32,500,000 Highway Trust Fund -- recurring inflationary adjustment 80,000,000 Highway Trust Fund Transfer -- one time transfer 125,000,000 Tobacco Settlement Trust Funds -- divert MSA receipts from Tobacco Trust Fund 38,000,000 Tobacco Settlement Trust Funds -- divert MSA receipts from Health & Wellness Trust Fund 40,000,000 Transfer of Cash from Trust and Special Funds 20,438,259 Adjustment to Transfer from Insurance Regulatory Fund 600,000 Reimbursement for Unauthorized Substance Tax Division, Department of Revenue 885,884 Nontax Revenue Offsets, Department of State Treasurer 671,618 Increase Collection Rates for Offender Fees 1,160,000 Fee Increases 38,180,000 SB 1455, Strenthen Securities Fraud Enforcement Laws 271,000 Subtotal Adjustments to Availability: 2002 Session 866,176,761 Revised General Fund Availability for 2002-2003 Fiscal Year 14,351,926,761 Less: Total General Fund Appropriations for 2002-2003 Fiscal Year (14,351,822,876) Unappropriated Balance 103,885 Budget Reform Statement General Fund Availability Note: The Budget Reform Statement/General Fund Availability shown here differs from the availability statements included in Section 2.2 of SB 1115, 2002 Appropriations and Finance Act, SL 2002-126 and Section 10 of HB 1105, Insurance Regulatory Fund Changes, SL 2002-144. The statement shown here reflects actions taken by the General Assembly in those bills as well as SB 1455, Securities Fraud Protections and Study, SL 2002-189, which increased General Fund availability by $271,000 and appropriated $167,115 to the Department of the Secretary of State. FY 2002-03 ($ millions) General Fund Current Operations $14,320.7 Capital Improvements/Repairs & Renovations 31.1 Subtotal General Fund Budget 14,351.8 Highway Fund/Highway Trust Fund 1,900.0 Federal Funds 7,676.5 Departmental Receipts 2,371.0 Total State Budget -- All Sources $26,299.4 Source: Office of State Budget and Management Summary of Total State Budget 2002-2003 Fiscal Year by Source of Funds Page B-2 General Highway Trust/ Subcommittee/Agency Fund Highway Fund * Other Federal Total Education: Community Colleges 669,281,390 0 143,508,211 12,818,209 825,607,810 Public Instruction 5,894,553,493 30,590,073 2,886,501 606,524,524 6,534,554,591 UNC System 1,768,097,109 0 1,018,554,382 27,490,660 2,814,142,151 Subtotal Education 8,331,931,992 30,590,073 1,164,949,094 646,833,393 10,174,304,552 Health and Human Services: DHHS - Office of the Secretary 67,784,933 0 702,139 46,523,975 115,011,047 DHHS - Aging 28,605,910 0 8,282,754 27,349,040 64,237,704 DHHS - Blind & Deaf/Hard of Hearing 9,525,102 0 1,275,794 13,394,974 24,195,870 DHHS - Child Development 281,830,361 0 56,000 263,193,803 545,080,164 DHHS - Education Services 65,477,022 0 722,102 2,084,639 68,283,763 DHHS - Facility Services 14,694,066 0 506,774 11,558,361 26,759,201 DHHS - Medical Assistance 2,189,813,795 0 391,100,686 4,411,452,983 6,992,367,464 DHHS - MH/DD/SAS 573,361,612 0 40,375,152 79,571,825 693,308,589 DHHS - NC Health Choice 45,058,178 0 0 125,410,725 170,468,903 DHHS - Public Health 100,838,313 437,623 7,665,926 243,250,569 352,192,431 DHHS - Social Services 180,580,506 0 462,494,932 606,315,236 1,249,390,674 DHHS - Vocational Rehabilitation 38,858,851 0 2,226,176 62,157,455 103,242,482 Subtotal Health & Human Services 3,596,428,649 437,623 915,408,435 5,892,263,585 10,404,538,292 Natural and Economic Resources: Agriculture & Consumer Services 50,445,582 3,586,465 18,945,298 6,282,919 79,260,264 Commerce 33,930,264 0 33,270,117 193,013,186 260,213,567 Commerce-State Aid 20,595,319 0 0 0 20,595,319 Environment and Natural Resources 148,818,587 846,102 71,783,449 41,472,289 262,920,427 Environment and Natural Resources - Clean Water Management Trust Fund 66,500,000 0 0 0 66,500,000 NC Housing Finance Agency 4,759,400 0 100,000 37,242,359 42,101,759 Labor 14,166,181 0 4,220,609 5,760,427 24,147,217 Subtotal -- NER 339,215,333 4,432,567 128,319,473 283,771,180 755,738,553 Justice and Public Safety: Correction 880,054,808 0 10,560,008 0 890,614,816 Crime Control & Public Safety 27,780,188 133,098,294 6,389,175 13,402,334 180,669,991 Judicial 294,636,169 0 252,519 0 294,888,688 Judicial - Indigent Defense 77,286,901 0 7,400,555 0 84,687,456 Justice 70,938,193 0 6,814,637 1,167,825 78,920,655 Juvenile Justice & Delinquency Prevention 128,984,633 0 7,545,544 0 136,530,177 Subtotal -- JPS 1,479,680,892 133,098,294 38,962,438 14,570,159 1,666,311,783 Summary of Total State Budget by Agency and Appropriations Subcommittee (includes all funding sources) 2002-03 Fiscal Year Page B-3 General Highway Trust/ Subcommittee/Agency Fund Highway Fund * Other Federal Total Summary of Total State Budget by Agency and Appropriations Subcommittee (includes all funding sources) 2002-03 Fiscal Year General Government: Administration 55,943,188 0 5,463,046 8,480,877 69,887,111 Auditor 11,068,708 0 50 0 11,068,758 Controller 10,422,828 0 30,945 0 10,453,773 Cultural Resources 55,817,206 0 2,250,726 4,788,585 62,856,517 Cultural Resources-Roanoke Island Commission 1,708,241 0 0 0 1,708,241 General Assembly 36,899,614 0 403,000 0 37,302,614 Governor 4,938,310 0 215,482 0 5,153,792 Insurance 23,527,552 0 26,188,256 338,858 50,054,666 Insurance - Volunteer Safety Workers' Comp 2,000,000 0 0 0 2,000,000 Lieutenant Governor 616,265 0 0 0 616,265 Office of Administrative Hearings 2,561,413 0 106,014 0 2,667,427 Revenue 75,571,304 4,038,525 1,000 0 79,610,829 Rules Review Commission 315,814 0 0 0 315,814 Secretary of State 8,108,684 0 384,577 0 8,493,261 State Board of Elections 3,395,891 0 2,500 0 3,398,391 Special Boards & Commissions 0 0 3,569,720 0 3,569,720 State Budget and Management (OSBM) 5,054,881 0 26,020 0 5,080,901 OSBM Special Appropriations 3,180,000 0 0 0 3,180,000 Treasurer 7,888,435 0 648,053 0 8,536,488 Treasurer-Retirement for Fire & Rescue Squad Workers 7,131,179 0 0 0 7,131,179 Subtotal General Government 316,149,513 4,038,525 39,289,389 13,608,320 373,085,747 Transportation: 10,902,500 1,723,537,238 38,617,668 825,448,590 2,598,505,996 Debt Service: General Debt Service 254,516,860 0 45,500,000 0 300,016,860 Federal Reimbursement 1,155,948 0 0 0 1,155,948 Subtotal Debt Service 255,672,808 0 45,500,000 0 301,172,808 Page B-4 General Highway Trust/ Subcommittee/Agency Fund Highway Fund * Other Federal Total Summary of Total State Budget by Agency and Appropriations Subcommittee (includes all funding sources) 2002-03 Fiscal Year Reserves and Adjustments: Compensation Increases -- Includes Teachers/Principals and Assistant/Deputy Clerks/Magistrates 2002-03 Step Increases 243,512,099 7,200,000 0 0 250,712,099 Employee Severance & Discontinued Service 5,000,000 5,000,000 Salary Adjustment Fund 500,000 0 0 0 500,000 State Health Plan 187,378,128 9,000,000 0 0 196,378,128 Retirement Rate Adjustment (387,792,720) (12,304,320) 0 0 (400,097,040) Contingency & Emergency Fund 5,000,000 0 0 0 5,000,000 Governor's Efficiency Commission Recommendations (25,000,000) (25,000,000) Management Flexibility Reserve (41,500,000) (41,500,000) ITS Rate Reduction (7,414,318) 0 0 0 (7,414,318) HIPPA Implementation Reserve 2,000,000 2,000,000 Mental Health/DD/SAS Trust Fund 8,000,000 8,000,000 Ruth M. Easterling Trust Fund for Children with Special Needs 1,000,000 1,000,000 Subtotal Reserves (9,316,811) 3,895,680 0 0 (5,421,131) Capital Improvements: Water Resources Development Projects 31,158,000 0 0 0 31,158,000 Total State Budget (all sources) 14,351,822,876 1,900,030,000 2,371,046,497 7,676,495,227 26,299,394,600 Source: Office of State Budget and Management * Note: The Highway Trust/Highway Fund column does not reflect transfers to the General Fund in the amount of $392.7 million for the 2002-03 fiscal year. See G.S. 105-187.9 and Sections 2.2(e),(f), and (g) of SB 1115, SL 2002-126 (Appropriations Act) for information relative to this transfer. Page B-5 Page B-6 BUDGETED POSITION SUMMARY State of North Carolina Full-time Equivalent Position Counts by GAAP Fund Type (December 2001) General Fund (1) Highway Fund Enterprise Institutional Internal Service Special Trust Total by Appropriated Receipt Appropriated Receipt (2) Fund Fund Fund Fund Fund Sector Government Sector State Government UNC System 28,913 1,395 - - 5,433 13,884 - - - 49,625 Justice and Public Safety 28,212 288 1,858 - - - 433 191 - 30,982 Health & Human Services 9,155 8,946 - - 34 - 12 665 4 18,816 Transportation - - 8,200 6,177 - - - - 14,378 Natural & Economic Resources 4,178 1,124 86 - 89 - - 3,010 150 8,636 General Government 4,160 407 68 - 1 - 636 363 - 5,635 Education (State Administration) 485 175 - - - - - - 14 674 Sub-total 75,103 12,335 10,212 6,177 5,557 13,884 1,081 4,229 168 128,747 Local Education Public Schools 139,503 - 115 - - - - - 139,618 Community Colleges 13,770 - - - - - - - 13,770 Sub-total 153,273 - 115 - - - - - - 153,388 Total by GAAP Fund Type 228,376 12,335 10,328 6,177 5,557 13,884 1,081 4,229 168 282,135 Notes: 1) Salary Base includes 1,111 positions in Reserve budget codes. 2) Includes 5,643 work order positions funded out of construction and maintenance line-items in the Highway Fund Budget. Source : Survey of State Agencies and Other State-funded Institutions, Fiscal Research Division, NC General Assembly, Office of State Budget and Management, December 2001. ECONOMY AND REVENUES Page C-1 2001-02 Experience Last fiscal year was marked by the largest revenue shortfall since the 1990-91 recession. The amount of the shortage, expressed in dollar terms and as a percentage of the forecast, is summarized below. The numbers are shown on both an “actual” basis and an “economic” perspective due to the impact of tax law changes and other special factors on the comparison between 2000-01 and 2001-02. Actual Basis ($Mil.) Actual Revenue 13,157.6 Less: Budgeted Revenue -14,713.1 Revenue Difference - 1,555.5 Actual Growth Rate -1.0% Budgeted Growth Rate* +10.8% Difference -11.8% “Economic” Basis** Actual Growth Rate -6.2% Budgeted Growth Rate +4.0% Difference -10.2% * Includes tax changes **Adjusted for impact of tax law changes, lawsuit payouts, and tax refund processing delays. The revenue forecast used in the budget process begins with this calculation and adds or deducts the impact of tax changes. There are a number of factors that affected the performance of the forecast. First is the timing issue. The budget revenue estimate was adopted in August 2002, one month prior to the events of September 11. This consensus outlook was developed after a review of the state economic forecast by three North Carolina bank and university economists. The analysis of the outside experts suggested revenue growth of 5.0-5.5%. The rate actually adopted was 4.0%. The budgeted rate was also lower than the amount based on the DRI/WEFA economic outlook purchased by the Office of State Budget and Management. Finally, the rate compares favorably with that used in surrounding states as reported in a National Conference of State Legislatures survey: South Carolina 6.5% Virginia 6.9% Georgia 7.2% ECONOMIC OUTLOOK AND GENERAL REVENUES Page C-2 The reason for the seemingly optimistic forecasts is that prior to September 11 many economists felt that the economy had escaped a recession. In fact, there were tentative signs that a recovery from the 2000-01 slowdown was underway. The events of September 11 changed all that. The fallout from the attacks led to FY 02 budget shortfalls in 44 states. In many states, the budget gap was larger than the 1990-91 problem. The impact first became evident in North Carolina around September 25 when the sales tax remittance from large merchants for the September 1-15 retail period was tabulated. These numbers confirmed that many consumers were glued to the television screen during the first few days following the attacks. The effect of September 11 on the employment side of the economy was more difficult to track. The main reason was the fact that starting in mid-1999, the combination of NAFTA and merger/consolidation activity in the banking and healthcare sector was already leading to a pronounced slowdown in job growth in the state. Data illustrating this trend is shown below: % Change in Employment* Manufacturing Financial** Services 1999 -1.9% 7.6% 7.1% 2000 -3.0% 1.8% 4.8% 2001 -3.2% 2.2% 2.7% 2002 -6.7% -.3% .7% *February of each year compared to prior February **Includes finance, insurance, and real estate sectors The recession was characterized by the steepest drop in corporate profits in over five decades, leading to a 27% decline in corporate income tax receipts in North Carolina. The profits squeeze was caused by the inability of businesses to pass on higher wage and energy costs. Indeed, the “pricing power” of all levels of business activity has been non-existent for a couple of years. The final issue adversely affecting General Fund revenue during 2001-02 was the bear market in stocks that began in March 2000. The impact has been especially hard on technology and telecommunications shares. The effect of the markets on the state budget did not come as a surprise. The official budget forecast assumed a 12% decline in the equity prices and a 23% drop in capital gains for the 2001 tax year. However, the impact of September 11, combined with the shift in portfolios in recent years to risky NASDAQ stocks, caused gains to drop by 47%. The breakdown of the shortfall by tax schedule is shown on Page C-6. Page C-3 National Economic Outlook for 2002-03 The recovery from the events of September 11 has been the most sluggish in decades. The first stage of the turnaround, beginning in November 2001, was fueled by favorable interest rates, rapid money supply growth, and aggressive fiscal policy (tax cuts, federal disaster assistance). In addition, the level of business inventories fell by a record amount during the fourth quarter of 2001, setting the stage for a ramping up of production. Around March, the recovery began to experience what some economists are calling a “soft spot.” This loss of momentum was similar to the slowing that began in late 1991 just six months after the recovery from the Gulf War had begun. In fact, the 1991-93 recovery sputtered three times before a more permane nt acceleration took place in mid- 1993. During the summer of 2002, the indicators began to show a reacceleration. Examples included unemployment claims, retail sales, money supply growth, refinancing activity, and surveys of company executives. Even though positive signs were popping up every day, we remained concerned with the fragility of the recovery. One problem is the prolonged weakness in equity prices, especially for NASDAQ stocks. This decline has devastated the value of 401(k) balances and other sources of savings, leading to a drop in consumer confidence. This is in stark contrast to the 1995-99 experience of skyrocketing stock prices, providing fuel for a consumer-spending binge. In addition, daily news reports on accounting fraud and the potential military action against Iraq add to the gloom. The 2001 recession was noted for the steep decline in capital investment, due in large part to the tech stock crash that began in March 2000. While the confidence of executives improved dramatically in the period right after September 11, there continues to be a reluctance to expand facilities and rehire workers. For now, most employers are increasing the hours of their workers and bringing in part-time employees. Until a major turnaround in stock prices occurs or we get additional federal monetary or fiscal stimulus, the national recovery will continue to be sluggish. On the positive side, the combination of depressed inventories and low interest rates should keep the economy from going back into recession. Favorable financing has been a major reason for the stability of the housing sector. Finally, aggressive pricing of car dealers has propped up auto industry sales (but not profits). State Prospects One of the primary characteristics of the 2001 recession was the impact on the manufacturing sector. This is important to North Carolina because 18% of nonagricultural employment is in manufacturing versus 12% nationally. A more important measure might be the share of Gross State Product represented by manufacturing: 23% in North Carolina versus 17% for the United States. Page C-4 The drop in manufacturing jobs did not begin with the 2001 recession. Data compiled by the Employment Security Commission show that manufacturing experienced a fairly rapid recovery from the 1990-91 recession, with job growth of 2.6% in 1993. The “boom and bust” nature of manufacturing is one reason why the state’s economy grew 33% faster than the national experience following the 1981-82 recession and 45% quicker following the Gulf War downturn. In fact, North Carolina was the fifth fastest growing state during the 1992-94 period, due in part to the recovery in manufacturing. After a leveling off period, manufacturing employment began a steady decline in mid- 1995 as the natio nal economy experienced a mild slowdown following the Fed rate hikes in 1994. The rate of decline began to accelerate in February 2001 and peaked at an 8.5% year-over- year rate in late 2001. Particularly hard hit were the textile and apparel sectors, dropping over 15% on a year-over-year by the spring of 2001. There are some signs that the state’s economy has begun to improve. For one thing, the unemployment rate has dropped from 6.9% last spring to 6.1% in September and we have seen improvement in the number of unemployment claims. State sales tax receipts during the quarter ending June 30 were up 2.3% over the same quarter last year, compared to –2.0% for the first quarter of 2002 and -3.5% for the final quarter of 2001. Unit sales of cars and light trucks have risen 4.9% for the most recent three months. Finally, real estate conveyance tax collections, levied on an ad valorem basis, continue to benefit from favorable mortgage rates. For the future, we are budgeting on the basis of a continued sluggish recovery. This experience would be very different from the explosive growth after the last two recessions. One reason is the continued weakness of tech stock prices. As the state has diversified away from the traditional manufacturing industries (textiles, apparel, furniture, and tobacco) to electronics and other technology-oriented companies, we have become more vulnerable to problems in the latter sectors. A classic example is the experience of the Catawba Valley region (Hickory). During the late 1990’s, this area had an unemployment rate as low as 1.5% due to the explosive growth of fiber optic manufacturing. Earlier this year the rate was 9.4%, one of the highest in the state. We are concerned that it may take some time for the nation’s telecommunications companies to work down excess inventory. Forecast Tables The table on Pages C-7 and C-8 shows the projected change in key state and national economic variables for the upcoming three state fiscal years. For each measure there is a comparison between the forecast for DRI/WEFA (used by the State Budget Office), Economy.Com (used by Fiscal Research), and the rate used in adjusting the 2002-03 state budget. The budget outlook clearly represented a pessimistic view of the economy as of July 2002. Page C-5 On Page C-9 the baseline growth rate for major General Fund revenue sources is shown. These numbers have been adjusted for the numerous tax law changes and other factors that distort the year-over-year comparison. The personal income tax represents 51% of the revenue base. The yield of this tax is not only affected by economic factors (jobs, hours worked, wage rates), but has become more sensitive to capital gains (especially on shares of stock). The table on Page C-10 shows the history and forecast of the major items in the tax base. It is interesting to note that the amount of reported capital gains is much more volatile than share prices as measured by the Standard and Poor’s 500 index. One reason could be the fact that in recent years, many investors have been purchasing more of the risky technology and telecommunications stocks. A factor that has recently come into play during the bear market is the tax treatment of loss transactions. Any losses in excess of market gains can be offset against up to $3,000 of other income and the remainder can be carried forward to future years. This could mean that as the market recovers, investors may continue to use up suspended losses. The 1.9% baseline General Fund revenue growth rate for 2002-03 represents a cautious view when compared to the budgeted rates in surrounding states: South Carolina 5.9% Georgia 5.3% Virginia 4.8% The table on page C-11 gives the forecast of specific General Fund Revenue sources on a “Baseline” basis. This calculation adjusts for 1995-2002 tax law changes, tax processing delays, and litigation payouts. The “Actual” forecast is contained on Page C-12. GENERAL FUND REVENUE COLLECTIONS ($ MILLION) July 01- July 01- July 00- June 02 June 02 June 01 TAX REVENUE: Target Actual Difference Actual PERSONAL INCOME: LARGE EMPLOYER WITHHOLDING $6,754.1 $6,429.3 ($324.8) $6,265.8 SMALL EMPLOYER WITHHOLDING 378.7 393.9 15.2 443.3 ESTIMATED TAXES 1,202.2 938.7 (263.5) 1,104.6 NET FINAL PAYMENTS 1,244.8 846.7 (398.1) 1,009.0 WITHHOLDING REFUNDS (1,271.5) (1,345.0) (73.5) (1,092.5) LOCAL TAX REIMBURSEMENTS (129.0) (129.0) 0.0 (129.0) SUBTOTAL - PERSONAL INCOME $8,179.3 $7,134.6 ($1,044.7) $7,391.4 SALES & USE TAX: REGULAR $3,447.2 $3,230.1 ($217.1) $3,053.2 UTILITY 521.4 475.7 -45.7 382.4 SUBTOTAL - SALES & USE $3,968.6 $3,705.8 ($262.8) $3,435.6 CORPORATE INCOME: ESTIMATED PAYMENTS $798.8 $705.9 ($92.9) $880.7 FINAL PAYMENTS 236.8 193.2 -43.6 77.3 REFUNDS -189.6 -230.9 -41.3 -234.3 SCHOOL FACILITIES EARMARKING -55.2 -54.3 0.9 -58.8 LOCAL TAX REIMBURSEMENTS -204.5 -204.5 0.0 -204.5 SUBTOTAL - CORPORATE INCOME $586.3 $409.4 ($176.9) $460.3 FRANCHISE: ANNUAL CORPORATION TAX $333.5 $258.6 ($74.9) $387.8 UTILITY GROSS RECEIPTS 322.4 341.8 19.4 358.7 LOCAL TAX SHARING -189.2 -154.1 30.3 -166.1 SUBTOTAL - FRANCHISE $466.7 $446.3 ($20.4) $580.4 INSURANCE 321.6 340.8 19.2 305.7 ALCOHOLIC BEVERAGES NET COLLECTIONS $199.1 $201.4 $2.3 $198.9 LOCAL TAX SHARING -25.1 -26.7 -1.6 -26.1 SUBTOTAL - BEVERAGE TAX $174.0 $174.7 $0.7 $172.8 INHERITANCE 130.2 104.8 -25.5 123.2 PRIVILEGE LICENSE 26.4 26.6 0.2 3.0 TOBACCO PRODUCTS 40.7 41.5 0.8 42.0 PIPED NATURAL GAS 37.9 40.9 3.0 37.2 GIFT 23.2 13.4 -9.8 20.3 OTHER 1.1 1.1 0.0 1.2 TOTAL - TAX REVENUE $13,956.0 $12,439.9 ($1,516.1) $12,572.9 NONTAX REVENUE INVESTMENT INCOME $166.8 $132.6 ($34.2) $170.3 JUDICIAL FEES 112.0 110.4 -1.6 109.3 DISPROPORTIONATE SHARE 107.0 110.4 3.4 109.1 INSURANCE DEPARTMENT 45.5 46.4 0.9 43.6 OTHER 139.4 131.4 -8.0 103.6 TOTAL: NONTAX REVENUE $570.7 $531.2 ($39.5) $535.8 TOTAL: TAX AND NONTAX REVENUE $14,526.7 $12,971.1 ($1,555.6) $13,108.7 TRANSFERS: HIGHWAY TRUST FUND $171.7 $171.7 $0.0 $170.0 HIGHWAY FUND 14.5 14.6 0.1 13.8 TOTAL: TRANSFERS $186.2 $186.3 $0.1 $183.8 TOTAL GENERAL FUND REVENUE $14,712.9 $13,157.4 ($1,555.5) $13,292.5 Note: Data has not be adjusted for tax law changes, lawsuit payouts and tax processing delays. Page C-6 Budget Baseline Estimate Forecast 92-93 93-94 94-95 95-96 96-97 97-98 98-99 99-00 00-01 01-02 02-03 02-03*** Personal Income Tax 8.6% 7.4% 9.9% 11.0% 10.2% 13.9% 10.5% 6.2% 7.4% -7.5% 2.1% 3.7% Sales Tax: Regular 8.3% 10.7% 8.9% 6.2% 8.1% 6.1% 7.5% 5.5% 1.9% -2.0% 1.5% 3.2% Utility Gross Receipts 3.7% 8.6% -0.9% 7.9% 4.2% 4.7% 4.4% 6.5% 6.4% 4.2% 2.2% 3.8% Corporate Income Tax 13.5% 5.8% 21.2% 3.5% 10.0% 3.5% 7.8% -2.6% -11.5% -26.6% 2.8% 4.1% Franchise Tax: Corporation Franchise 2.8% 3.2% 4.1% 8.9% 6.6% 23.6% 5.7% -4.7% 22.6% -15.7% 1.9% 3.6% Utility Gross Receipts 1.8% 11.8% -1.5% 7.0% 2.9% 3.8% -3.1% -3.8% 9.2% 10.1% 1.0% 2.1% Inheritance Tax* 2.2% 18.9% 3.2% 2.7% 17.0% 12.2% 12.8% 12.0% -2.1% -15.2% 2.8% 3.0% Insurance Tax 2.8% 16.3% 4.8% 4.6% 6.0% 3.4% 6.9% -6.1% 5.2% 10.2% 3.7% 4.8% Alcoholic Beverage Tax 0.1% 1.2% 1.4% 2.9% 3.3% 2.3% 2.8% 5.4% 3.7% 2.9% 2.9% 3.1% Total Revenue** 7.0% 9.1% 9.9% 6.8% 9.2% 8.8% 9.8% 4.0% 4.6% -6.2% 1.9% 3.5% NOTE: Data has been adjusted for tax law changes, tax collection and refund delays, litigation payouts, and other special one-time factors. *Applies to "pick-up" tax that is levied to use up federal credit for state death taxes. **Includes minor tax sources not shown in table. ***This forecast is based on July 2002 economic outlook of Economy.com and is shown for comparison purposes. C-9 GROWTH RATES FOR MAJOR GENERAL FUND REVENUE SOURCES 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001(e) 2002(e) 2003(e) Wages & Salaries 69.20 73.00 77.46 82.76 87.50 94.08 100.85 107.19 114.20 115.57 114.65 119.92 % Change 7.1% 5.5% 6.1% 6.8% 5.7% 7.5% 7.2% 6.3% 6.5% 1.2% -0.8% 4.6% Interest 3.08 2.53 2.43 3.05 3.30 3.52 3.69 3.62 4.19 4.16 3.95 4.11 % Change -22.8% -17.9% -4.0% 25.5% 8.2% 6.7% 4.8% -1.9% 15.7% -0.7% -5.0% 4.0% Dividends 1.58 1.72 1.79 2.07 2.29 2.62 2.61 2.95 3.21 3.52 3.74 3.89 % Change 2.6% 8.9% 4.1% 15.6% 10.6% 14.4% -0.4% 13.0% 8.8% 9.8% 6.0% 4.2% Business Income 3.53 3.69 3.87 3.98 4.30 4.44 4.75 4.89 4.83 4.64 4.71 5.14 % Change 9.6% 4.5% 4.9% 2.8% 8.0% 3.3% 7.0% 2.9% -1.2% -4.0% 1.6% 9.1% Capital Gains 2.38 2.73 2.91 3.41 5.11 7.06 8.45 9.38 10.24 5.40 3.29 3.64 % Change 18.4% 14.7% 6.6% 17.2% 49.9% 38.2% 19.7% 11.0% 9.2% -47.3% -39.1% 10.6% % Change Stock Value 10.5% 8.6% 2.0% 17.7% 23.9% 30.1% 24.2% 22.1% 7.6% -16.4% -1.4% 7.4% IRA Distributions 0.64 0.65 0.80 0.91 1.13 1.37 1.90 2.27 2.67 2.72 2.83 3.06 % Change 28.0% 1.6% 23.1% 13.8% 24.2% 21.2% 38.7% 19.5% 17.6% 2.0% 4.0% 8.0% Unemployment Benefits 0.48 0.42 0.30 0.31 0.30 0.25 0.25 0.31 0.41 0.50 0.65 0.55 % Change 9.1% -12.5% -28.6% 3.3% -3.2% -16.7% 0.0% 24.0% 32.3% 22.0% 30.0% -15.4% Pensions 4.38 4.63 5.03 5.52 6.05 6.69 7.40 8.10 8.69 9.21 9.91 10.85 % Change 6.6% 5.7% 8.6% 9.7% 9.6% 10.6% 10.6% 9.5% 7.3% 6.0% 7.6% 9.5% Partnership 2.63 2.79 3.43 3.80 4.40 5.00 5.45 6.05 6.50 5.85 6.20 6.57 % Change 38.4% 6.1% 22.9% 10.8% 15.8% 13.6% 9.0% 11.0% 7.5% -10.0% 6.0% 5.9% Statutory Adjustment -0.8 -0.8 -0.9 -1.0 -1.0 -1.1 -1.2 -1.3 -1.4 -1.5 -1.6 -1.7 % Change 2.5% 3.7% 7.1% 5.6% 6.3% 7.9% 10.1% 8.3% 8.5% 6.4% 6.7% 6.2% Total Gross Income 87.09 91.32 97.12 104.86 113.37 123.94 134.15 143.46 153.53 150.08 148.33 156.03 % Change 6.8% 4.9% 6.4% 8.0% 8.1% 9.3% 8.2% 6.9% 7.0% -2.3% -1.2% 5.2% (e) = Estimated C-10 FEDERAL TAX RETURN DATA FOR NORTH CAROLINA TAXPAYERS ($ BILLION) Page C-13 The Highway Fund is supported from three primary revenue sources: three- fourths of the motor fuels tax, license and fee revenues collected by the Division of Motor Vehicles, and interest earned from investment of fund balances by the State Treasurer. FY 2001-02 REVENUES Highway Fund collections totaled $1.298 billion in FY 2001-02, a 3.1% increase over FY 2000-01. Motor fuels tax collections increased by 2.4%. FY 2002-03 FORECAST Highway Fund revenues are projected to decrease by $21.6 million, or 1.7%, in FY 2002- 03 due to lower motor fuels tax collections and lower investment income. HIGHWAY FUND REVENUE (MILLIONS) FY 2001-02 FY 2002-03 Actual Projected Motor Fuels Taxes $888.1 $861.4 Licenses, Fees, and Penalties Staggered Vehicle Registration $148.3 $155.2 Truck Licenses $61.5 $61.8 Driver Licenses $68.9 $71.6 International Registration Plan $49.9 $52.4 Other $64.3 $62.2 Sub Total $392.9 $403.2 Investment Income $17.2 $12.0 Total Highway Fund Revenue $1298.2 $1276.6 HIGHWAY FUND REVENUE Page C-14 The 1989 Session of the General Assembly established the Highway Trust Fund for the purpose of funding highway construction. The 2001 General Assembly permitted the use of $680 million of Trust Fund cash balances over three fiscal years for additional purposes, primarily maintenance. The Trust Fund's primary revenue sources are one-fourth of the motor fuel tax, a 3% Highway Use Tax, title fees and various registration fees, and interest earned on cash balances. The law has required that $170 million be transferred each year from the Highway Trust Fund to the General Fund. As a result of a change in the law in 2001, this statutory transfer in FY 2002-03 is $172.4 million and will grow over time. In addition to this statutory transfer, the Governor transferred $80 million in FY 2001-02 and the Budget for FY 2002-03 transfers $205 million to the General Fund. The $205 million, and an additional $80 million to be transferred in FY 2003-04, are to be paid back to the Highway Trust Fund starting in FY 2004-05. FY 2001-02 REVENUES Highway Trust Fund revenues for FY 2001-02 (net of transfers to the General Fund) totaled $722.1, a decrease of 9.1% from the previous year. The decrease was primarily due to the $80 million additional transfer to the General Fund. FY 2002-03 FORECAST Highway Trust Fund revenues (net of transfers to the General Fund) are expected to decrease by 17.3% in FY 2002-03, reflecting the increased transfers to the General Fund in the FY 2002-03 Budget. HIGHWAY TRUST FUND REVENUE (MILLIONS) FY 2001-02 FY 2002-03 Actual Projected Motor Fuels Taxes $296.3 $287.1 Highway Use Tax $555.3 $579.4 Title Fees $78.9 $81.0 Other Fees $11.8 $12.2 Investment Income $31.5 $15.0 Sub Total $973.8 $974.7 Statutory Transfer to General Fund ($171.7) ($172.4) Additional Transfer to General Fund ($80.0) ($205.0) Total Highway Trust Fund Availability $722.1 $597.3 HIGHWAY TRUST FUND REVENUE FEDERAL BLOCK GRANTS & SUMMARY OF MEDICAID CHANGES Page D - 1 HISTORY In 1981, the Reagan Administration recommended and Congress adopted the Omnibus Budget Reconciliation Act which created a number of new “block grants” to be distributed to state governments in lieu of numerous traditional “categorical” funds. This approach to state aid reflected the President’s philosophy of shifting more fiscal decision making to the states. In addition, it allowed the Administration to significantly cut the federal budget. In previous years, Congress had appropriated money to the States for smaller, narrow-purpose programs, such as those for disabled children, migrant health, family planning, and immunizations. These funds were accompanied by numerous “strings” and substantial paperwork requirements. The new block grants consolidated appropriations for many of these programs into large, general purpose grants which had fewer “strings” and allowed more flexibility in the use of the funds. BRIEF DESCRIPTION OF THE BLOCK GRANTS SOCIAL SERVICES BLOCK GRANT The Social Services Block Grant is intended to provide federal funds to help people achieve or maintain a greater degree of economic self-support or self-sufficiency, to prevent abuse or exploitation of children and adults who are unable to protect their own interests, and to prevent inappropriate institutional care or to secure appropriate institutional care when other forms of care are not appropriate. The primary providers of these services are the 100 county departments of social services. Examples of services funded include child and adult day care and in-home services for the elderly. SUBSTANCE ABUSE PREVENTION AND TREATMENT BLOCK GRANT The ADAMHA Reorganization Act of 1992 (P.L. 102-321) split the Alcohol, Drug, and Mental Health Services Block Grant (ADMBG), thereby creating the new Substance Abuse Prevention and Treatment Block Grant (SAPTBG). The SAPTBG provides federal financial assistance to states for the provision of prevention and treatment of alcohol and drug abuse. MENTAL HEALTH SERVICES BLOCK GRANT The MHBG provides federal financial assistance to states for the provision of community based services for the mentally ill. Services provided through the use of the block grant must be those described in the state’s Plan in accordance with Federal P.L. 102-321. These services include outpatient, day treatment, psychosocial rehabilitation, emergency services, residential services, etc. FEDERAL BLOCK GRANT PROGRAMS Page D - 2 FEDERAL BLOCK GRANT PROGRAMS (Continued) MATERNAL AND CHILD HEALTH BLOCK GRANT This block grant funds health services for mothers and children to reduce infant mortality and the incidence of preventable diseases and handicapping conditions among children. It also provides for rehabilitative services for blind and disabled individuals under the age of 16 and for treatment and care of children with developmental disabilities. PREVENTIVE HEALTH SERVICES BLOCK GRANT This block grant provides health services to low-income persons in order to reduce the risk of preventable illness and early death and to improve the quality of life through better health. LOW-INCOME ENERGY ASSISTANCE BLOCK GRANT The purpose of this block grant is to provide funds to assist low-income families with their heating fuel costs, to provide some emergency assistance and home weatherization or energy-related home repairs. COMMUNITY SERVICES BLOCK GRANT This is a federally funded program that provides a range of services and activities designed to eliminate the causes of poverty among the elderly, poor, and handicapped. COMMUNITY DEVELOPMENT BLOCK GRANT This block grant provides funds to assist local governments with community and economic development projects that primarily benefit low and moderate-income persons. CHILD CARE AND DEVELOPMENT FUND (CCDF) BLOCK GRANT The Personal Responsibility and Work Opportunities Reconciliation Act of 1996 eliminated any entitlement to child care subsidies and consolidated all federal child care programs into the CCDF block grant. The purpose of the CCDF block grant is to improve the affordability, availa bility, and quality of child care for families. Most of the block grant funding must be used to provide child care subsidies to families receiving public assistance, making the transition off of public assistance, or at risk of becoming dependent on public assistance. In addition, 4% of the total allocation must be spent on quality and availability initiatives. CCDF requires all providers caring for children who receive subsidies to meet minimum health and safety standards. TEMPORARY ASSISTANCE FOR NEEDY FAMILIES In August 1996, Congress passed and the Clinton Administration enacted the Personal Responsibility and Work Opportunities Reconciliation Act of 1996 (PRWORA). Better known as federal Welfare Reform, passage of PRWORA ended decades of the Aid to Families of Dependent Children (AFDC) entitlement program and replaced it with the Temporary Assistance for Needy Families (TANF) Block Grant. This action gave states unprecedented flexibility to create their own welfare programs that emphasize self-sufficiency and work. Page D - 3 2002-2003 DEPARTMENT OF COMMERCE Community Development Block Grant – 2003 Program Year $45,000,000 DEPARTMENT OF HEALTH AND HUMAN SERVICES Division of Mental Health, Developmental Disabilities and Substance Abuse Services Social Services Block Grant $8,656,604 Mental Health Services Block Grant 10,239,850 Substance Abuse Prevention and Treatment Block Grant 39,275,687 Temporary Assistance for Needy Families Block Grant 1,875,142 Division of Social Services Low Income Energy Block Grant $25,569,203 Social Services Block Grant 28,376,011 Temporary Assistance for Needy Families 246,965,975 Division of Facility Services Social Services Block Grant $639,964 Division of Child Development Social Services Block Grant $3,000,000 Child Care and Development Fund Block Grant 143,605,794 Temporary Assistance for Needy Families 99,433,430 Division of Vocational Rehabilitation Social Services Block Grant $188,263 Division of Services for the Blind Social Services Block Grant $3,105,711 Office of the Secretary (Office of Economic Opportunity) Social Services Block Grant $41,302 Community Services Block Grant 16,963,303 Division of Aging Social Services Block Grant $3,995,535 Division of Public Health Social Services Block Grant $145,819 Substance Abuse Prevention and Treatment Block Grant 631,335 Preventive Health Services Block Grant 3,747,927 Maternal and Child Health Block Grant 16,928,823 Note: The figures listed above for the Department of Health and Human Services do not reflect the total amount of the Block Grants, due to various transfers to other Departments. Page D - 4 STATE During its 2002 Regular Session, the N.C. General Assembly enacted a $7.2 Billion budget for the Medicaid Program for SFY 2002-03. State funding for the Medicaid Program totals $2.19 Billion for SFY 2002-03. During its deliberations on the proposed budget, the 2002 General Assembly reduced the General Fund appropriations for the Medicaid Program by $111 million for SFY 2002- 03. The reductions include increasing prescription drug utilization management; reducing personal care services from 80 hours per month to 60 hours per month; expanding the Carolina ACCESS II/III program; applying Medicaid policy to Medicare crossover claims; reducing case management services; reducing hospital payments by .5%, reducing rates by 5% for durable medical equipment, optical services, home health supplies, home infusion therapy, ambulatory surgical services and high risk intervention services; modifying the asset policies for receiving Medicaid and transferring funds from the Medicaid Reserve Fund. The 2002 General Assembly also increased General Fund appropriations by $81.7 for SFY 2002-03 to cover an increase in the Medicaid forecast. The 2002 General Assembly also enacted other Medicaid policy changes: · Required nursing homes to place Medicare recipients into Medicare certified nursing me beds. · Required Medicaid providers to purchase a $100,000 performance bond or other financial instrument in order to receive payment from the Medicaid program. · Required parental income to be counted in determining eligibility for a pregnant minor if the minor is residing in the home. · Required DMA to apply federal transfer of assets policies to real property excluded as tenancy- in-common, or as nonhomesite property made income producing under Title XIX, Section 1902(r)(2) of the Social Security Act. · Applied transfer of asset policies to noninstitutionalized individuals or spouse of such individual as defined in Title XIX, Section 1917(c) as described in an approved Title XIX State Plan. · Included personal care services under the definition of "medical assistance" in G.S. 108A-70.5(b) - the Medicaid Estate Recovery statutes. · Required DMA to employ procedures to mitigate hardship to Medicaid enrollees when implementing the Supplemental Security Income (SSI) method for considering equity value of income producing property. CHANGES TO THE MEDICAID PROGRAM Page D - 5 · Required DHHS to support the maximum number of persons through the CAP programs within existing funding for these programs. Allowed a person who entered a nursing facility on or before June 1, 2002 to receive CAP-DA services even if the availability of CAP-DA services has been suspended. · Authorized DHHS to adopt temporary rules to clarify recipient rights related to the pharmacy management plan. · Prohibited DHHS from requiring supplemental rebates from pharmaceutical manufacturers. FEDERAL No significant federal changes have occurred in 2002. DISPROPORTIONATE SHARE FUNDS Disproportionate Share (DSH) Funds are Medicaid payments made to health care providers who deliver services to large numbers of uninsured patients. DSH payments to health care providers are made in addition to reimbursements for services provided to Medicaid eligible patients. Congress originally authorized the payments as a funding mechanism to offset the cost of uncompensated care for health care providers, particularly hospitals, in an effort to improve access to health care for the uninsured. Prior to the enactment of The Balanced Budget Act of 1997, federal law permitted states to draw federal funds up to a maximum allotment established by the federal Health Care Financing Agency (HCFA). The law allowed states to match federal funds for DSH payments with direct appropriations or with funds appropriated to a governmental unit for the delivery of health care to the uninsured. States were required to obtain approval of their State Medicaid Plan for drawing DSH payments from HCFA. Under the amended federal law (effective October 1997), DSH allocations are set forth in law on a state-by-state basis. The law provides for gradual reductions in DSH allocations to states beginning 1999 through the year 2002. North Carolina uses state appropriations to the five state hospitals (UNC Memorial, Dorothea Dix, Broughton, Cherry and John Umstead) as the non-federal match with which the State draws disproportionate share payments. The 2001-03 biennial state budgets anticipate $107 million each fiscal year in DSH payments to the State Treasurer. Section 21.23 of Chapter 424 of the 2001 Session Laws stipulates that appropriations to the Medicaid program that become available due to federal Disproportionate Share receipts will be deposited as nontax revenues. The State Treasurer will reserve any DSH payments in excess of $107 million for future appropriation. SUMMARY: GENERAL FUND APPROPRIATIONS 2002-2003 FISCAL YEAR 2002-03 2002-03 Authorized Recurring Nonrecurring Net Position Revised Appropriation Adjustments Adjustments Changes Changes Appropriation Education: Community Colleges 643,195,459 28,195,165 (2,109,234) 26,085,931 -11.50 669,281,390 Public Education 5,922,188,546 (11,409,327) (16,225,726) (27,635,053) 471.30 5,894,553,493 University System 1,798,320,830 (12,807,721) (17,416,000) (30,223,721) 0.00 1,768,097,109 Total Education 8,363,704,835 3,978,117 (35,750,960) (31,772,843) 459.80 8,331,931,992 General Government: Administration 61,563,497 (5,620,309) 0 (5,620,309) -77.80 55,943,188 Auditor 11,864,673 (795,965) 0 (795,965) -5.00 11,068,708 Cultural Resources 59,427,419 (4,794,666) 1,184,453 (3,610,213) -35.45 55,817,206 Cultural Resources - Roanoke Island 1,859,463 (151,222) 0 (151,222) 0.00 1,708,241 General Assembly 39,553,848 (2,654,234) 0 (2,654,234) -10.00 36,899,614 Governor 5,442,905 (504,595) 0 (504,595) -8.00 4,938,310 Insurance 23,527,552 0 0 0 -4.56 23,527,552 Insurance - Worker's Compensation Fund 4,500,000 0 (2,500,000) (2,500,000) 0.00 2,000,000 Lieutenant Governor 669,545 (53,280) 0 (53,280) -1.00 616,265 Office of Administrative Hearings 2,795,155 (233,742) 0 (233,742) -3.00 2,561,413 Revenue 77,955,704 (2,384,400) 0 (2,384,400) -21.00 75,571,304 Rules Review Commission 325,795 (9,981) 0 (9,981) 0.00 315,814 Secretary of State 8,286,850 (194,156) 15,990 (178,166) -6.00 8,108,684 State Board of Elections 3,186,269 (40,378) 250,000 209,622 0.00 3,395,891 State Budget and Management 5,354,938 (300,057) 0 (300,057) -4.00 5,054,881 State Budget and Management -- Special 3,080,000 0 100,000 100,000 0.00 3,180,000 State Controller 11,523,868 (1,101,040) 0 (1,101,040) -5.00 10,422,828 Treasurer - Operations 7,216,817 671,618 0 671,618 -2.00 7,888,435 Treasurer - Retirement / Benefits 12,379,780 (5,248,601) 0 (5,248,601) 0.00 7,131,179 Total General Government 340,514,078 (23,415,008) (949,557) (24,364,565) -182.81 316,149,513 General Fund Appropriations Fiscal Year 2002-03 2002 Session (Reflects all legislation affecting General Fund availability enacted by the General Assembly during the 2002 Session, including SB 1115, HB 1105, and SB 1455) Page E - 1 2002-03 2002-03 Authorized Recurring Nonrecurring Net Position Revised Appropriation Adjustments Adjustments Changes Changes Appropriation Health and Human Services: Office of the Secretary 48,008,705 19,776,228 0 19,776,228 -24.00 67,784,933 Aging Division 29,531,910 (926,000) 0 (926,000) 0.00 28,605,910 Blind and Deaf / Hard of Hearing Services 10,168,115 (643,013) 0 (643,013) -1.00 9,525,102 Child Development 289,058,396 (22,228,035) 15,000,000 (7,228,035) -6.00 281,830,361 Education Services 69,581,525 (4,104,503) 0 (4,104,503) -77.50 65,477,022 Facility Services 15,442,236 (748,170) 0 (748,170) -5.00 14,694,066 Medical Assistance 2,219,446,892 14,114,441 (43,747,538) (29,633,097) -2.00 2,189,813,795 MH/DD/SAS 581,068,627 (9,487,015) 1,780,000 (7,707,015) -95.75 573,361,612 NC Health Choice 37,487,142 (168,964) 7,740,000 7,571,036 0.00 45,058,178 Public Health 107,434,083 (10,045,770) 3,450,000 (6,595,770) -12.45 100,838,313 Social Services 194,763,531 (12,833,025) (1,350,000) (14,183,025) -44.00 180,580,506 Vocational Rehabilitation 42,088,956 (3,230,105) 0 (3,230,105) -26.00 38,858,851 Total Health and Human Services 3,644,080,118 (30,523,931) (17,127,538) (47,651,469) -293.70 3,596,428,649 Justice and Public Safety: Correction 930,964,916 (22,603,242) (28,306,866) (50,910,108) -366.40 880,054,808 Crime Control & Public Safety 28,493,506 (713,318) 0 (713,318) -16.00 27,780,188 Judicial Department 305,465,135 (10,128,667) (700,299) (10,828,966) -55.00 294,636,169 Judicial - Indigent Defense 68,867,771 3,469,130 4,950,000 8,419,130 61.00 77,286,901 Justice 73,785,584 (1,456,276) (1,391,115) (2,847,391) -19.00 70,938,193 Juvenile Justice & Delinquency Prevention 142,554,017 (13,357,423) (211,961) (13,569,384) -190.50 128,984,633 Total Justice and Public Safety 1,550,130,929 (44,789,796) (25,660,241) (70,450,037) -585.90 1,479,680,892 Natural And Economic Resources: Agriculture and Consumer Services 55,268,040 (4,677,739) (144,719) (4,822,458) -67.50 50,445,582 Commerce 44,280,374 (10,150,110) (200,000) (10,350,110) -19.91 33,930,264 Commerce - State Aid 5,200,000 5,085,000 0 5,085,000 0.00 10,285,000 Environment and Natural Resources 158,722,700 (9,994,113) 90,000 (9,904,113) -114.84 148,818,587 DENR - Clean Water Mgmt. Trust Fund 70,000,000 0 (3,500,000) (3,500,000) 0.00 66,500,000 Labor 15,117,906 (951,725) 0 (951,725) -9.38 14,166,181 NC Housing Finance Agency 5,300,000 (540,600) 0 (540,600) 0.00 4,759,400 NC Biotechnology Center 6,270,468 (377,047) (250,000) (627,047) 0.00 5,643,421 Rural Economic Development Center 5,090,749 (423,851) 0 (423,851) 0.00 4,666,898 Total Natural and Economic Resources 365,250,237 (22,030,185) (4,004,719) (26,034,904) -211.63 339,215,333 Transportation 13,393,341 (1,143,341) (1,347,500) (2,490,841) 0.00 10,902,500 Page E - 2 2002-03 2002-03 Authorized Recurring Nonrecurring Net Position Revised Appropriation Adjustments Adjustments Changes Changes Appropriation Statewide Reserves and Debt Service: Debt Service: Interest / Redemption 352,266,860 (36,750,000) (61,000,000) (97,750,000) 254,516,860 Federal Reimbursement 1,155,948 0 0 0 1,155,948 Subtotal Debt Service 353,422,808 (36,750,000) (61,000,000) (97,750,000) 0.00 255,672,808 Statewide Reserves: Teachers/Principals Step Increase 51,937,267 0 51,937,267 51,937,267 Asst/Deputy Clerks/Magistrates Step Increase 1,980,700 0 1,980,700 1,980,700 Compensation Increases 193,842,000 (4,247,868) 0 (4,247,868) 189,594,132 State Health Plan 200,000,000 (12,621,872) 0 (12,621,872) 187,378,128 Retirement Rate Adjustment (241,002,720) (144,525,000) 0 (144,525,000) (385,527,720) Judicial Retirement Rate Adjustment (2,265,000) 0 (2,265,000) Employee Severance Compensation 0 0 5,000,000 5,000,000 5,000,000 Contingency and Emergency 5,000,000 0 0 0 5,000,000 Salary Adjustment Fund 500,000 0 0 0 500,000 Governor's Efficiency Commission (25,000,000) 0 (25,000,000) (25,000,000) Management Flexiblity (41,500,000) 0 (41,500,000) (41,500,000) ITS Rate Reduction (4,000,000) (3,414,318) 0 (3,414,318) (7,414,318) MH/DD/SAS Trust Fund 0 0 8,000,000 8,000,000 8,000,000 Easterling TF for Children with Special Needs 0 0 1,000,000 1,000,000 1,000,000 HIPAA Implementation 0 0 2,000,000 2,000,000 2,000,000 Subtotal Statewide Reserves 152,074,280 (177,391,091) 16,000,000 (161,391,091) 0 (9,316,811) Total Reserves and Debt Service 505,497,088 (214,141,091) (45,000,000) (259,141,091) 0.00 246,355,997 Total General Fund for Operations 14,782,570,626 (332,065,235) (129,840,515) (461,905,750) -814.24 14,320,664,876 Other General Fund Expenditures: Capital Improvements 0 0 31,158,000 31,158,000 31,158,000 Repairs and Renovations 0 0 0 Total Other General Fund Expenditures 0 0 31,158,000 31,158,000 0.00 31,158,000 Total General Fund Budget 14,782,570,626 (332,065,235) (98,682,515) (430,747,750) -814.24 14,351,822,876 Page E - 3 EDUCATION Community Colleges Total Budget Approved 2001 Session FY 02-03 Budget Changes $643,195,459 GENERAL FUND Overview: 2002 Session Fiscal and Budgetary Actions A. Community College System Office ($882,117) -11.50 1 R Reduces the Executive Divi sion by 2.5 positions totaling $109,356 and operati ng l i n e i t ems totaling $30,650. Reduces the Administration Di vision by 5 positions t otaling $180,522 and operating line items totaling $262,096. Reduces the Business and Finance Divi sion by 1 position totaling $29,026 and operating line items t otaling $43,697. Reduces the Academic and Student Services Division by 2 positions totaling $98,862 and operating line items totaling $67,034. Reduces the Workforce Development Division by 1 position totaling $32, 110 and operating l i ne items totaling $28,694. Operating Efficiencies B. State Aid - Categorical Programs 2 ($27,000) R El i mi nates the appropriation for Systemwide Projects. This f unding was used to pay for the printing of G.S. 115D. Si nce the Statutes are now avail able on-line, the printing i s no l onger necessary. Systemwide Projects 3 ($14,991) R Reduces the appropri ation for the public radio station at Isothermal Communi t y College by 10% from $149,912 to $134,921. Isothermal Communi t y College is the only college receiving a public radio subsidy that offers a degree program in Broadcasting and Producti on Technology. Public Radio Isothermal ($149,912) $100,000 4 R Reduces the State subsi dy for Craven Community College's NR public radio station from $149,912 t o $100,000. Public Radio Craven $100,000 5 Provides funds for Gaston Col l ege's public radio station. NR Public Radio Gaston 6 ($230,397) R Reduces the State subsi dy for the sawmi l l program at Haywood Communi t y College by 50%. Reduces the remai ning special allotment programs by 10%. Special Allotments 7 ($507,067) R Reduces the appropri ation for professional development programs by 50%, f r om $1,014,135 to $507,068. Faculty Upgrade Community Colleges Page F - 1 Overview: 2002 Session Fiscal and Budgetary Actions FY 02-03 8 ($1,000,000) R Reduces the state appropri ation for equipment by $2 mi l l i on, from $16,319,732 to $14,319,732. Equipment Reduction 9 $1,212,300 R Cont i nues the funding for the operation of the NC I nformation Hi ghway at 45 col l eges. NC Information Highway Line Charges E. Formula Modifications 10 ($3,000,000) R Transfers funds previously appropriated in the Curriculum f ormula for the Academi c Support Supplement to a separate l i ne item i n State aid fund code 1600. Reduces the amount appropriated for the Academic Support Supplement by $3,000,000, from $11,886,683 to $8,886,683. Academic Support Supplement F. Tuition, Enrollment, and Financial Aid ($3,299,824) ($2,309,234) 11 R I ncreases the budgeted amount of tuition and registration NR f ees to more accurately reflect anticipated receipts. Adjustment for Over-Realized Receipts 12 ($10,754,640) R I ncreases the in-state tuition charge per semester hour by $3.25 from $31.00 to $34.25. Increases the out-of-state t ui t i on charge per semester hour by $17.50 from $173.25 t o $190.75. Changes the semester credit hour limi t f o r summer term curriculum tuition from 9 hours to 16 hours. It is anticipated that for most students, this increase wi l l be off-set by federal and State financial assistance programs. Increase Curriculum Tuition Charge 13 $51,848,813 R Fully funds the Community Col l ege enrol l ment request. Enrollment Adjustment 14 I ncreases the Need-Based Financi al Ai d fund from $6,062,806 to $7,062,806. This item is funded from the Escheats fund. Increase Need-Based Financial Aid G. Management Flexibility 15 ($5,000,000) R Gives the State Board of Communi t y Col l eges t he f l e x i b i l i t y t o i mplement a $5,000,000 reduction within the Community Col l ege System budget. State Board of Community Colleges Discretionary Reduction Community Colleges Page F - 2 Overview: 2002 Session Fiscal and Budgetary Actions FY 02-03 $28,195,165 ($2,109,234) -11.50 Budget Changes Total Position Changes Revised Total Budget $669,281,390 R NR Community Colleges Page F - 3 Special Provisions SB 1115 Department: Community Colleges Boilerplate language allowing community colleges to establish their budgets according to their local missions. Limits the transfer of funds from faculty salaries to 2% systemwide. Section: 8.1 Title: Community College Funding Flexibility Summary: Directs the State Board to consider regionalization of existing and new programs. Requires the State Board to report on all programs approved or terminated during the year, the reason for the program approval, and the progress made regarding regionalization. Section: 8.2 Title: Regional Programs Summary: Directs the State Board to work with the Department of Commerce and the Board of Governors of the University System and the seven regional economic development commissions to adopt a joint policy that requires the development of a five-year plan for each of the economic development regions in the State. Each plan shall determine the economic development goals and the future job market in the region and shall identify community college and university courses currently offered or needed to effectuate those goals. Section: 8.3 Title: Regional Economic Development Vision Plans Summary: Moves funding for the Regional High Tech Center at Haywood Community College (robotics) from the special allotments line item to a new line item entitled "Haywood Regional High Technology Center." Directs the State Board to study the Center to determine whether similar centers should be created in other regions of the State. Section: 8.4 Title: Haywood Regional High Technology Center Summary: Moves the Academic Support Supplement from the curriculum instructional formula to a separate line item. Directs the State Board to report any recommendations regarding formula modifications to the General Assembly. Directs the State Board to allocate up to $200,000 from overrealized receipts for the Botanical Laboratory at Fayetteville Technical Community College. Section: 8.5 Title: Realignment of Funding Summary: Allows the State Board to adopt temporary rules clarifying the conditions under which community colleges may earn budgeted FTE for training provided to law enforcement, fire and rescue services, and emergency medical service personnel. Allows the State Board to adopt temporary rules clarifying the definition of fees charged to students. Section: 8.6 Temporary Rules on FTE for Training Provided to Law Enforcement Personnel and on Generic Fees Title: Summary: Community Colleges Page F - 4 Directs Education Oversight, in conjunction with the State Board, to hire an outside consultant to study the organization and structure of the Community College System, the administrative formula, and the funding of multicampus colleges and off-campus centers. Also, allows Education Oversight to hire an outside consultant to study Community College System funding, including State funds, county funds, and tuition rates. Section: 8.7 Title: Community College System Study Summary: Allows the State Board to transfer funds within the System Office budget to implement budget reductions. Section: 8.8 Title: Flexibility to Implement Budget Reductions Summary: Transfer a receipt supported position from the Community College System Office to the Department of Public Instruction. This position was transferred to the System Office when the Bureau of Training Initiatives was moved from the Department of Labor in FY01-02. The position mainly works with the High School Apprenticeship program. (Note: Section 71 of SB 1217, 2002 Technical Corrections, SL 2002-159, adds this provision to SB 1115, S.L. 2002-126.) Section: 8.9 Title: Transfer of Community College Position Summary: Allows the Hosiery Center to keep fees collected by the Center for product testing; exempts purchases using those fees from State purchasing requirements. (Originally H.B. 1626) Section: 8.10 Title: Hosiery Center Funds Summary: Allows the State Board to use up to $1 million for a non-recurring grant to the North Carolina Community College Foundation to match a donation from Glaxo Smith Kline. (Originally S.B. 1467, H.B. 1681) Section: 8.13 Title: Scholarships for Prospective Teachers Summary: Directs the State Board to report to Fiscal Research on all reductions made in order to meet the management flexibility reduction. Section: 8.14 Title: State Board of Community College Management Flexibility Summary: Community Colleges Page F - 5 Public Education Total Budget Approved 2001 Session FY 02-03 Budget Changes $5,922,188,546 GENERAL FUND Overview: 2002 Session Fiscal and Budgetary Actions A. Adjustments to Budget Requirements $29,857,304 461.90 16 R Revi se the projected increase for FY 2002-03 to reflect an additional 8,695 in average daily membership (total i ncrease over FY 2001-02 i s 25,817). The dol l ar amount reflects the Continuation Budget impact of this increase on all position, dollar, and categorical allotments. Total funded student population for FY 2002-03: 1,326,865. The i ncrease for ADM growth for Driver Education is $236,139 which is transferred to the General Fund from the Hi ghway Fund. Total ADM i ncrease for the General Fund and Highway Fund i s $30, 093,413. Continuation Adjustment for Average Daily Membership 17 ($22,788,638) R Annual adj ustment of average budgeted salary for certified personnel. Adjustment is based on actual sal aries paid to certified personnel through December 2001. Average Annual Salary Adjustment 18 ($5,964,427) R I n addition to the annual Continuation Budget adjustment t o average budgeted sal ary for certified personnel, a more recent review of certified personnel salaries from updated salary data identified an additional reduction in projected salary needs for FY 2001-03. Additional Adjustments to Average Salary Projections ($5,361,201) 19 Adjustment based on the estimated actual utilization of NR posi t i o n a l l o t ments. Adjustment for Unutilized Position Allotments 20 ($2,273,979) R Adjust the increase for inflation to a 3% growth (in line with the Consumer Price Index) from the 5% growth used to build the Continuation Budget. The Instructional Supply a l l o t ment for FY 2002-03 will be $41.45 per ADM af t e r t h i s adjustment . Also see Speci al Provision related to instructional material/instructional supplies/equipment (SB 1115, Sect i on 7. 9). Classroom Materials/Instructional Supplies/Equipment Public Education Page F - 6 Overview: 2002 Session Fiscal and Budgetary Actions FY 02-03 21 ($5,800,000) R Current inventory levels (oil, tires, and parts) at local school administrative units indicate that additional supply needs for next year wi l l be mi ni mized. Last year's non-recurring adjustment of $4 mi l l i on will become a recurring reduction. Also, reduce for lower anticipated f uel cost $1.8 mi l l i on. Transportation ($19,600,000) 22 I mpl ement a lease/purchase process that will allow for the NR payment of school buses over a 3-year peri od. See related Special Provision (SB 1115, Section 7.14). School Bus Purchases ($44,549,776) 23 For the 2002-03 fiscal year, do not transfer corporate tax NR f unds t o t he Publ i c School Building Capital Fund or the Critical School Facility Needs Fund. Instead, transfer the f unds as a receipt to the Public School Fund to t emporarily offset the costs for public school operations. For FY 2002-03, General Fund appropriations will be reduced by the amount that was scheduled to be transferred t o t he capital accounts. Based on 1987 legisl ation (HB 1514, Sec. 178), the Office of State Budget Management shall continue to transfer f unding to support six staff members in the School Pl anning Division of the Department of Public Instruction ($450,224). See rel ated Speci al Provision (SB 1115, Section 7.16). Redirect Capital Funds to Support Public Schools through the General Fund 24 ($1,000,000) R State Board of Education Policy allows Local School Admi nistrative Units to convert teaching positions to dollars to cover the contract cost for Visiting I nternational Faculty. The conversion to dollars shall be based on an al l otted average teacher salary of $45,016 ( wi t h benefits) reduced by 2.963%. Thi s wi l l adjust the conversion amount to $43,682. The reduction included is based on FY 2001-02 program enrollment of approximately 750 teachers. Funding for Visiting International Faculty 25 ($4,768,604) R Adjust Continuation Budget to reflect actual April 1, 2002, headcount. The Continuati on Budget was constructed based on an estimated population of chi l dren with special needs. See rel ated Special Provision (SB 1115, Section 7.4). Revise Headcount for Children with Special Needs Public Education Page F - 7 Overview: 2002 Session Fiscal and Budgetary Actions FY 02-03 B. Reduction of Administration Cost ($3,338,893) -50.00 26 R Freeze local school admini stration units (LEAs) allotments at the FY 2001-02 al l ot ment l evel($1,574,452 reduction to t he Continuati on Budget) and reduce each LEA by 1.75% ($1,764,441) from their FY 2001-02 funding level. The new a l l o t ment formula devel oped by t he State Board of Educati on is not to be implement ed i n FY 2002-03. Also see Speci al Provision to study central office duties ( SB 1115, Sect i on 7. 19). Central Office Administration ($4,627,564) -87.10 27 R Decrease the allotment for Assistant Principals by changing the allotment formul a t o one t en-month position f or every 761.44 students in average daily membership ( ADM). The FY 2001-02 all otment was one t en-month position per 725.18 ADM. A reduction of 87.1 10-month positions. School Building Administration 28 ($3,017,317) R El i mi nate State funding distributed to local school admi nistrative units that could be used to support the Regi onal Education Service Alliances. See related Special Provision (SB 1115, Section 7.12). Regional Education Service Alliances ($5,000,000) 29 Based on t he current NC WI SE i mplementation schedule, the NR Department of Public Instruction has indicated that a one-t i me reduction in funding is possible. Also see Speci al Provision that authorizes the leasing or purchasing of equipment from these funds (SB 1115, Section 7.6). Uniform Education and Reporting System (UERS) ($2,750,000) -36.00 30 R The Depart ment of Public Instruction wi l l el i minate 36 positions. Of the 36 elimi nated positions, 9.6 are paid from recei pts and 26.4 are paid from State funds. Three (3) of the State positions were vacant. Total State savings from Positions: $1,460,280 Total Other Departmental Reductions: $1,289,720 Reducti ons to receipt-supported positions are not included i n meet i ng the $2,750,000 reduction target but are i ncl uded i n the position reduction count. See rel ated Speci al Provision (SB 1115, Section 7.13). Department of Public Instruction Public Education Page F - 8 Overview: 2002 Session Fiscal and Budgetary Actions FY 02-03 C. Continuation Budget Reductions ($10,000,000) -412.00 31 R Reduce al l otment approximately 3.3%. Funding is used to empl oy custodi ans, school clerical support and substitute t eacher pay. The reduction will not impact the amount of f unding available for substitute teachers. The estimated i mpact is the equivalent of 240 custodian positions and 172 clerical positions. Non-Instructional Support Personnel 32 ($3,134,984) R Restrict funding to mentor teachers assigned to State-paid first and second year teachers and first-year i nstructional support. See related Special Provision (SB 1115, Section 7.10). Mentor Pay 33 ($3,750,000) R Teachers are allowed to have excess annual leave over 30 days ei t her converted to sick leave or paid at the end of t he year. The amount of l eave t hat can be paid is limited t o t he excess days that can be attri but ed to required work days which made i t i mpossi ble for the teacher to take the l eave duri ng t he school year. The payment option was established since the amount of sick-leave allowed to be converted to empl oyment credit at retirement was restricted to the amount earned over the empl oyees term of empl oyment. Last year the sick leave conversion maximum was el i minated. By elimi nating this maxi mum, teachers can now convert all sick leave earned towards retirement credit; therefore, this special payment option is no l onger needed. See rel ated Special Provision (SB 1115, Sect i on 7. 11). Payments for Teacher Unused Vacation Days (Forfeited Vacation) 34 ($208,230) R Reduce funding to Publi c School Forum, Ci t i es/Communities i n Schools, NC Network, Teacher Cadet, and Schools Attuned by 10%. Appropriations to Non-Public School Agencies 35 $100,000 R Appropriate funds to ExplorNet non-profit for assistance t o public schools ExplorNet 36 $50,000 R Appropriate funds to TQE (a non-profit program) for assi stance to public schools. Total Quality Education (TQE) Public Education Page F - 9 Overview: 2002 Session Fiscal and Budgetary Actions FY 02-03 E. Management Flexibility ($42,613,922) 37 The State Board of Educati on shall distribute this local NR educati on agency discretionary reduction in an equitable manner and require allotment reductions in this amount within 30 days of budget passage. Local School Admi nistrative Units have flexibility to adjust their budgets to implement this reduction; t herefore, it is not possible to identify the number of posi t i o n s i mpacted. See rel ated Speci al Provision (SB 1115, Section 7.26). Local Education Agency Discretionary Reduction F. Other Budget Adjustments $101,000,000 38 Provide funding for ABC bonuses for school s meet i ng or NR exceedi ng expected growth in 2001-02. See related Special Provision (SB 1115, Section 7.7). ABC Bonuses $26,806,005 594.50 39 R Reduce the teacher to student al l otment r a t i o f o r f i r s t grade to 1:18 (down from 1:20). See related Special Provision (SB 1115, Section 7.25). Reduction in Class Size 40 $1,200,000 R Cont i nue State fundi ng for payment of Information Highway connectivity for sites previously funded. Information Highway Line Charges 41 $3,000,000 R I ncrease fundi ng for school districts in counties with l ess ability to generate local resources for public schools Low Wealth Supplemental Funding 42 $1,000,000 R I ncrease fundi ng to county school systems eligible for small county supplement al funding. See related Special Provision (SB 1115, Section 7.43). Small County Supplemental Funding ($100,827) 43 A one t i me adj ust ment i n f unding. NR Staff Development ($11,409,327) ($16,225,726) 471.30 Budget Changes Total Position Changes Revised Total Budget $5,894,553,493 R NR Public Education Page F - 10 Special Provisions SB 1115 Department: Public Education Outlines teacher salary schedules for fiscal year 2002-03. The schedule is the same schedule as authorized in FY 2001-02, however, teachers will receive a salary increase by moving up the schedule for another year of experience. The average teacher salary increase is 1.84% (ranging from 0% for teachers with 29+ years of experience to 5.85% for teachers with 3 years of experience). Teachers with 29+ years of experience will receive an additional 2 weeks of paid annual leave (see Section 28.3A and Section 82 of SB 1217 [technical corrections bill]). Section: 7.1 Title: Teacher Salary Schedules Summary: Outlines principal and assistant principal salary schedules for fiscal year 2002-03. The schedule is the same schedule as authorized in FY 2001-02, however, principals and assistant principals will receive a salary increase by moving up the schedule for another year of experience (principals also receive an additional step increase for every 3 years employed as a principal). The average salary increase is 2%. Section: 7.2 Title: School-Based Administrator Salary Schedule Summary: Authorizes the State Board to transfer $500,000 from the State Public School Fund to pay expenses related to pending litigation. Section: 7.3 Title: Litigation Reserve Funds Summary: Specifies the number of students funded (161,845) and the supplemental appropriation per funded student ($2,686.50), which will be adjusted for legislated salary/benefit changes. Section: 7.4 Title: Children With Disabilities Summary: Specifies that 4% of a local education agency's average daily membership (ADM) shall receive supplemental funding for services to academically and intellectual gifted students. Statewide funding is based on 53,075 students at a funding level of $888 per funded student. The funding factor will be adjusted for legislated salary/benefit changes. Section: 7.5 Title: Funds for Academically Gifted Children Summary: Allows for the use of up to $1 million from the funds appropriated for the new student information system to be used for the purchase or lease of equipment by the Department of Public Instruction for implementation of the NC WISE system. Section: 7.6 Title: Funds for the Testing and Implementation of the New Student Information System Summary: Public Education Page F - 11 Authorizes the State Board of Education to utilize funds appropriated for FY 2002-03 ($101 million) to assure that incentive awards earned in FY 2001-02 are paid. Bonus payments remain at the same level as previous years: - Up to $1,500 for certified school employees and $500 for teacher assistants in schools that exceeded ABCs expectations. - Up to $750 for certified school employees and $375 for teacher assistants in schools that met ABCs expectations. - Funding is included for the five school systems piloting a modified ABCs program that disaggregates student performance within designated demographic groups. This funding is in addition to the awards outlined above ($750 for certified personnel and $325 for teacher assistants if the goals are met). The five school districts are Bladen, Craven, Forsyth, Mecklenburg, and Pasquotank. Section: 7.7 Title: Funds to Implement the ABCs of Public Education Summary: Authorizes the State Board to transfer up to $1 million of funds appropriated to revise the reading and writing assessments. Section: 7.8 Title: Revision of Reading and Writing Assessments Summary: Eliminates the requirement to allow teachers access to $100 for the purchase of classroom supplies (established in the FY 2001-02 budget). Requires that the Joint Legislative Education Oversight Committee study the viability of the State utilizing an on-line school supply vendor to allow teachers to directly purchase supplies for the classroom. Section: 7.9 Title: Funds for Instructional Supplies Summary: Authorizes the use of State mentor funding for State-paid teachers and instructional support personnel only. Mentors will be paid $100 per month to work with newly certified State-paid teachers in their first two years of employment as teachers or for entry-level instructional support personnel who have not previously been teachers. Section: 7.10 Title: Funds for Mentor Pay Summary: Eliminates the ability for teachers to be paid for excess annual leave days (over 30 days at the end of the year when the teacher was not able to take the time due to required teacher work days). Since the General Assembly removed the limit on the amount of sick leave that can be converted toward retirement (in last year's budget), the special payment provision was no longer required. Excess annual leave will be converted to sick leave at the end of the fiscal year. Section: 7.11 Title: Conversion of Accumulated Leave Time Summary: Public Education Page F - 12 The budget eliminated funding for Regional Education and Technical Assistance Centers. Unused funds as of June 30, 2002 were allowed to carryover into FY 2002-03. This provision moves the carryover to staff development. Section: 7.12 Title: RESA Funds Shall Be Used for Staff Development Summary: Allows the Department of Public Instruction to shift and reclassify positions as necessary to implement the reduction in force required by the budget (36 positions were eliminated). Requires the Office of State Budget and Management to obtain bids for an outside review of the Department of Public Instruction's structure and operation. Authorizes the State Board of Education to reorganize, create an additional Associate Superintendent position, and move funding among fund codes. Section: 7.13 Title: Base Budget Reduction to Department of Public Instruction/Reorganization of the Department Summary: Authorizes the lease purchase of school buses. Buses can be purchased over a 3-year period. Waives the vendor payment of the electronic procurement transaction fee (1.75%) when purchasing school or school activity buses. Section: 7.14 Title: Replacement School Buses Funds Summary: Changes the State Board requirement to revise academic content standards for each core academic area from 5-year intervals to 'on a regular basis' (gives the State Board the discretion to establish when to revise academic content). Section: 7.15 Title: Curriculum Review Required on a Regular Basis Summary: Redirects, for one year only, the funding earmarked for the Critical School Facility Needs Fund and the Public School Building Capital Fund to the State Public School Fund to support ongoing school operations. The provision continues to allow some of the funding to be used by the Department of Public Instruction to support six positions in the School Planning Division. Section: 7.16 Title: Corporate Tax Transfer Moratorium Summary: Public Education Page F - 13 This provision extends several studies outlined in last year's budget bill since the Joint Legislative Education Oversight Committee was only able to meet a few times between sessions. Studies included are: - Compliance report on nonsupplant requirement related to low wealth and small county supplemental funding. - Study of the Textbook Distribution System. An outside contractor will review if the textbook warehouse is the most efficient way to distribute textbooks to public schools along with studying the effectiveness of the textbook distribution process. - Study the Salaries of School Fund Service Workers and Custodians. - Study the Salary Differentials for Instructional Support Personnel. The study examines how salaries are tied to degrees and credentialing. - Fairness in Testing. The study requires a complete review of the State's testing program. - Study of Professional Development for School Personnel. The provision also deletes the study for Noncitizen Tuition Rates (included in last year's Study Bill).. Section: 7.17 Title: Study Modifications Summary: Suspends for 2-years the requirement for teachers to complete a portfolio as a part of Performance Based Licensure. Interim requirements will be established by the State Board and presented to the Joint Legislative Education Oversight Committee for review. Requires the State Board to contract with an outside consultant to review and recommend changes to the initial certification, continuing certification, and the recertification programs. Results of the study/review shall be presented to the Joint Legislative Education Oversight Committee by January 1, 2004. Section: 7.18 Title: Performance-Based Licensure Program/Suspension of Portfolio Requirement and Study Summary: Requires the State Board to determine how duties can be coordinated among school systems that could lead to savings in the Central Office Administration funding formula. Section: 7.19 Title: Study of Coordination of Central Office Duties Summary: Authorizes the State Board of Education to move resources around to assure that school systems receive funding based on actual student enrollment (when actual average daily membership (ADM) exceeds projected ADM by 100 students or 2%). Authorizes the State Board of Education to reduce selected allotment categories when actual first-month ADM is 100 or 2% less than projected. The reduction to the selected allotment categories will be based on one-half of the excess ADM. Section: 7.20 Title: Discrepancies Between Anticipated and Actual ADM Summary: Public Education Page F - 14 Requires the State Board of Education to stop developing the High School Exit Exam until the State Board studies the high school equivalent exam requirements outlined in the federal No Child Left Behind Act of 2001. Section: 7.21 Title: High School Exit Examination Summary: Clarifies that the $1,800 bonus for math, science, and special education teachers in designated schools is only for teachers assigned to classes in grades 6 through 12. Designated schools are middle and high schools with 80% or more of the students eligible for free and reduced lunch or 50% or more of the students are performing below grade level in Algebra I and Biology. Section: 7.22 Title: Clarification to Provision on Addressing Teacher Shortage Summary: Extends the sunset date on this lateral entry option: When a LEA determines there is or anticipates there will be a shortage of qualified teachers for particular subjects or grade levels, the local board can employ an individual for up to one year under a provisional certificate so long as: ·The individual has at least a bachelors degree ·The individual has an out-of-state teaching certificate with one-year of teaching experience relevant to the subject or grade to be taught, or at least one year of relevant classroom teaching experience in an institute of higher learning, or three years of other experience that the local board believes is related to the subject the individual will teach (and the individual’s education must also be determined by the local board as relevant). ·The individual is eligible for re-employment by his or her prior employer. ·The individual must take and pass the PRAXIS to become permanently certified. The teacher certified in another state does not have to take and pass Praxis if the LEA wants to rehire them. Section: 7.24 Title: Extend Alternative Lateral Entry Program Summary: The provision follows the money that reduced the teacher to student allotment ratio from one teacher for every 20 students in average daily membership (ADM) to one teacher for every 18 students in ADM. The additional positions can only be used to reduce class size in the first grade. The maximum average class size for all first grade classes within an LEA for FY 2002-03 will be 21 students. Individual classes cannot exceed 24 students. Section: 7.25 Title: Additional Teacher Positions for First Grade Summary: Public Education Page F - 15 Within 14 days of the date the Budget Bill becomes law, the State Board of Education will notify the local education agencies (LEAs) as to the amount of reductions each LEA must identify to the State allotments distributed to the LEA in the Initial Allotment. The Flexibility Reserve will be adjusted (reduced) if any LEA's first-month average daily membership (ADM) is more than 500 students less than originally projected. Once adjusted, the Flexibility Reserve will be distributed to all LEAs based on each LEA's ADM. LEAs have 30 days from the date the Budget Bill becomes law to identify which State allotments will be reduced to zero out the Flexibility Reserve. Section: 7.26 Title: Local Education Agency Flexibility Summary: Establishes a 27 member Alliance to help ensure that the effective use of technology is a part of North Carolina's school system. The Alliance advises the State Board of Education of how to prepare for a technologically literate citizen in 2025. The Alliance also will advise the State Board of Education on: - a technology infrastructure, delivery, and support system - staff development programs for teachers - on what kind of funding and accountability system is needed No State funding will be used to support the Alliance (federal and private funding will support the Alliance). Section: 7.27 Title: Business and Education Technology Alliance Summary: Allows the State Superintendent of Public Instruction to grant a waiver for the FY 2002-03 school year which will allow a school not to implement the requirements outlined for High Priority Schools if: - the Local Board requests the waiver; and - the Superintendent determines that the school is making efforts comparable to the High Priority School requirements and the educational progress of the students in the school is satisfactory. High Priority Schools are required to have class size allotments of one teacher per 15 students, the State does not fund teacher assistants for these schools (this does not eliminate the placement of teacher assistants at the school), extends the school year for students by 5 additional days, and extends the employment period for teachers by 5-days. High Priority Schools also receive an additional Instructional Support position to assist with community relationships. Section: 7.28 Title: High Priority School Waiver Summary: Requires the State Board to minimize the frequency of field testing at a specific school and to notify schools by October 1 of each year if they will have field tests at the school and what tests will be involved. TECHNICAL CORRECTION in SB 1217 (Section 70): Changed the October 1, 2002 date to January 1, 2003 for FY 2002-03. Section: 7.30 Title: Notification of Field Testing Summary: Public Education Page F - 16 This provision emphasizes that funding for Driver Education will be adjusted based on changes in 9th grade average daily membership (ADM) . The provision also requests the State Board of Education to consider the needs of low wealth and small counties when allocating funding for driver education. Section: 7.31 Title: Driver Education Funding Summary: Allows the State Board of Education to have discretion on which strategies to implement and which schools to target with supplemental funding to support schools classified as continually low performing. A continually low performing school is one that has been identified as low performing (via the ABCs) in 2 of the 3 consecutive years. Funding is provided to the State Board based on a teacher to student allotment in grades 4-5 in identified schools of one teacher per 17 students. Grades K-3 is based on one teacher per 15 students. Funding is also provided based on extending teacher contracts by 10 days (5 for staff development and 5 for extended instruction). Section: 7.32 Title: Intervention Strategies for Continually Low-Performing Schools Summary: Allows the Joint Legislative Education Oversight Committee to study how standardized test are used to evaluate students in vocational education classes. Section: 7.33 Title: Study Vocational Education Tests Summary: This provision was required to comply with reporting requirements related to the federal 'No Child Left Behind Act of 2001'. The federal act requires that a report be distributed to the parents that outlines specific information about the school and the personnel assigned to the school. This information requires that the certification status of the teacher be included which previously was not allowed by North Carolina statute. Section: 7.36 Title: Availability of Information on Employee Qualifications Summary: Requires that the State Board of Education review the duties of school counselors which includes the examination of the amount of time school counselors are spending coordinating the testing programs in the school. Section: 7.37 Title: Study of the Duties of School Counselors Summary: Requires that a retired teacher who is returning to the classroom (returning under Section 28.10 of this bill) must be evaluated as a career teacher even though the teacher's employment is classified as probationary. The probationary classification relates to the returning teacher not being eligible for career status (tenure) once they return (when they return via Section 28.10 of this bill). Section: 7.38 Title: Definition of Retired Teacher Modified Summary: Public Education Page F - 17 Allows a retired teacher returning to the classroom (returning under Section 28.10 of this bill) to not have to renew their teaching certification for 5 years (as long as the certification was up to date when the teacher retired). Section: 7.39 Title: Limit Certification Renewal for Retired Teachers Summary: Requires that all school nurses employed in North Carolina's public schools after July 1, 1998, must be nationally certified. A nationally certified nurse must meet either the American Nurses' Association (ANA) or the National Association of School Nurses (NASN) requirements. Both of these organizations require a baccalaureate degree for certification. Requires the Joint Legislative Education Oversight to review what is the appropriate level of certification/qualifications for nurses in public schools. Section: 7.41 Title: Certification of School Nurses Summary: This provision addresses the distribution of the additional $1 million appropriated for this category. The minimum instructional supplies/equipment allotment for each eligible county school system was increased $37,037. 27 county school systems with average daily membership less than 4,000 receive this funding. Section: 7.43 Title: Small School System Supplemental Funding Summary: To allow limited one-year assessment of K-2 students with a standardized reading test . This assessment is a condition of receipt of $20 million in federal Reading First Grants. The assessment will be limited to 5% of the students in eligible public and charter schools. (Note: Section 70.5 of Senate Bill 1217 eliminates the one-year and 5% limitations and adds clarification that the assessment is authorized only to the extent necessary to receive federal Reading First grant funds.) TECHNICAL CORRECTION in SB 1217 (Section 70.5): Authorizes a pilot study to validate current K-2 assessment by utilizing a standardized reading assessment. Allows the assessment to be administered in eligible public schools which includes charter schools (eligibility relates to a school qualifying for the federal Reading First Grant). Standardized assessment will not be allowed if the federal reading first grant is not awarded to North Carolina. Section: 7.44 Title: Sample Test to Validate K-2 Assessment Summary: Authorizes the salary increase outlined in 7.1 and 7.2 of this bill to be granted to teachers and principals in other State agency schools and in the North Carolina School for Science and Mathematics. Section: 7.45 Title: Reserve for Experience Step Increase for Teachers and Principals in Public Schools Summary: Public Education Page F - 18 Special Provisions SB 1217 Department: Public Education Rewrites G.S. 115C-302.1(j) to allow teachers to use up to 30 days of sick leave to care for a child placed with the teacher for adoption. Adds 115C-336.1 which outlines current school policy that allows any school employee to take annual leave or leave without pay to care for a new born child or for a child being placed with an employee for adoption or foster care. An employee can take up to 30 days of sick leave to care for a child placed with the employee for adoption. Section: 37.5 Title: Use of Sick Leave for Child Adoption Summary: Specifies that nothing in the General Statutes or any local act entitles any charter school to retroactively recover any funds for penalties, fines, forfeitures, or supplemental taxes. Section: 91.1 Title: Ability for Charter Schools to Receive Funding Retroactively Summary: Public Education Page F - 19 UNC System Total Budget Approved 2001 Session FY 02-03 Budget Changes $1,798,320,830 GENERAL FUND Overview: 2002 Session Fiscal and Budgetary Actions Campus Reductions ($2,666,533) 44 Reduce funding in reserves for operation of new facilities NR due to del ays in completion dates. Reserves for New Facilities 45 ($800,000) R Budget tui t i on collected from 25% surcharge f or taking more than 110% of required credit hours for degree. Tuition Surcharges 46 ($50,245,059) R Budget a reduction of 2.88% i n all campus and ot her related budget codes. Deci sions on where to take the reductions will be made at campus or operating level. This reduction does not appl y to the NC School of Sci ence and Mathematics. Campus Flexibility Reserve ($250,000) 47 Reduce thi s year' s appropriation to the Endowment for the NR Cent er for Alcohol Studies. Center for Alcohol Studies Related Educational Programs ($1,938,000) 48 Use fund balances in schol arship trust funds to reduce NR General Fund requirements for one year. Fund bal ances in Principal Fellows, Nursing Fellows, Nursing Need-based, and dormant funds in old Social Work Schol arship Funds are affected. Scholarships UNC General Administration 49 ($2,063,801) R Reduce UNC General Admi nistration and its programs. Board of Governors has authority to allocate reductions. No more t han fi ve percent (5%) shall be taken from any component program of the Center for School Leadershi p Devel opment. Budget Reduction 50 ($400,000) R Reduce funding for contracted services from MCNC. Services may be provided on a fee for service basis, or MCNC may provide services for less cost. MCNC Contract UNC System Page F - 20 Overview: 2002 Session Fiscal and Budgetary Actions FY 02-03 University Expansion Funds 51 $66,803,142 R Provide funding for enrollment i ncreases as proposed by t he UNC Board of Governors. Provides fundi ng for regular t erm enrol l ment, distance education enrollment, and holding 3 campuses harmless from enroll ment declines. Enrollment Increases $11,000,000 $2,666,533 52 R Provide funding to 7 campuses desi gnated by UNC as NR "focused growth" institutions to prepare for enrollment i ncreases. $10 mi l l i on of the recurring funds shall be allocated in equal dollar amounts to the focused growth i nstitutions. Enrollment: Focused Growth 53 $115,000 R Provide funds for inflationary increases for operating budget. NC School of Science and Mathematics: Inflationary Increases 54 $500,000 R Funds t o conti nue the operati on of the NC TEACH program t o provide lateral entry alternatives for prospective public school teachers. NC TEACH 55 ($39,966,108) R Tui t i on increases of 8% for in-state students and 12% for out-of-state students have been approved by the Board of Governors for the 2002-03 academic year. Tuition Increases 56 Provides an additional $4,497,000 in need-based student f i nanci al ai d for UNC students from the Escheats Fund. Student Financial Aid ($15,228,000) 57 Fund conti nuat i on budget for UNC need-based scholarshi p NR f unds with income from the Escheats Fund. Student Financial Aid: Funding Shift 58 $2,249,105 R Provides financial aid funding for additional NC students attending private college in North Carolina. Aid to Students Attending Private Colleges ($12,807,721) ($17,416,000) Budget Changes Total Position Changes Revised Total Budget $1,768,097,109 R NR UNC System Page F - 21 Special Provisions SB 1115 Department: UNC System Consolidates the collection of loan repayments from the NC Teaching Fellows Commission to the State Education Assistance Authority. Section: 9.2 Title: Transfer Collection Responsibilities for Certain Scholarship Programs to SEAA Summary: Allows NCSU and NC School of the Arts to substitute bond projects. Section: 9.3 Title: Substitution of UNC Bond Projects Summary: Consolidates UNC Scholarships into one fund entitled UNC Campus Scholarships in order to protect the programs from potential lawsuits. Section: 9.4 Title: UNC Scholarship Programs Consolidated Summary: Saves the university money by requiring only one mailing explaining the federal education tax credits instead of two. Section: 9.5 Title: Eliminate UNC Mailing List Duplication Summary: Makes a technical correction to last year's codification of the Aid to Private College money. Section: 9.6 Title: Aid to Private Colleges Technical Corrections Summary: Requires each Chancellor to report the specific budget reductions made to implement the UNC Management Flexibility Reserve.(Note: Sec. 72 of Senate Bill 1217 changes the due date of the report from October 31, 2002 to November 30, 2002) Section: 9.7 Title: UNC Flexibility Guidelines Summary: Allows three universities to use focused growth enrollment money for up to twenty prospective teaching scholars by waiving out-of-state tuition for these students. Section: 9.9 Title: Focused Growth Pilot Program Summary: Requires a report from the Board of Governors to the Governmental Operations Committee on any activities undertaken under exemptions to the Umstead Act by the Centennial Campus at NCSU, the Horace Williams Campus at UNC-CH or any Millennial campus of the UNC system. Section: 9.10A Title: Report on Umstead Act Exemptions Summary: UNC System Page F - 22 Changed the aid to private college statute to allow eligibility for colleges accredited by the New England Association of Colleges and Schools with a main permanent NC campus. The intent is to make Johnson and Wales University students at a proposed Charlotte, NC campus eligible for student aid funds. Section: 9.11 Title: Out-of-State Institutions with NC Campuses Summary: Education Oversight shall study the School of Science and Mathematics. In addition, it prohibits the imposition of the proposed $850 fee for the 2001-02 academic year and requires General Assembly approval prior to initiating fees. Section: 9.12 Title: North Carolina School of Science and Mathematics Summary: Requires UNC-Chapel Hill to keep open the Horace Williams airport until January 1, 2005. Prior to moving the AHEC operations from this airport, the Chancellor must report to Governmental Operations Commission on the impact of any move. Section: 9.13 Title: Horace Williams Airport Summary: The UNC Board of Governors shall establish policies that allow the Chancellors with Cooperative Extension or Agriculture Research programs to redesignate EPA non-teaching faculty to EPA teaching faculty if it more accurately reflects the job responsibilities. Section: 9.14 Title: Cooperative Extension/Agriculture Research Faculty Summary: Universities shall not issue any debt or establish contracts for golf courses or transient accommodations facilities prior to providing the Governmental Operations Commission with specified financial and architectural information. Section: 9.15 UNC Institutions/Golf Course and Transient Accommodations Facility/Umstead Act Exemption Reporting Requirement Title: Summary: The UNC Board of Governors shall report to the Government Operations Commission on the fiscal and contingent liabilities and financing arrangements of all buildings on UNC property, regardless of ownership. Section: 9.16 Title: Report on University Fiscal Liabilities Summary: Changes the statute on the distribution of the Escheat Fund to allow the income to be used for grants for need-based financial aid, as well as loans. This allows a non-recurring reduction in the General fund of $20,725,000 to provide for need-based financial aid in higher education. $15,228.000 is in the UNC base budget. This funds an increase of $4,497,000 for UNC and $1 million for community colleges in need-based student financial aid. The Governor is required to replace these with recurring General Fund money in the 2003-05 continuation budget. Section: 9.19 Title: Funds for Need-Based Scholarships Summary: UNC System Page F - 23 HEALTH & HUMAN SERVICES Health and Human Services Total Budget Approved 2001 Session FY 02-03 Budget Changes $3,644,080,118 GENERAL FUND Overview: 2002 Session Fiscal and Budgetary Actions Division of Aging 1 ($6,000) R Reduces funding for 3 meetings per year from $9, 000 to $3,000 each fi scal year. Funds for Senior Tarheel Legislature 2 ($4,000) R Reduces funding for meetings of the Governor' s Advi sory Counci l on Agi ng. Governor's Advisory Council on Aging 3 ($165,000) R Reduces the operating budget for the Di vision of Aging. Central Office Administration 4 ($381,000) R Reduces funding for Senior Center Devel opment and Outreach. Senior Centers 5 ($370,000) R Reduces funding for planni ng and admi ni stration for 17 AAAs across the state. Area Agency on Aging Administration Division of Child Development 6 ($56,286) R El i mi nates the remai ning state funds that support the f ederal Early Head Start Program. Early Head Start Funds 7 ($500,000) R El i mi nates funding for the Smart Start evaluation. Smart Start Evaluation 8 ($16,000) R Reduces professional devel opment funds that are used to help child care empl oyees improve their educational qual i f i c a t i o n s . Smart Start Professional Development Funds 9 ($44,810) R Reduces funds to Divisi on of Information and Resource Management f o r i n f o r mat i on technology activities that support Smart Start. Smart Start Automation Health and Human Services Page G - 1 Overview: 2002 Session Fiscal and Budgetary Actions FY 02-03 10 ($20,000,000) R Reduces the amount of funds for acti vities at the local partnership level. (SB 1115, Section 10.55) Local Smart Start Partnership Funds 11 ($980,000) R Reduces the North Carol i na Partnership for Children's admi nistrative costs. NCPC Administration 12 ($12,000) R Reduces the budget for rei mbursement to the State Bureau of Investigation for the cost of obtaining record checks. Criminal Record Checks ($618,939) -6.00 13 R Reduces admi ni strative expenses including positions, operating costs, and equipment. El i minates three vacant and three filled positions: 1.0 Admi nistrative Secretary I I , 1 . 0 Office Assistant IV, 1.0 Child Program Speci al i s t , 2.0 filled Processing Assistant III's, and 1.0 filled Policy and Planning Consul t ant. Positions funded through a transfer of funding from the More At Four Program i ncl ude: 1.0 filled and 2.0 vacant Child Program Specialists, and 1.0 vacant Admi nistrative Assistant I. ( SB 1115, 10.56(d)) DCD Administration $15,000,000 14 I ncrease state appropriations for child care subsidy to NR replace federal funds historically used for this purpose. Due to a reduction i n t he Temporary Assistance for Needy Families (TANF) Block Grant, child care subsidy was funded at $3,800,000 less for 02-03 fiscal year. These funds will also be used to address the waiting list for child care subsidy. Child Care Subsidy Division of Facility Services 15 ($126,000) R Reduces operating expenses throughout the Divisi on of Faci l i t y Servi ces including computer equipment replacement . Operating Expenses 16 ($150,000) R Reduces travel expenses throughout the Division of Faci l i t y Servi ces. Travel 17 ($35,974) R El i mi nates the contract with the Department of Justice for one paralegal position. ( Not e: Section 84 of Senate Bill 1217, 2002 Technical Corrections, modified this reduction. The description reflects the modification. The Conference Commi t t ee Report f or SB 1115 el i mi nat ed one paral egal position in the Division of Facility Services.) Legal Services Health and Human Services Page G - 2 Overview: 2002 Session Fiscal and Budgetary Actions FY 02-03 18 ($244,731) R El i mi nates the following contracts: Solucient $54,000 Sheps Cent er $90,731 Reduce the fol l owi ng contracts: Miscellaneous Contracts $100,000 Various Contracts ($191,465) -4.00 19 R El i mi nates two vacant and two fi l l ed positions: 1.0 Faci l i t y Engineer Speci al i s t , 1 . 0 F a c i l i t y Survey Consul t ant I , 1 . 0 St aff Devel opment Coordi nat or in the Office of EMS, and 1.0 Admi ni strative Assistant II in the Office of EMS. Position Eliminations Division of Medical Assistance 20 ($3,028,281) R Adopts the Supplemental Security Income (SSI) method for considering equity value in income-produci ng property for aged, blind, and disabled persons. (SB 1115, Section 21.19(y) in Section 10.11(a) and amended by SB 1217, Sect i on 59) Asset Policy Change 21 ($37,374,352) R Expands implement ation of various drug utilization measures t o contain the cost of prescription drugs, i ncl udi ng expandi ng the use of generic drugs. (SB 1115, Sect i on 10.19(b) and amended by SB 1217, Sect i on 75) Drug Utilization Management 22 ($496,639) R Reduces reimbursement rates for private duty nursing service providers by 5%. Private Duty Nursing 23 ($2,655,057) R Reduces Personal Care Services by reducing the monthly l i mi t f or services from 80 hours per month to 60 hours per mont h. Personal Care Services Limitations 24 ($423,959) R Modifies transfer of asset policy by applying the policy t o persons receiving personal care services while residing i n t heir home. ( SB 1115, Sect i on 10. 11(b) and SB 1217, Sect i on 59) Asset Policy Changes for PCS Recipients 25 ($244,793) R Modifies policy for determi ni ng eligibility for pregnant women coverage for minors by counting parental i ncome. ( SB 1115, Section 21.19(n) 0f Section 10.11(a)) Pregnant Women Coverage for Minors Health and Human Services Page G - 3 Overview: 2002 Session Fiscal and Budgetary Actions FY 02-03 26 ($1,409,819) R Reduces payments to hospitals by 0.5%. Options for reducing payment include using waivers to reduce hospital costs associated with billing Medicaid and implementing a revised outpatient/emergency payment method to relate payment to services received. (SB 1115, Section 10.18) Hospital Payments 27 ($991,979) R Establishes prospective rate payment system f or Home Heal t h Services and pays for services based on an assessment of the specific needs of the Medicaid recipient. Payment for services will no longer be tied to t he number of provider visits. Prospective Rates for Home Health Services 28 ($88,809) R Reduces reimbursement rates for home infusion therapy providers. Home Infusion Therapy 29 ($190,000) R Reduces reimbursement rates for home health supplies providers. Home Health Supplies 30 ($250,000) R El i mi nates optional circumcision procedures except in cases of medical necessity. (SB 1115, Section 10.13) Optional Services 31 ($9,425,000) R Reduces expenditures for the Medicaid program to reflect anticipated savings from t he expansi on of Caroli na ACCESS II/III activities including reducing hospital admissions, reducing ER vi sits, using best prescribing practices, i ncreased generic prescribing, implementing polypharmacy review, reducing therapy visits, and better managing of high risk/high cost patients. (SB 1115, Section 10.12) Carolina ACCESS II/III Cost Savings 32 ($608,964) R Reduces reimbursement rates by 5% for the following services: ambul at ory surgical centers, and high risk i ntervention. Reimbursement Rate Reduction 33 ($569,954) R Reduces reimbursement rates for durable medical equipment providers. Durable Medical Equipment 34 ($202,840) R Reduces reimbursement rates for optical service providers by 5%. Optical Service Providers 35 ($1,900,000) R Appl i es Medicaid medical policy to Medi care Crossover c l a i ms. Medicare Crossover Claims Health and Human Services Page G - 4 Overview: 2002 Session Fiscal and Budgetary Actions FY 02-03 36 ($7,716,342) R Reduces case management services for adults and children by reducing rates, streaml i ni ng services and eli minating duplicative services. (SB 1115, Section 10.14) Case Management Services ($60,005) -2.00 37 R El i mi nates two filled positions: 1.0 Physician II and 1.0 Dent i s t I I . Position Eliminations ($43,747,538) 38 Transfers funds from G. S. 143-23.2 reserve to support NR current services and to reduce appropriations. (SB 1115, Sect i on 10.19D) Medicaid Reserve Funds 39 $81,751,234 R Provides Increased funding for the Medicaid Program due to t he revised forecast for SFY 2003. Revised Medicaid Forecast Division of Mental Health, Developmental Disabilities, and Substance Abuse Services ($630,487) -6.50 40 R Reduces expenditures for state-operated mental retardation centers by decreasing outreach expenditures by 10%, e l i mi nating 4.50 vacant and 2.0 filled positions, and reducing salary reserve. Elimi nated positions include: 1.0 Parent Trainer, 0.5 Housekeeper, 1.0 DHHS School Admi nistrator II, 2.0 Outreach Special i s t I I ' s , a n d 1 . 0 Rehab Therapy Tech, and 1.0 DHHS Policy and Planning Coordinator. (SB 1115, Section 10.23) ( Not e: Section 84 of Senate Bill 1217, 2002 Technical Corrections, modified this reduction. The description reflects the modification. The Conf erence Committee Report for SB 1115 i ncl uded 1.0 Outreach Specialist and 1.0 Patient Review Coordinator. SB 1217 i ncreased the number of Outreach Specialists to 2.0 and deleted the Pati ent Revi ew Coordinator.) Mental Retardation Centers Health and Human Services Page G - 5 Overview: 2002 Session Fiscal and Budgetary Actions FY 02-03 ($2,895,097) -61.00 41 R Reduces expenditures for state-operated psychiatric hospitals by elimi nating 35 vacant and 26 filled positions; reducing education, training, and staff development; reducing expenditures for supplies, printing, and equipment; cl osi ng 5-bed TB Uni t at Cherry hospital; Cl osing CPI outpatient unit at John Umstead Hospital, and e l i mi nating 10 psychiatric beds at Cherry Hospital with no community transfer of funding. Elimi nated position
Object Description
Description
Title | Highlights, fiscal and budgetary actions |
Other Title | Overview, legislative session fiscal and budgetary actions; Overview, fiscal and budgetary actions; |
Date | 2002 |
Description | 2002 |
Digital Characteristics-A | 1719 KB; 342 p. |
Digital Format | application/pdf |
Full Text | OVERVIEW: _________________________________ FISCAL AND BUDGETARY ACTIONS NORTH CAROLINA GENERAL ASSEMBLY 2002 SESSION PREPARED BY THE FISCAL RESEARCH DIVISION OF THE NORTH CAROLINA GENERAL ASSEMBLY RALEIGH, NORTH CAROLINA Departments/Coverage Analysts Budget Development Appropriations Bill Coordination Andy Willis - Senate Governmental Operations Mona Moon - Senate Capital Budgeting/Planning Lynn Muchmore - House State Lands/Building Karen Hammonds-Blanks - House Salaries and Benefits Sam Byrd Stanley Moore Mark Trogdon General Government Administration Michele Nelson Administrative Rules Review Commission Marilyn Chism Board of Elections Cultural Resources General Assembly Governor’s Office Insurance Licensing Boards Lieutenant Governor Office of Administrative Hearings Revenue Secretary of State State Auditor State Budget and Management State Treasurer Office of Information Technology Services Doug Holbrook Justice and Public Safety Correction Jim Mills Crime Control & Public Safety Denise Thomas FISCAL RESEARCH DIVISION JAMES D. JOHNSON, DIRECTOR Rm. 619, Legislative Office Building Raleigh, North Carolina 27603-5925 Telephone: (919) 733-4910 Fax: (919) 715-3589 Judicial Elisa Wolper Justice Chloe Gossage Departments/Coverage Analysts Health and Human Services Department of Health and Human Services Carol Shaw Lisa Hollowell Susan Morgan Jim Klingler Natural and Economic Resources Department of Environment, Health, and Natural Resources Jennifer Hoffman Department of Agriculture Kelly Huffstetler Department of Commerce Adam Levinson Department of Labor Transportation Evan Rodewald Bob Weiss Education Department of Public Instruction Jim Newlin Philip Price UNC-Board of Governors Charlotte Todd Community Colleges Kristine Leggett Higher Ed Bond Oversight Reyna Walters Economy and Taxation Revenue Estimates Finance Committees Richard Bostic Revenue Laws Study Committee David Crotts Economic Issues Linda Millsaps State Bond Proposals Martha Walston Fiscal Trends Commission Support Staff Word Processing Agnes Perry Graphics, Databases, Bonnie Trivette Spread Sheet Preparation Debora Bridgers Page INTRODUCTION............................................................................................................................ i GLOSSARY.................................................................................................................................A-1 TOTAL STATE BUDGET Budget Reform Statement (General Fund Availability) .................................................................B-1 Summary Total State Budget....................................................................................................B-2 Total State Budget by Agency ..................................................................................................B-3 Budgeted Position Summary……………………………………………………………………................B-6 ECONOMY AND REVENUES Economic Outlook and General Fund Revenues .........................................................................C-1 Economic Outlook Comparison.................................................................................................C-7 Growth Rates for Major Revenue Sources ..................................................................................C-9 General Fund Revenue Forecast .............................................................................................C-11 Highway Fund Revenue..........................................................................................................C-13 Highway Trust Fund Revenue..................................................................................................C-14 FEDERAL BLOCK GRANTS & SUMMARY OF MEDICAID CHANGES Federal Block Grant Programs..................................................................................................D-1 Changes to the Medicaid Program ............................................................................................D-4 SUMMARY: GENERAL FUND APPROPRIATIONS General Fund Appropriations 2002-2003 Fiscal Year, 2002 Session .............................................E-1 EDUCATION Community Colleges................................................................................................................F-1 Public Education .....................................................................................................................F-6 University of North Carolina System ........................................................................................ F-20 HEALTH & HUMAN SERVICES..................................................................................................... G-1 NATURAL AND ECONOMIC RESOURCES Agriculture and Consumer Services ...........................................................................................H-1 Commerce...........................................................................................................................H-10 Commerce – State Aid...........................................................................................................H-16 Environment and Natural Resources ........................................................................................H-19 Environment and Natural Resources – Clean Water Management Trust Fund..............................H-32 Housing Finance Agency .......................................................................................................H-34 Labor...................................................................................................................................H-36 N.C. Biotechnology Center .....................................................................................................H-40 Rural Economic Development Center.......................................................................................H-42 JUSTICE AND PUBLIC SAFETY Correction............................................................................................................................... I-1 Crime Control and Public Safety .............................................................................................. I-15 Judicial................................................................................................................................. I-20 Judicial – Indigent Defense...................................................................................................... I-26 Justice ................................................................................................................................. I-29 Juvenile Justice and Delinquency Prevention ............................................................................. I-32 TABLE OF CONTENTS Page GENERAL GOVERNMENT Administration........................................................................................................................ J-1 Auditor .................................................................................................................................J-10 Cultural Resources .................................................................................................................J-12 Cultural Resources – Roanoke Island Commission ....................................................................J-21 General Assembly..................................................................................................................J-23 Governor...............................................................................................................................J-27 Insurance..............................................................................................................................J-29 Insurance – Volunteer Safety Workers’ Compensation Fund.......................................................J-33 Lieutenant Governor................................................................................................................J-35 Office of Administrative Hearings ..............................................................................................J-37 Revenue ...............................................................................................................................J-39 Rules Review Commission ......................................................................................................J-44 Secretary of State ..................................................................................................................J-46 State Board of Elections .........................................................................................................J-49 State Budget and Management................................................................................................J-51 State Budget and Management – Special Appropriations ...........................................................J-53 State Controller ......................................................................................................................J-55 Treasurer ...............................................................................................................................J-58 Treasurer – Retirement for Fire and Rescue Squad Workers .......................................................J-61 TRANSPORTATION Transportation – General Fund..................................................................................................K-1 Transportation – Highway Fund.................................................................................................K-3 INFORMATION TECHNOLOGY: INTERNAL SERVICE FUND Office of Information Technology Services .................................................................................. L-1 RESERVES, DEBT SERVICE AND ADJUSTMENTS/GENERAL PROVISIONS .................................M-1 CAPITAL.....................................................................................................................................N-1 SALARIES AND BENEFITS Salary Changes for Employees Supported by the State ............................................................. O-1 Retirement and Pension Changes for State and Local Personnel ................................................ O-6 Benefit Changes for State and Local Personnel ........................................................................O-11 State Employee Health Benefit Changes .................................................................................O-12 REVENUE/FEE BILLS Bills Affecting General Fund Revenue ........................................................................................P-1 Bills Affecting Highway Fund Revenue .....................................................................................P-25 Bills Affecting Special Revenue Funds .....................................................................................P-28 Bills Affecting All Local Governments ......................................................................................P-31 APPENDIX Total State Budget by Source of Funds .................................................................................... Q-1 Total General Fund Authorizations as Adjusted to Determine Total Current Operations .................................................................................... Q-2 Earmarking of the Credit Balance by Fiscal Year....................................................................... Q-4 Savings Reserve at Year Ending June 30 .................................................................................. Q-5 Tax Revenues by Major Schedules (Actual) .............................................................................. Q-6 Page APPENDIX (CONTINUED) Authorized and Actual Revenue Collections by Fiscal Year ($ in Thousands) ............................... Q-7 North Carolina General Fund Operating Appropriations ............................................................... Q-8 Capital Improvement Authorizations.........................................................................................Q-12 General Obligation Bond Acts Since 1971 ...............................................................................Q-13 Total North Carolina Budget for Debt Service............................................................................Q-14 North Carolina Bond Indebtedness ..........................................................................................Q-16 Across-The-Board Salary Cost for Each 1% Increase (Millions)..................................................Q-18 Legislative Increases..............................................................................................................Q-19 Average Salary of Employees Subject to the Personnel Act ......................................................Q-21 Page A-1 Adjusted Appropriation: An appropriation altered to reflect the distribution of reserves or other transfers authorized by the General Assembly. Appropriation: An action by the General Assembly authorizing withdrawal of funds from the state treasury pursuant to Article V, Section 7 of the North Carolina Constitution. Beginning/Ending Balance or Credit Balance: The funds available at the beginning or end of the fiscal year based upon revenue collections and expenditures. Capital Improvements: One-time appropriations for new construction, renovations, repairs and land purchases. Carryforward: Funds appropriated, but unspent in the first fiscal year of a biennium that are brought forward for expenditure in the second fiscal year of the same biennium. Certified Appropriation: An appropriation as officially recorded by the Office of State Budget, Planning, and Management. Contingency and Emergency Fund: A special reserve required by G.S. 143-12 which the Director of the Budget may expend for emergencies or other unanticipated needs with approval by the Council of State. Continuation Budget: The part of the State budget necessary to continue the current level of services when adjusted for inflation, mandated rate increases such as social security, annualization of programs and operation of new facilities. Current Operations: Cost associated with the daily activity of programs supported by the State, such as salaries, utilities, and travel. Departmental Receipts: Monies received by State agencies and institutions as federal grants, charges for services performed, transfers from other governmental units, license fees, gifts and donations, or similar sources. Disproportionate Share Funds: Share (DSH) funds are Medicaid payments made to health care providers who deliver services to large numbers of uninsured patients. GLOSSARY Page A-2 GLOSSARY (Continued) Entitlements: Payment or benefit granted by law to individuals or political subdivisions. Expansion Budget: The part of the State budget which provides for new programs, expansion of existing programs, and salary and benefit increases. Federal Revenue Sharing: Program instituted by the federal government in 1972-73 and discontinued in 1982-83 to assist state/local governments. General Fund: The fund to which revenues are deposited that are not designated for special purposes and are therefore available to support the general operations of State government. Highway Fund: The special fund to which revenues are deposited that are designated for transportation-related operations and capital improvements. Highway Trust Fund: A fund established in 1989 for the completion of certain specified highway construction projects. Lapsed Salaries: Unexpended appropriations that accrue because funds have been budgeted for positions that are temporarily vacant. Negative Reserve: A method by which a budget reduction is imposed without detailing the specific lines of expenditure to be decreased. Nonrecurring: A term applied to revenues or expenditures that are not repeated in future years. Reversion: The portion of an appropriation that is not expended and is returned to the fund from which the appropriation is made when the appropriation either expires or is cancelled. Savings Reserve: An account established in G.S. 143-15.3 to reserve General Fund monies as a safeguard against economic fluctuations or major fiscal exigencies. Commonly referred to as the “Rainy Day Fund.” Special Funds: Accounts to which revenues are deposited that are designated for a specific purpose and remain in the account until expended for that purpose. Tax Reimbursements: State revenues disbursed to local governments as reimbursements due to State-mandated tax relief measures which have a local financial impact on locals. Total General Fund Availability: The sum of the beginning General Fund credit balance and General Fund revenues for a fiscal period. i This document is divided into sections as follows: Section A - Glossary Section B - Total State Budget summarizes the composition of General Fund Availability (i.e. Budget Reform Statement) and the total state budget including federal funds and receipts. Section C – Economy and Revenues describes the economic and financial backdrop against which the actions detailed in subsequent sections are conducted. Includes information on General Fund, Highway Fund and Highway Trust Fund revenues. Section D – Federal Block Grants and Summary of Medicaid Changes gives a brief history of federal block grant programs and allocations for the fiscal year. Also provides a summary of recent Medicaid funding and program changes. Section E – Summary: General Fund Appropriations summarizes actions taken by the General Assembly to adjust the continuation or base budget recommended by the Governor (applies to the Overview of budgetary actions taken in the long session) or to adjust the budget previously approved by the General Assembly for the second year of the biennium (applies to the Overview of budgetary actions taken in the short session). Sections F through L – Budget adjustments (i.e. reductions and expansion) by state agency are outlined in detail and organized by appropriations subcommittee. Also summarizes special provisions in the appropriations act and other related legislation governing state agencies. Section M –Reserves, Debt Service and Adjustments lists actions with statewide impact (i.e. affecting all state agencies). Also includes a summary of availability and general provisions included in the appropriations act. Section N – Capital provides a list of agencies receiving appropriations for capital improvement projects. Also includes a summary of capital related special provisions. Section O - Salaries and Benefits identifies salary increases, as approved, together with changes in retirement and pension plans, health insurance programs, and other benefit programs. Section P – Revenue/Fee Bills provides a summary of bills authorizing various tax changes and fee increases. Section Q – Appendix provides historical data relating to state revenues and expenditures, capital improvements, reversions, indebtedness, debt service and salaries. INTRODUCTION TOTAL STATE BUDGET 2002-2003 Beginning Unreserved Credit Balance 25,000,000 Revenues Based on Existing Tax Structure 12,793,950,000 Non-tax Revenues Investment Income 115,300,000 Judicial Fees 111,300,000 Disproportionate Share 107,000,000 Insurance 46,600,000 Other Non-Tax Revenues 98,900,000 Highway Trust Fund Transfer 172,400,000 Highway Fund Transfer 15,300,000 Subtotal Non-tax Revenues 666,800,000 Total General Fund Availability 13,485,750,000 Adjustments to Availability: 2002 Session IRC Conformity (Pensions/Education Changes, Estate Tax Credit, Accelerated Depreciated) 15,800,000 Delay 2001 Tax Breaks (Standard Deduction/Marriage Penalty, Child Tax Credit) 51,700,000 Conform Business Income 70,000,000 Correct LLC Franchise Tax 20,000,000 Conform Gift Tax Indexing (230,000) Low Income Housing Credit (2,200,000) Repeal Reimbursements to Local Governments 333,400,000 Project Tax Collect 32,500,000 Highway Trust Fund -- recurring inflationary adjustment 80,000,000 Highway Trust Fund Transfer -- one time transfer 125,000,000 Tobacco Settlement Trust Funds -- divert MSA receipts from Tobacco Trust Fund 38,000,000 Tobacco Settlement Trust Funds -- divert MSA receipts from Health & Wellness Trust Fund 40,000,000 Transfer of Cash from Trust and Special Funds 20,438,259 Adjustment to Transfer from Insurance Regulatory Fund 600,000 Reimbursement for Unauthorized Substance Tax Division, Department of Revenue 885,884 Nontax Revenue Offsets, Department of State Treasurer 671,618 Increase Collection Rates for Offender Fees 1,160,000 Fee Increases 38,180,000 SB 1455, Strenthen Securities Fraud Enforcement Laws 271,000 Subtotal Adjustments to Availability: 2002 Session 866,176,761 Revised General Fund Availability for 2002-2003 Fiscal Year 14,351,926,761 Less: Total General Fund Appropriations for 2002-2003 Fiscal Year (14,351,822,876) Unappropriated Balance 103,885 Budget Reform Statement General Fund Availability Note: The Budget Reform Statement/General Fund Availability shown here differs from the availability statements included in Section 2.2 of SB 1115, 2002 Appropriations and Finance Act, SL 2002-126 and Section 10 of HB 1105, Insurance Regulatory Fund Changes, SL 2002-144. The statement shown here reflects actions taken by the General Assembly in those bills as well as SB 1455, Securities Fraud Protections and Study, SL 2002-189, which increased General Fund availability by $271,000 and appropriated $167,115 to the Department of the Secretary of State. FY 2002-03 ($ millions) General Fund Current Operations $14,320.7 Capital Improvements/Repairs & Renovations 31.1 Subtotal General Fund Budget 14,351.8 Highway Fund/Highway Trust Fund 1,900.0 Federal Funds 7,676.5 Departmental Receipts 2,371.0 Total State Budget -- All Sources $26,299.4 Source: Office of State Budget and Management Summary of Total State Budget 2002-2003 Fiscal Year by Source of Funds Page B-2 General Highway Trust/ Subcommittee/Agency Fund Highway Fund * Other Federal Total Education: Community Colleges 669,281,390 0 143,508,211 12,818,209 825,607,810 Public Instruction 5,894,553,493 30,590,073 2,886,501 606,524,524 6,534,554,591 UNC System 1,768,097,109 0 1,018,554,382 27,490,660 2,814,142,151 Subtotal Education 8,331,931,992 30,590,073 1,164,949,094 646,833,393 10,174,304,552 Health and Human Services: DHHS - Office of the Secretary 67,784,933 0 702,139 46,523,975 115,011,047 DHHS - Aging 28,605,910 0 8,282,754 27,349,040 64,237,704 DHHS - Blind & Deaf/Hard of Hearing 9,525,102 0 1,275,794 13,394,974 24,195,870 DHHS - Child Development 281,830,361 0 56,000 263,193,803 545,080,164 DHHS - Education Services 65,477,022 0 722,102 2,084,639 68,283,763 DHHS - Facility Services 14,694,066 0 506,774 11,558,361 26,759,201 DHHS - Medical Assistance 2,189,813,795 0 391,100,686 4,411,452,983 6,992,367,464 DHHS - MH/DD/SAS 573,361,612 0 40,375,152 79,571,825 693,308,589 DHHS - NC Health Choice 45,058,178 0 0 125,410,725 170,468,903 DHHS - Public Health 100,838,313 437,623 7,665,926 243,250,569 352,192,431 DHHS - Social Services 180,580,506 0 462,494,932 606,315,236 1,249,390,674 DHHS - Vocational Rehabilitation 38,858,851 0 2,226,176 62,157,455 103,242,482 Subtotal Health & Human Services 3,596,428,649 437,623 915,408,435 5,892,263,585 10,404,538,292 Natural and Economic Resources: Agriculture & Consumer Services 50,445,582 3,586,465 18,945,298 6,282,919 79,260,264 Commerce 33,930,264 0 33,270,117 193,013,186 260,213,567 Commerce-State Aid 20,595,319 0 0 0 20,595,319 Environment and Natural Resources 148,818,587 846,102 71,783,449 41,472,289 262,920,427 Environment and Natural Resources - Clean Water Management Trust Fund 66,500,000 0 0 0 66,500,000 NC Housing Finance Agency 4,759,400 0 100,000 37,242,359 42,101,759 Labor 14,166,181 0 4,220,609 5,760,427 24,147,217 Subtotal -- NER 339,215,333 4,432,567 128,319,473 283,771,180 755,738,553 Justice and Public Safety: Correction 880,054,808 0 10,560,008 0 890,614,816 Crime Control & Public Safety 27,780,188 133,098,294 6,389,175 13,402,334 180,669,991 Judicial 294,636,169 0 252,519 0 294,888,688 Judicial - Indigent Defense 77,286,901 0 7,400,555 0 84,687,456 Justice 70,938,193 0 6,814,637 1,167,825 78,920,655 Juvenile Justice & Delinquency Prevention 128,984,633 0 7,545,544 0 136,530,177 Subtotal -- JPS 1,479,680,892 133,098,294 38,962,438 14,570,159 1,666,311,783 Summary of Total State Budget by Agency and Appropriations Subcommittee (includes all funding sources) 2002-03 Fiscal Year Page B-3 General Highway Trust/ Subcommittee/Agency Fund Highway Fund * Other Federal Total Summary of Total State Budget by Agency and Appropriations Subcommittee (includes all funding sources) 2002-03 Fiscal Year General Government: Administration 55,943,188 0 5,463,046 8,480,877 69,887,111 Auditor 11,068,708 0 50 0 11,068,758 Controller 10,422,828 0 30,945 0 10,453,773 Cultural Resources 55,817,206 0 2,250,726 4,788,585 62,856,517 Cultural Resources-Roanoke Island Commission 1,708,241 0 0 0 1,708,241 General Assembly 36,899,614 0 403,000 0 37,302,614 Governor 4,938,310 0 215,482 0 5,153,792 Insurance 23,527,552 0 26,188,256 338,858 50,054,666 Insurance - Volunteer Safety Workers' Comp 2,000,000 0 0 0 2,000,000 Lieutenant Governor 616,265 0 0 0 616,265 Office of Administrative Hearings 2,561,413 0 106,014 0 2,667,427 Revenue 75,571,304 4,038,525 1,000 0 79,610,829 Rules Review Commission 315,814 0 0 0 315,814 Secretary of State 8,108,684 0 384,577 0 8,493,261 State Board of Elections 3,395,891 0 2,500 0 3,398,391 Special Boards & Commissions 0 0 3,569,720 0 3,569,720 State Budget and Management (OSBM) 5,054,881 0 26,020 0 5,080,901 OSBM Special Appropriations 3,180,000 0 0 0 3,180,000 Treasurer 7,888,435 0 648,053 0 8,536,488 Treasurer-Retirement for Fire & Rescue Squad Workers 7,131,179 0 0 0 7,131,179 Subtotal General Government 316,149,513 4,038,525 39,289,389 13,608,320 373,085,747 Transportation: 10,902,500 1,723,537,238 38,617,668 825,448,590 2,598,505,996 Debt Service: General Debt Service 254,516,860 0 45,500,000 0 300,016,860 Federal Reimbursement 1,155,948 0 0 0 1,155,948 Subtotal Debt Service 255,672,808 0 45,500,000 0 301,172,808 Page B-4 General Highway Trust/ Subcommittee/Agency Fund Highway Fund * Other Federal Total Summary of Total State Budget by Agency and Appropriations Subcommittee (includes all funding sources) 2002-03 Fiscal Year Reserves and Adjustments: Compensation Increases -- Includes Teachers/Principals and Assistant/Deputy Clerks/Magistrates 2002-03 Step Increases 243,512,099 7,200,000 0 0 250,712,099 Employee Severance & Discontinued Service 5,000,000 5,000,000 Salary Adjustment Fund 500,000 0 0 0 500,000 State Health Plan 187,378,128 9,000,000 0 0 196,378,128 Retirement Rate Adjustment (387,792,720) (12,304,320) 0 0 (400,097,040) Contingency & Emergency Fund 5,000,000 0 0 0 5,000,000 Governor's Efficiency Commission Recommendations (25,000,000) (25,000,000) Management Flexibility Reserve (41,500,000) (41,500,000) ITS Rate Reduction (7,414,318) 0 0 0 (7,414,318) HIPPA Implementation Reserve 2,000,000 2,000,000 Mental Health/DD/SAS Trust Fund 8,000,000 8,000,000 Ruth M. Easterling Trust Fund for Children with Special Needs 1,000,000 1,000,000 Subtotal Reserves (9,316,811) 3,895,680 0 0 (5,421,131) Capital Improvements: Water Resources Development Projects 31,158,000 0 0 0 31,158,000 Total State Budget (all sources) 14,351,822,876 1,900,030,000 2,371,046,497 7,676,495,227 26,299,394,600 Source: Office of State Budget and Management * Note: The Highway Trust/Highway Fund column does not reflect transfers to the General Fund in the amount of $392.7 million for the 2002-03 fiscal year. See G.S. 105-187.9 and Sections 2.2(e),(f), and (g) of SB 1115, SL 2002-126 (Appropriations Act) for information relative to this transfer. Page B-5 Page B-6 BUDGETED POSITION SUMMARY State of North Carolina Full-time Equivalent Position Counts by GAAP Fund Type (December 2001) General Fund (1) Highway Fund Enterprise Institutional Internal Service Special Trust Total by Appropriated Receipt Appropriated Receipt (2) Fund Fund Fund Fund Fund Sector Government Sector State Government UNC System 28,913 1,395 - - 5,433 13,884 - - - 49,625 Justice and Public Safety 28,212 288 1,858 - - - 433 191 - 30,982 Health & Human Services 9,155 8,946 - - 34 - 12 665 4 18,816 Transportation - - 8,200 6,177 - - - - 14,378 Natural & Economic Resources 4,178 1,124 86 - 89 - - 3,010 150 8,636 General Government 4,160 407 68 - 1 - 636 363 - 5,635 Education (State Administration) 485 175 - - - - - - 14 674 Sub-total 75,103 12,335 10,212 6,177 5,557 13,884 1,081 4,229 168 128,747 Local Education Public Schools 139,503 - 115 - - - - - 139,618 Community Colleges 13,770 - - - - - - - 13,770 Sub-total 153,273 - 115 - - - - - - 153,388 Total by GAAP Fund Type 228,376 12,335 10,328 6,177 5,557 13,884 1,081 4,229 168 282,135 Notes: 1) Salary Base includes 1,111 positions in Reserve budget codes. 2) Includes 5,643 work order positions funded out of construction and maintenance line-items in the Highway Fund Budget. Source : Survey of State Agencies and Other State-funded Institutions, Fiscal Research Division, NC General Assembly, Office of State Budget and Management, December 2001. ECONOMY AND REVENUES Page C-1 2001-02 Experience Last fiscal year was marked by the largest revenue shortfall since the 1990-91 recession. The amount of the shortage, expressed in dollar terms and as a percentage of the forecast, is summarized below. The numbers are shown on both an “actual” basis and an “economic” perspective due to the impact of tax law changes and other special factors on the comparison between 2000-01 and 2001-02. Actual Basis ($Mil.) Actual Revenue 13,157.6 Less: Budgeted Revenue -14,713.1 Revenue Difference - 1,555.5 Actual Growth Rate -1.0% Budgeted Growth Rate* +10.8% Difference -11.8% “Economic” Basis** Actual Growth Rate -6.2% Budgeted Growth Rate +4.0% Difference -10.2% * Includes tax changes **Adjusted for impact of tax law changes, lawsuit payouts, and tax refund processing delays. The revenue forecast used in the budget process begins with this calculation and adds or deducts the impact of tax changes. There are a number of factors that affected the performance of the forecast. First is the timing issue. The budget revenue estimate was adopted in August 2002, one month prior to the events of September 11. This consensus outlook was developed after a review of the state economic forecast by three North Carolina bank and university economists. The analysis of the outside experts suggested revenue growth of 5.0-5.5%. The rate actually adopted was 4.0%. The budgeted rate was also lower than the amount based on the DRI/WEFA economic outlook purchased by the Office of State Budget and Management. Finally, the rate compares favorably with that used in surrounding states as reported in a National Conference of State Legislatures survey: South Carolina 6.5% Virginia 6.9% Georgia 7.2% ECONOMIC OUTLOOK AND GENERAL REVENUES Page C-2 The reason for the seemingly optimistic forecasts is that prior to September 11 many economists felt that the economy had escaped a recession. In fact, there were tentative signs that a recovery from the 2000-01 slowdown was underway. The events of September 11 changed all that. The fallout from the attacks led to FY 02 budget shortfalls in 44 states. In many states, the budget gap was larger than the 1990-91 problem. The impact first became evident in North Carolina around September 25 when the sales tax remittance from large merchants for the September 1-15 retail period was tabulated. These numbers confirmed that many consumers were glued to the television screen during the first few days following the attacks. The effect of September 11 on the employment side of the economy was more difficult to track. The main reason was the fact that starting in mid-1999, the combination of NAFTA and merger/consolidation activity in the banking and healthcare sector was already leading to a pronounced slowdown in job growth in the state. Data illustrating this trend is shown below: % Change in Employment* Manufacturing Financial** Services 1999 -1.9% 7.6% 7.1% 2000 -3.0% 1.8% 4.8% 2001 -3.2% 2.2% 2.7% 2002 -6.7% -.3% .7% *February of each year compared to prior February **Includes finance, insurance, and real estate sectors The recession was characterized by the steepest drop in corporate profits in over five decades, leading to a 27% decline in corporate income tax receipts in North Carolina. The profits squeeze was caused by the inability of businesses to pass on higher wage and energy costs. Indeed, the “pricing power” of all levels of business activity has been non-existent for a couple of years. The final issue adversely affecting General Fund revenue during 2001-02 was the bear market in stocks that began in March 2000. The impact has been especially hard on technology and telecommunications shares. The effect of the markets on the state budget did not come as a surprise. The official budget forecast assumed a 12% decline in the equity prices and a 23% drop in capital gains for the 2001 tax year. However, the impact of September 11, combined with the shift in portfolios in recent years to risky NASDAQ stocks, caused gains to drop by 47%. The breakdown of the shortfall by tax schedule is shown on Page C-6. Page C-3 National Economic Outlook for 2002-03 The recovery from the events of September 11 has been the most sluggish in decades. The first stage of the turnaround, beginning in November 2001, was fueled by favorable interest rates, rapid money supply growth, and aggressive fiscal policy (tax cuts, federal disaster assistance). In addition, the level of business inventories fell by a record amount during the fourth quarter of 2001, setting the stage for a ramping up of production. Around March, the recovery began to experience what some economists are calling a “soft spot.” This loss of momentum was similar to the slowing that began in late 1991 just six months after the recovery from the Gulf War had begun. In fact, the 1991-93 recovery sputtered three times before a more permane nt acceleration took place in mid- 1993. During the summer of 2002, the indicators began to show a reacceleration. Examples included unemployment claims, retail sales, money supply growth, refinancing activity, and surveys of company executives. Even though positive signs were popping up every day, we remained concerned with the fragility of the recovery. One problem is the prolonged weakness in equity prices, especially for NASDAQ stocks. This decline has devastated the value of 401(k) balances and other sources of savings, leading to a drop in consumer confidence. This is in stark contrast to the 1995-99 experience of skyrocketing stock prices, providing fuel for a consumer-spending binge. In addition, daily news reports on accounting fraud and the potential military action against Iraq add to the gloom. The 2001 recession was noted for the steep decline in capital investment, due in large part to the tech stock crash that began in March 2000. While the confidence of executives improved dramatically in the period right after September 11, there continues to be a reluctance to expand facilities and rehire workers. For now, most employers are increasing the hours of their workers and bringing in part-time employees. Until a major turnaround in stock prices occurs or we get additional federal monetary or fiscal stimulus, the national recovery will continue to be sluggish. On the positive side, the combination of depressed inventories and low interest rates should keep the economy from going back into recession. Favorable financing has been a major reason for the stability of the housing sector. Finally, aggressive pricing of car dealers has propped up auto industry sales (but not profits). State Prospects One of the primary characteristics of the 2001 recession was the impact on the manufacturing sector. This is important to North Carolina because 18% of nonagricultural employment is in manufacturing versus 12% nationally. A more important measure might be the share of Gross State Product represented by manufacturing: 23% in North Carolina versus 17% for the United States. Page C-4 The drop in manufacturing jobs did not begin with the 2001 recession. Data compiled by the Employment Security Commission show that manufacturing experienced a fairly rapid recovery from the 1990-91 recession, with job growth of 2.6% in 1993. The “boom and bust” nature of manufacturing is one reason why the state’s economy grew 33% faster than the national experience following the 1981-82 recession and 45% quicker following the Gulf War downturn. In fact, North Carolina was the fifth fastest growing state during the 1992-94 period, due in part to the recovery in manufacturing. After a leveling off period, manufacturing employment began a steady decline in mid- 1995 as the natio nal economy experienced a mild slowdown following the Fed rate hikes in 1994. The rate of decline began to accelerate in February 2001 and peaked at an 8.5% year-over- year rate in late 2001. Particularly hard hit were the textile and apparel sectors, dropping over 15% on a year-over-year by the spring of 2001. There are some signs that the state’s economy has begun to improve. For one thing, the unemployment rate has dropped from 6.9% last spring to 6.1% in September and we have seen improvement in the number of unemployment claims. State sales tax receipts during the quarter ending June 30 were up 2.3% over the same quarter last year, compared to –2.0% for the first quarter of 2002 and -3.5% for the final quarter of 2001. Unit sales of cars and light trucks have risen 4.9% for the most recent three months. Finally, real estate conveyance tax collections, levied on an ad valorem basis, continue to benefit from favorable mortgage rates. For the future, we are budgeting on the basis of a continued sluggish recovery. This experience would be very different from the explosive growth after the last two recessions. One reason is the continued weakness of tech stock prices. As the state has diversified away from the traditional manufacturing industries (textiles, apparel, furniture, and tobacco) to electronics and other technology-oriented companies, we have become more vulnerable to problems in the latter sectors. A classic example is the experience of the Catawba Valley region (Hickory). During the late 1990’s, this area had an unemployment rate as low as 1.5% due to the explosive growth of fiber optic manufacturing. Earlier this year the rate was 9.4%, one of the highest in the state. We are concerned that it may take some time for the nation’s telecommunications companies to work down excess inventory. Forecast Tables The table on Pages C-7 and C-8 shows the projected change in key state and national economic variables for the upcoming three state fiscal years. For each measure there is a comparison between the forecast for DRI/WEFA (used by the State Budget Office), Economy.Com (used by Fiscal Research), and the rate used in adjusting the 2002-03 state budget. The budget outlook clearly represented a pessimistic view of the economy as of July 2002. Page C-5 On Page C-9 the baseline growth rate for major General Fund revenue sources is shown. These numbers have been adjusted for the numerous tax law changes and other factors that distort the year-over-year comparison. The personal income tax represents 51% of the revenue base. The yield of this tax is not only affected by economic factors (jobs, hours worked, wage rates), but has become more sensitive to capital gains (especially on shares of stock). The table on Page C-10 shows the history and forecast of the major items in the tax base. It is interesting to note that the amount of reported capital gains is much more volatile than share prices as measured by the Standard and Poor’s 500 index. One reason could be the fact that in recent years, many investors have been purchasing more of the risky technology and telecommunications stocks. A factor that has recently come into play during the bear market is the tax treatment of loss transactions. Any losses in excess of market gains can be offset against up to $3,000 of other income and the remainder can be carried forward to future years. This could mean that as the market recovers, investors may continue to use up suspended losses. The 1.9% baseline General Fund revenue growth rate for 2002-03 represents a cautious view when compared to the budgeted rates in surrounding states: South Carolina 5.9% Georgia 5.3% Virginia 4.8% The table on page C-11 gives the forecast of specific General Fund Revenue sources on a “Baseline” basis. This calculation adjusts for 1995-2002 tax law changes, tax processing delays, and litigation payouts. The “Actual” forecast is contained on Page C-12. GENERAL FUND REVENUE COLLECTIONS ($ MILLION) July 01- July 01- July 00- June 02 June 02 June 01 TAX REVENUE: Target Actual Difference Actual PERSONAL INCOME: LARGE EMPLOYER WITHHOLDING $6,754.1 $6,429.3 ($324.8) $6,265.8 SMALL EMPLOYER WITHHOLDING 378.7 393.9 15.2 443.3 ESTIMATED TAXES 1,202.2 938.7 (263.5) 1,104.6 NET FINAL PAYMENTS 1,244.8 846.7 (398.1) 1,009.0 WITHHOLDING REFUNDS (1,271.5) (1,345.0) (73.5) (1,092.5) LOCAL TAX REIMBURSEMENTS (129.0) (129.0) 0.0 (129.0) SUBTOTAL - PERSONAL INCOME $8,179.3 $7,134.6 ($1,044.7) $7,391.4 SALES & USE TAX: REGULAR $3,447.2 $3,230.1 ($217.1) $3,053.2 UTILITY 521.4 475.7 -45.7 382.4 SUBTOTAL - SALES & USE $3,968.6 $3,705.8 ($262.8) $3,435.6 CORPORATE INCOME: ESTIMATED PAYMENTS $798.8 $705.9 ($92.9) $880.7 FINAL PAYMENTS 236.8 193.2 -43.6 77.3 REFUNDS -189.6 -230.9 -41.3 -234.3 SCHOOL FACILITIES EARMARKING -55.2 -54.3 0.9 -58.8 LOCAL TAX REIMBURSEMENTS -204.5 -204.5 0.0 -204.5 SUBTOTAL - CORPORATE INCOME $586.3 $409.4 ($176.9) $460.3 FRANCHISE: ANNUAL CORPORATION TAX $333.5 $258.6 ($74.9) $387.8 UTILITY GROSS RECEIPTS 322.4 341.8 19.4 358.7 LOCAL TAX SHARING -189.2 -154.1 30.3 -166.1 SUBTOTAL - FRANCHISE $466.7 $446.3 ($20.4) $580.4 INSURANCE 321.6 340.8 19.2 305.7 ALCOHOLIC BEVERAGES NET COLLECTIONS $199.1 $201.4 $2.3 $198.9 LOCAL TAX SHARING -25.1 -26.7 -1.6 -26.1 SUBTOTAL - BEVERAGE TAX $174.0 $174.7 $0.7 $172.8 INHERITANCE 130.2 104.8 -25.5 123.2 PRIVILEGE LICENSE 26.4 26.6 0.2 3.0 TOBACCO PRODUCTS 40.7 41.5 0.8 42.0 PIPED NATURAL GAS 37.9 40.9 3.0 37.2 GIFT 23.2 13.4 -9.8 20.3 OTHER 1.1 1.1 0.0 1.2 TOTAL - TAX REVENUE $13,956.0 $12,439.9 ($1,516.1) $12,572.9 NONTAX REVENUE INVESTMENT INCOME $166.8 $132.6 ($34.2) $170.3 JUDICIAL FEES 112.0 110.4 -1.6 109.3 DISPROPORTIONATE SHARE 107.0 110.4 3.4 109.1 INSURANCE DEPARTMENT 45.5 46.4 0.9 43.6 OTHER 139.4 131.4 -8.0 103.6 TOTAL: NONTAX REVENUE $570.7 $531.2 ($39.5) $535.8 TOTAL: TAX AND NONTAX REVENUE $14,526.7 $12,971.1 ($1,555.6) $13,108.7 TRANSFERS: HIGHWAY TRUST FUND $171.7 $171.7 $0.0 $170.0 HIGHWAY FUND 14.5 14.6 0.1 13.8 TOTAL: TRANSFERS $186.2 $186.3 $0.1 $183.8 TOTAL GENERAL FUND REVENUE $14,712.9 $13,157.4 ($1,555.5) $13,292.5 Note: Data has not be adjusted for tax law changes, lawsuit payouts and tax processing delays. Page C-6 Budget Baseline Estimate Forecast 92-93 93-94 94-95 95-96 96-97 97-98 98-99 99-00 00-01 01-02 02-03 02-03*** Personal Income Tax 8.6% 7.4% 9.9% 11.0% 10.2% 13.9% 10.5% 6.2% 7.4% -7.5% 2.1% 3.7% Sales Tax: Regular 8.3% 10.7% 8.9% 6.2% 8.1% 6.1% 7.5% 5.5% 1.9% -2.0% 1.5% 3.2% Utility Gross Receipts 3.7% 8.6% -0.9% 7.9% 4.2% 4.7% 4.4% 6.5% 6.4% 4.2% 2.2% 3.8% Corporate Income Tax 13.5% 5.8% 21.2% 3.5% 10.0% 3.5% 7.8% -2.6% -11.5% -26.6% 2.8% 4.1% Franchise Tax: Corporation Franchise 2.8% 3.2% 4.1% 8.9% 6.6% 23.6% 5.7% -4.7% 22.6% -15.7% 1.9% 3.6% Utility Gross Receipts 1.8% 11.8% -1.5% 7.0% 2.9% 3.8% -3.1% -3.8% 9.2% 10.1% 1.0% 2.1% Inheritance Tax* 2.2% 18.9% 3.2% 2.7% 17.0% 12.2% 12.8% 12.0% -2.1% -15.2% 2.8% 3.0% Insurance Tax 2.8% 16.3% 4.8% 4.6% 6.0% 3.4% 6.9% -6.1% 5.2% 10.2% 3.7% 4.8% Alcoholic Beverage Tax 0.1% 1.2% 1.4% 2.9% 3.3% 2.3% 2.8% 5.4% 3.7% 2.9% 2.9% 3.1% Total Revenue** 7.0% 9.1% 9.9% 6.8% 9.2% 8.8% 9.8% 4.0% 4.6% -6.2% 1.9% 3.5% NOTE: Data has been adjusted for tax law changes, tax collection and refund delays, litigation payouts, and other special one-time factors. *Applies to "pick-up" tax that is levied to use up federal credit for state death taxes. **Includes minor tax sources not shown in table. ***This forecast is based on July 2002 economic outlook of Economy.com and is shown for comparison purposes. C-9 GROWTH RATES FOR MAJOR GENERAL FUND REVENUE SOURCES 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001(e) 2002(e) 2003(e) Wages & Salaries 69.20 73.00 77.46 82.76 87.50 94.08 100.85 107.19 114.20 115.57 114.65 119.92 % Change 7.1% 5.5% 6.1% 6.8% 5.7% 7.5% 7.2% 6.3% 6.5% 1.2% -0.8% 4.6% Interest 3.08 2.53 2.43 3.05 3.30 3.52 3.69 3.62 4.19 4.16 3.95 4.11 % Change -22.8% -17.9% -4.0% 25.5% 8.2% 6.7% 4.8% -1.9% 15.7% -0.7% -5.0% 4.0% Dividends 1.58 1.72 1.79 2.07 2.29 2.62 2.61 2.95 3.21 3.52 3.74 3.89 % Change 2.6% 8.9% 4.1% 15.6% 10.6% 14.4% -0.4% 13.0% 8.8% 9.8% 6.0% 4.2% Business Income 3.53 3.69 3.87 3.98 4.30 4.44 4.75 4.89 4.83 4.64 4.71 5.14 % Change 9.6% 4.5% 4.9% 2.8% 8.0% 3.3% 7.0% 2.9% -1.2% -4.0% 1.6% 9.1% Capital Gains 2.38 2.73 2.91 3.41 5.11 7.06 8.45 9.38 10.24 5.40 3.29 3.64 % Change 18.4% 14.7% 6.6% 17.2% 49.9% 38.2% 19.7% 11.0% 9.2% -47.3% -39.1% 10.6% % Change Stock Value 10.5% 8.6% 2.0% 17.7% 23.9% 30.1% 24.2% 22.1% 7.6% -16.4% -1.4% 7.4% IRA Distributions 0.64 0.65 0.80 0.91 1.13 1.37 1.90 2.27 2.67 2.72 2.83 3.06 % Change 28.0% 1.6% 23.1% 13.8% 24.2% 21.2% 38.7% 19.5% 17.6% 2.0% 4.0% 8.0% Unemployment Benefits 0.48 0.42 0.30 0.31 0.30 0.25 0.25 0.31 0.41 0.50 0.65 0.55 % Change 9.1% -12.5% -28.6% 3.3% -3.2% -16.7% 0.0% 24.0% 32.3% 22.0% 30.0% -15.4% Pensions 4.38 4.63 5.03 5.52 6.05 6.69 7.40 8.10 8.69 9.21 9.91 10.85 % Change 6.6% 5.7% 8.6% 9.7% 9.6% 10.6% 10.6% 9.5% 7.3% 6.0% 7.6% 9.5% Partnership 2.63 2.79 3.43 3.80 4.40 5.00 5.45 6.05 6.50 5.85 6.20 6.57 % Change 38.4% 6.1% 22.9% 10.8% 15.8% 13.6% 9.0% 11.0% 7.5% -10.0% 6.0% 5.9% Statutory Adjustment -0.8 -0.8 -0.9 -1.0 -1.0 -1.1 -1.2 -1.3 -1.4 -1.5 -1.6 -1.7 % Change 2.5% 3.7% 7.1% 5.6% 6.3% 7.9% 10.1% 8.3% 8.5% 6.4% 6.7% 6.2% Total Gross Income 87.09 91.32 97.12 104.86 113.37 123.94 134.15 143.46 153.53 150.08 148.33 156.03 % Change 6.8% 4.9% 6.4% 8.0% 8.1% 9.3% 8.2% 6.9% 7.0% -2.3% -1.2% 5.2% (e) = Estimated C-10 FEDERAL TAX RETURN DATA FOR NORTH CAROLINA TAXPAYERS ($ BILLION) Page C-13 The Highway Fund is supported from three primary revenue sources: three- fourths of the motor fuels tax, license and fee revenues collected by the Division of Motor Vehicles, and interest earned from investment of fund balances by the State Treasurer. FY 2001-02 REVENUES Highway Fund collections totaled $1.298 billion in FY 2001-02, a 3.1% increase over FY 2000-01. Motor fuels tax collections increased by 2.4%. FY 2002-03 FORECAST Highway Fund revenues are projected to decrease by $21.6 million, or 1.7%, in FY 2002- 03 due to lower motor fuels tax collections and lower investment income. HIGHWAY FUND REVENUE (MILLIONS) FY 2001-02 FY 2002-03 Actual Projected Motor Fuels Taxes $888.1 $861.4 Licenses, Fees, and Penalties Staggered Vehicle Registration $148.3 $155.2 Truck Licenses $61.5 $61.8 Driver Licenses $68.9 $71.6 International Registration Plan $49.9 $52.4 Other $64.3 $62.2 Sub Total $392.9 $403.2 Investment Income $17.2 $12.0 Total Highway Fund Revenue $1298.2 $1276.6 HIGHWAY FUND REVENUE Page C-14 The 1989 Session of the General Assembly established the Highway Trust Fund for the purpose of funding highway construction. The 2001 General Assembly permitted the use of $680 million of Trust Fund cash balances over three fiscal years for additional purposes, primarily maintenance. The Trust Fund's primary revenue sources are one-fourth of the motor fuel tax, a 3% Highway Use Tax, title fees and various registration fees, and interest earned on cash balances. The law has required that $170 million be transferred each year from the Highway Trust Fund to the General Fund. As a result of a change in the law in 2001, this statutory transfer in FY 2002-03 is $172.4 million and will grow over time. In addition to this statutory transfer, the Governor transferred $80 million in FY 2001-02 and the Budget for FY 2002-03 transfers $205 million to the General Fund. The $205 million, and an additional $80 million to be transferred in FY 2003-04, are to be paid back to the Highway Trust Fund starting in FY 2004-05. FY 2001-02 REVENUES Highway Trust Fund revenues for FY 2001-02 (net of transfers to the General Fund) totaled $722.1, a decrease of 9.1% from the previous year. The decrease was primarily due to the $80 million additional transfer to the General Fund. FY 2002-03 FORECAST Highway Trust Fund revenues (net of transfers to the General Fund) are expected to decrease by 17.3% in FY 2002-03, reflecting the increased transfers to the General Fund in the FY 2002-03 Budget. HIGHWAY TRUST FUND REVENUE (MILLIONS) FY 2001-02 FY 2002-03 Actual Projected Motor Fuels Taxes $296.3 $287.1 Highway Use Tax $555.3 $579.4 Title Fees $78.9 $81.0 Other Fees $11.8 $12.2 Investment Income $31.5 $15.0 Sub Total $973.8 $974.7 Statutory Transfer to General Fund ($171.7) ($172.4) Additional Transfer to General Fund ($80.0) ($205.0) Total Highway Trust Fund Availability $722.1 $597.3 HIGHWAY TRUST FUND REVENUE FEDERAL BLOCK GRANTS & SUMMARY OF MEDICAID CHANGES Page D - 1 HISTORY In 1981, the Reagan Administration recommended and Congress adopted the Omnibus Budget Reconciliation Act which created a number of new “block grants” to be distributed to state governments in lieu of numerous traditional “categorical” funds. This approach to state aid reflected the President’s philosophy of shifting more fiscal decision making to the states. In addition, it allowed the Administration to significantly cut the federal budget. In previous years, Congress had appropriated money to the States for smaller, narrow-purpose programs, such as those for disabled children, migrant health, family planning, and immunizations. These funds were accompanied by numerous “strings” and substantial paperwork requirements. The new block grants consolidated appropriations for many of these programs into large, general purpose grants which had fewer “strings” and allowed more flexibility in the use of the funds. BRIEF DESCRIPTION OF THE BLOCK GRANTS SOCIAL SERVICES BLOCK GRANT The Social Services Block Grant is intended to provide federal funds to help people achieve or maintain a greater degree of economic self-support or self-sufficiency, to prevent abuse or exploitation of children and adults who are unable to protect their own interests, and to prevent inappropriate institutional care or to secure appropriate institutional care when other forms of care are not appropriate. The primary providers of these services are the 100 county departments of social services. Examples of services funded include child and adult day care and in-home services for the elderly. SUBSTANCE ABUSE PREVENTION AND TREATMENT BLOCK GRANT The ADAMHA Reorganization Act of 1992 (P.L. 102-321) split the Alcohol, Drug, and Mental Health Services Block Grant (ADMBG), thereby creating the new Substance Abuse Prevention and Treatment Block Grant (SAPTBG). The SAPTBG provides federal financial assistance to states for the provision of prevention and treatment of alcohol and drug abuse. MENTAL HEALTH SERVICES BLOCK GRANT The MHBG provides federal financial assistance to states for the provision of community based services for the mentally ill. Services provided through the use of the block grant must be those described in the state’s Plan in accordance with Federal P.L. 102-321. These services include outpatient, day treatment, psychosocial rehabilitation, emergency services, residential services, etc. FEDERAL BLOCK GRANT PROGRAMS Page D - 2 FEDERAL BLOCK GRANT PROGRAMS (Continued) MATERNAL AND CHILD HEALTH BLOCK GRANT This block grant funds health services for mothers and children to reduce infant mortality and the incidence of preventable diseases and handicapping conditions among children. It also provides for rehabilitative services for blind and disabled individuals under the age of 16 and for treatment and care of children with developmental disabilities. PREVENTIVE HEALTH SERVICES BLOCK GRANT This block grant provides health services to low-income persons in order to reduce the risk of preventable illness and early death and to improve the quality of life through better health. LOW-INCOME ENERGY ASSISTANCE BLOCK GRANT The purpose of this block grant is to provide funds to assist low-income families with their heating fuel costs, to provide some emergency assistance and home weatherization or energy-related home repairs. COMMUNITY SERVICES BLOCK GRANT This is a federally funded program that provides a range of services and activities designed to eliminate the causes of poverty among the elderly, poor, and handicapped. COMMUNITY DEVELOPMENT BLOCK GRANT This block grant provides funds to assist local governments with community and economic development projects that primarily benefit low and moderate-income persons. CHILD CARE AND DEVELOPMENT FUND (CCDF) BLOCK GRANT The Personal Responsibility and Work Opportunities Reconciliation Act of 1996 eliminated any entitlement to child care subsidies and consolidated all federal child care programs into the CCDF block grant. The purpose of the CCDF block grant is to improve the affordability, availa bility, and quality of child care for families. Most of the block grant funding must be used to provide child care subsidies to families receiving public assistance, making the transition off of public assistance, or at risk of becoming dependent on public assistance. In addition, 4% of the total allocation must be spent on quality and availability initiatives. CCDF requires all providers caring for children who receive subsidies to meet minimum health and safety standards. TEMPORARY ASSISTANCE FOR NEEDY FAMILIES In August 1996, Congress passed and the Clinton Administration enacted the Personal Responsibility and Work Opportunities Reconciliation Act of 1996 (PRWORA). Better known as federal Welfare Reform, passage of PRWORA ended decades of the Aid to Families of Dependent Children (AFDC) entitlement program and replaced it with the Temporary Assistance for Needy Families (TANF) Block Grant. This action gave states unprecedented flexibility to create their own welfare programs that emphasize self-sufficiency and work. Page D - 3 2002-2003 DEPARTMENT OF COMMERCE Community Development Block Grant – 2003 Program Year $45,000,000 DEPARTMENT OF HEALTH AND HUMAN SERVICES Division of Mental Health, Developmental Disabilities and Substance Abuse Services Social Services Block Grant $8,656,604 Mental Health Services Block Grant 10,239,850 Substance Abuse Prevention and Treatment Block Grant 39,275,687 Temporary Assistance for Needy Families Block Grant 1,875,142 Division of Social Services Low Income Energy Block Grant $25,569,203 Social Services Block Grant 28,376,011 Temporary Assistance for Needy Families 246,965,975 Division of Facility Services Social Services Block Grant $639,964 Division of Child Development Social Services Block Grant $3,000,000 Child Care and Development Fund Block Grant 143,605,794 Temporary Assistance for Needy Families 99,433,430 Division of Vocational Rehabilitation Social Services Block Grant $188,263 Division of Services for the Blind Social Services Block Grant $3,105,711 Office of the Secretary (Office of Economic Opportunity) Social Services Block Grant $41,302 Community Services Block Grant 16,963,303 Division of Aging Social Services Block Grant $3,995,535 Division of Public Health Social Services Block Grant $145,819 Substance Abuse Prevention and Treatment Block Grant 631,335 Preventive Health Services Block Grant 3,747,927 Maternal and Child Health Block Grant 16,928,823 Note: The figures listed above for the Department of Health and Human Services do not reflect the total amount of the Block Grants, due to various transfers to other Departments. Page D - 4 STATE During its 2002 Regular Session, the N.C. General Assembly enacted a $7.2 Billion budget for the Medicaid Program for SFY 2002-03. State funding for the Medicaid Program totals $2.19 Billion for SFY 2002-03. During its deliberations on the proposed budget, the 2002 General Assembly reduced the General Fund appropriations for the Medicaid Program by $111 million for SFY 2002- 03. The reductions include increasing prescription drug utilization management; reducing personal care services from 80 hours per month to 60 hours per month; expanding the Carolina ACCESS II/III program; applying Medicaid policy to Medicare crossover claims; reducing case management services; reducing hospital payments by .5%, reducing rates by 5% for durable medical equipment, optical services, home health supplies, home infusion therapy, ambulatory surgical services and high risk intervention services; modifying the asset policies for receiving Medicaid and transferring funds from the Medicaid Reserve Fund. The 2002 General Assembly also increased General Fund appropriations by $81.7 for SFY 2002-03 to cover an increase in the Medicaid forecast. The 2002 General Assembly also enacted other Medicaid policy changes: · Required nursing homes to place Medicare recipients into Medicare certified nursing me beds. · Required Medicaid providers to purchase a $100,000 performance bond or other financial instrument in order to receive payment from the Medicaid program. · Required parental income to be counted in determining eligibility for a pregnant minor if the minor is residing in the home. · Required DMA to apply federal transfer of assets policies to real property excluded as tenancy- in-common, or as nonhomesite property made income producing under Title XIX, Section 1902(r)(2) of the Social Security Act. · Applied transfer of asset policies to noninstitutionalized individuals or spouse of such individual as defined in Title XIX, Section 1917(c) as described in an approved Title XIX State Plan. · Included personal care services under the definition of "medical assistance" in G.S. 108A-70.5(b) - the Medicaid Estate Recovery statutes. · Required DMA to employ procedures to mitigate hardship to Medicaid enrollees when implementing the Supplemental Security Income (SSI) method for considering equity value of income producing property. CHANGES TO THE MEDICAID PROGRAM Page D - 5 · Required DHHS to support the maximum number of persons through the CAP programs within existing funding for these programs. Allowed a person who entered a nursing facility on or before June 1, 2002 to receive CAP-DA services even if the availability of CAP-DA services has been suspended. · Authorized DHHS to adopt temporary rules to clarify recipient rights related to the pharmacy management plan. · Prohibited DHHS from requiring supplemental rebates from pharmaceutical manufacturers. FEDERAL No significant federal changes have occurred in 2002. DISPROPORTIONATE SHARE FUNDS Disproportionate Share (DSH) Funds are Medicaid payments made to health care providers who deliver services to large numbers of uninsured patients. DSH payments to health care providers are made in addition to reimbursements for services provided to Medicaid eligible patients. Congress originally authorized the payments as a funding mechanism to offset the cost of uncompensated care for health care providers, particularly hospitals, in an effort to improve access to health care for the uninsured. Prior to the enactment of The Balanced Budget Act of 1997, federal law permitted states to draw federal funds up to a maximum allotment established by the federal Health Care Financing Agency (HCFA). The law allowed states to match federal funds for DSH payments with direct appropriations or with funds appropriated to a governmental unit for the delivery of health care to the uninsured. States were required to obtain approval of their State Medicaid Plan for drawing DSH payments from HCFA. Under the amended federal law (effective October 1997), DSH allocations are set forth in law on a state-by-state basis. The law provides for gradual reductions in DSH allocations to states beginning 1999 through the year 2002. North Carolina uses state appropriations to the five state hospitals (UNC Memorial, Dorothea Dix, Broughton, Cherry and John Umstead) as the non-federal match with which the State draws disproportionate share payments. The 2001-03 biennial state budgets anticipate $107 million each fiscal year in DSH payments to the State Treasurer. Section 21.23 of Chapter 424 of the 2001 Session Laws stipulates that appropriations to the Medicaid program that become available due to federal Disproportionate Share receipts will be deposited as nontax revenues. The State Treasurer will reserve any DSH payments in excess of $107 million for future appropriation. SUMMARY: GENERAL FUND APPROPRIATIONS 2002-2003 FISCAL YEAR 2002-03 2002-03 Authorized Recurring Nonrecurring Net Position Revised Appropriation Adjustments Adjustments Changes Changes Appropriation Education: Community Colleges 643,195,459 28,195,165 (2,109,234) 26,085,931 -11.50 669,281,390 Public Education 5,922,188,546 (11,409,327) (16,225,726) (27,635,053) 471.30 5,894,553,493 University System 1,798,320,830 (12,807,721) (17,416,000) (30,223,721) 0.00 1,768,097,109 Total Education 8,363,704,835 3,978,117 (35,750,960) (31,772,843) 459.80 8,331,931,992 General Government: Administration 61,563,497 (5,620,309) 0 (5,620,309) -77.80 55,943,188 Auditor 11,864,673 (795,965) 0 (795,965) -5.00 11,068,708 Cultural Resources 59,427,419 (4,794,666) 1,184,453 (3,610,213) -35.45 55,817,206 Cultural Resources - Roanoke Island 1,859,463 (151,222) 0 (151,222) 0.00 1,708,241 General Assembly 39,553,848 (2,654,234) 0 (2,654,234) -10.00 36,899,614 Governor 5,442,905 (504,595) 0 (504,595) -8.00 4,938,310 Insurance 23,527,552 0 0 0 -4.56 23,527,552 Insurance - Worker's Compensation Fund 4,500,000 0 (2,500,000) (2,500,000) 0.00 2,000,000 Lieutenant Governor 669,545 (53,280) 0 (53,280) -1.00 616,265 Office of Administrative Hearings 2,795,155 (233,742) 0 (233,742) -3.00 2,561,413 Revenue 77,955,704 (2,384,400) 0 (2,384,400) -21.00 75,571,304 Rules Review Commission 325,795 (9,981) 0 (9,981) 0.00 315,814 Secretary of State 8,286,850 (194,156) 15,990 (178,166) -6.00 8,108,684 State Board of Elections 3,186,269 (40,378) 250,000 209,622 0.00 3,395,891 State Budget and Management 5,354,938 (300,057) 0 (300,057) -4.00 5,054,881 State Budget and Management -- Special 3,080,000 0 100,000 100,000 0.00 3,180,000 State Controller 11,523,868 (1,101,040) 0 (1,101,040) -5.00 10,422,828 Treasurer - Operations 7,216,817 671,618 0 671,618 -2.00 7,888,435 Treasurer - Retirement / Benefits 12,379,780 (5,248,601) 0 (5,248,601) 0.00 7,131,179 Total General Government 340,514,078 (23,415,008) (949,557) (24,364,565) -182.81 316,149,513 General Fund Appropriations Fiscal Year 2002-03 2002 Session (Reflects all legislation affecting General Fund availability enacted by the General Assembly during the 2002 Session, including SB 1115, HB 1105, and SB 1455) Page E - 1 2002-03 2002-03 Authorized Recurring Nonrecurring Net Position Revised Appropriation Adjustments Adjustments Changes Changes Appropriation Health and Human Services: Office of the Secretary 48,008,705 19,776,228 0 19,776,228 -24.00 67,784,933 Aging Division 29,531,910 (926,000) 0 (926,000) 0.00 28,605,910 Blind and Deaf / Hard of Hearing Services 10,168,115 (643,013) 0 (643,013) -1.00 9,525,102 Child Development 289,058,396 (22,228,035) 15,000,000 (7,228,035) -6.00 281,830,361 Education Services 69,581,525 (4,104,503) 0 (4,104,503) -77.50 65,477,022 Facility Services 15,442,236 (748,170) 0 (748,170) -5.00 14,694,066 Medical Assistance 2,219,446,892 14,114,441 (43,747,538) (29,633,097) -2.00 2,189,813,795 MH/DD/SAS 581,068,627 (9,487,015) 1,780,000 (7,707,015) -95.75 573,361,612 NC Health Choice 37,487,142 (168,964) 7,740,000 7,571,036 0.00 45,058,178 Public Health 107,434,083 (10,045,770) 3,450,000 (6,595,770) -12.45 100,838,313 Social Services 194,763,531 (12,833,025) (1,350,000) (14,183,025) -44.00 180,580,506 Vocational Rehabilitation 42,088,956 (3,230,105) 0 (3,230,105) -26.00 38,858,851 Total Health and Human Services 3,644,080,118 (30,523,931) (17,127,538) (47,651,469) -293.70 3,596,428,649 Justice and Public Safety: Correction 930,964,916 (22,603,242) (28,306,866) (50,910,108) -366.40 880,054,808 Crime Control & Public Safety 28,493,506 (713,318) 0 (713,318) -16.00 27,780,188 Judicial Department 305,465,135 (10,128,667) (700,299) (10,828,966) -55.00 294,636,169 Judicial - Indigent Defense 68,867,771 3,469,130 4,950,000 8,419,130 61.00 77,286,901 Justice 73,785,584 (1,456,276) (1,391,115) (2,847,391) -19.00 70,938,193 Juvenile Justice & Delinquency Prevention 142,554,017 (13,357,423) (211,961) (13,569,384) -190.50 128,984,633 Total Justice and Public Safety 1,550,130,929 (44,789,796) (25,660,241) (70,450,037) -585.90 1,479,680,892 Natural And Economic Resources: Agriculture and Consumer Services 55,268,040 (4,677,739) (144,719) (4,822,458) -67.50 50,445,582 Commerce 44,280,374 (10,150,110) (200,000) (10,350,110) -19.91 33,930,264 Commerce - State Aid 5,200,000 5,085,000 0 5,085,000 0.00 10,285,000 Environment and Natural Resources 158,722,700 (9,994,113) 90,000 (9,904,113) -114.84 148,818,587 DENR - Clean Water Mgmt. Trust Fund 70,000,000 0 (3,500,000) (3,500,000) 0.00 66,500,000 Labor 15,117,906 (951,725) 0 (951,725) -9.38 14,166,181 NC Housing Finance Agency 5,300,000 (540,600) 0 (540,600) 0.00 4,759,400 NC Biotechnology Center 6,270,468 (377,047) (250,000) (627,047) 0.00 5,643,421 Rural Economic Development Center 5,090,749 (423,851) 0 (423,851) 0.00 4,666,898 Total Natural and Economic Resources 365,250,237 (22,030,185) (4,004,719) (26,034,904) -211.63 339,215,333 Transportation 13,393,341 (1,143,341) (1,347,500) (2,490,841) 0.00 10,902,500 Page E - 2 2002-03 2002-03 Authorized Recurring Nonrecurring Net Position Revised Appropriation Adjustments Adjustments Changes Changes Appropriation Statewide Reserves and Debt Service: Debt Service: Interest / Redemption 352,266,860 (36,750,000) (61,000,000) (97,750,000) 254,516,860 Federal Reimbursement 1,155,948 0 0 0 1,155,948 Subtotal Debt Service 353,422,808 (36,750,000) (61,000,000) (97,750,000) 0.00 255,672,808 Statewide Reserves: Teachers/Principals Step Increase 51,937,267 0 51,937,267 51,937,267 Asst/Deputy Clerks/Magistrates Step Increase 1,980,700 0 1,980,700 1,980,700 Compensation Increases 193,842,000 (4,247,868) 0 (4,247,868) 189,594,132 State Health Plan 200,000,000 (12,621,872) 0 (12,621,872) 187,378,128 Retirement Rate Adjustment (241,002,720) (144,525,000) 0 (144,525,000) (385,527,720) Judicial Retirement Rate Adjustment (2,265,000) 0 (2,265,000) Employee Severance Compensation 0 0 5,000,000 5,000,000 5,000,000 Contingency and Emergency 5,000,000 0 0 0 5,000,000 Salary Adjustment Fund 500,000 0 0 0 500,000 Governor's Efficiency Commission (25,000,000) 0 (25,000,000) (25,000,000) Management Flexiblity (41,500,000) 0 (41,500,000) (41,500,000) ITS Rate Reduction (4,000,000) (3,414,318) 0 (3,414,318) (7,414,318) MH/DD/SAS Trust Fund 0 0 8,000,000 8,000,000 8,000,000 Easterling TF for Children with Special Needs 0 0 1,000,000 1,000,000 1,000,000 HIPAA Implementation 0 0 2,000,000 2,000,000 2,000,000 Subtotal Statewide Reserves 152,074,280 (177,391,091) 16,000,000 (161,391,091) 0 (9,316,811) Total Reserves and Debt Service 505,497,088 (214,141,091) (45,000,000) (259,141,091) 0.00 246,355,997 Total General Fund for Operations 14,782,570,626 (332,065,235) (129,840,515) (461,905,750) -814.24 14,320,664,876 Other General Fund Expenditures: Capital Improvements 0 0 31,158,000 31,158,000 31,158,000 Repairs and Renovations 0 0 0 Total Other General Fund Expenditures 0 0 31,158,000 31,158,000 0.00 31,158,000 Total General Fund Budget 14,782,570,626 (332,065,235) (98,682,515) (430,747,750) -814.24 14,351,822,876 Page E - 3 EDUCATION Community Colleges Total Budget Approved 2001 Session FY 02-03 Budget Changes $643,195,459 GENERAL FUND Overview: 2002 Session Fiscal and Budgetary Actions A. Community College System Office ($882,117) -11.50 1 R Reduces the Executive Divi sion by 2.5 positions totaling $109,356 and operati ng l i n e i t ems totaling $30,650. Reduces the Administration Di vision by 5 positions t otaling $180,522 and operating line items totaling $262,096. Reduces the Business and Finance Divi sion by 1 position totaling $29,026 and operating line items t otaling $43,697. Reduces the Academic and Student Services Division by 2 positions totaling $98,862 and operating line items totaling $67,034. Reduces the Workforce Development Division by 1 position totaling $32, 110 and operating l i ne items totaling $28,694. Operating Efficiencies B. State Aid - Categorical Programs 2 ($27,000) R El i mi nates the appropriation for Systemwide Projects. This f unding was used to pay for the printing of G.S. 115D. Si nce the Statutes are now avail able on-line, the printing i s no l onger necessary. Systemwide Projects 3 ($14,991) R Reduces the appropri ation for the public radio station at Isothermal Communi t y College by 10% from $149,912 to $134,921. Isothermal Communi t y College is the only college receiving a public radio subsidy that offers a degree program in Broadcasting and Producti on Technology. Public Radio Isothermal ($149,912) $100,000 4 R Reduces the State subsi dy for Craven Community College's NR public radio station from $149,912 t o $100,000. Public Radio Craven $100,000 5 Provides funds for Gaston Col l ege's public radio station. NR Public Radio Gaston 6 ($230,397) R Reduces the State subsi dy for the sawmi l l program at Haywood Communi t y College by 50%. Reduces the remai ning special allotment programs by 10%. Special Allotments 7 ($507,067) R Reduces the appropri ation for professional development programs by 50%, f r om $1,014,135 to $507,068. Faculty Upgrade Community Colleges Page F - 1 Overview: 2002 Session Fiscal and Budgetary Actions FY 02-03 8 ($1,000,000) R Reduces the state appropri ation for equipment by $2 mi l l i on, from $16,319,732 to $14,319,732. Equipment Reduction 9 $1,212,300 R Cont i nues the funding for the operation of the NC I nformation Hi ghway at 45 col l eges. NC Information Highway Line Charges E. Formula Modifications 10 ($3,000,000) R Transfers funds previously appropriated in the Curriculum f ormula for the Academi c Support Supplement to a separate l i ne item i n State aid fund code 1600. Reduces the amount appropriated for the Academic Support Supplement by $3,000,000, from $11,886,683 to $8,886,683. Academic Support Supplement F. Tuition, Enrollment, and Financial Aid ($3,299,824) ($2,309,234) 11 R I ncreases the budgeted amount of tuition and registration NR f ees to more accurately reflect anticipated receipts. Adjustment for Over-Realized Receipts 12 ($10,754,640) R I ncreases the in-state tuition charge per semester hour by $3.25 from $31.00 to $34.25. Increases the out-of-state t ui t i on charge per semester hour by $17.50 from $173.25 t o $190.75. Changes the semester credit hour limi t f o r summer term curriculum tuition from 9 hours to 16 hours. It is anticipated that for most students, this increase wi l l be off-set by federal and State financial assistance programs. Increase Curriculum Tuition Charge 13 $51,848,813 R Fully funds the Community Col l ege enrol l ment request. Enrollment Adjustment 14 I ncreases the Need-Based Financi al Ai d fund from $6,062,806 to $7,062,806. This item is funded from the Escheats fund. Increase Need-Based Financial Aid G. Management Flexibility 15 ($5,000,000) R Gives the State Board of Communi t y Col l eges t he f l e x i b i l i t y t o i mplement a $5,000,000 reduction within the Community Col l ege System budget. State Board of Community Colleges Discretionary Reduction Community Colleges Page F - 2 Overview: 2002 Session Fiscal and Budgetary Actions FY 02-03 $28,195,165 ($2,109,234) -11.50 Budget Changes Total Position Changes Revised Total Budget $669,281,390 R NR Community Colleges Page F - 3 Special Provisions SB 1115 Department: Community Colleges Boilerplate language allowing community colleges to establish their budgets according to their local missions. Limits the transfer of funds from faculty salaries to 2% systemwide. Section: 8.1 Title: Community College Funding Flexibility Summary: Directs the State Board to consider regionalization of existing and new programs. Requires the State Board to report on all programs approved or terminated during the year, the reason for the program approval, and the progress made regarding regionalization. Section: 8.2 Title: Regional Programs Summary: Directs the State Board to work with the Department of Commerce and the Board of Governors of the University System and the seven regional economic development commissions to adopt a joint policy that requires the development of a five-year plan for each of the economic development regions in the State. Each plan shall determine the economic development goals and the future job market in the region and shall identify community college and university courses currently offered or needed to effectuate those goals. Section: 8.3 Title: Regional Economic Development Vision Plans Summary: Moves funding for the Regional High Tech Center at Haywood Community College (robotics) from the special allotments line item to a new line item entitled "Haywood Regional High Technology Center." Directs the State Board to study the Center to determine whether similar centers should be created in other regions of the State. Section: 8.4 Title: Haywood Regional High Technology Center Summary: Moves the Academic Support Supplement from the curriculum instructional formula to a separate line item. Directs the State Board to report any recommendations regarding formula modifications to the General Assembly. Directs the State Board to allocate up to $200,000 from overrealized receipts for the Botanical Laboratory at Fayetteville Technical Community College. Section: 8.5 Title: Realignment of Funding Summary: Allows the State Board to adopt temporary rules clarifying the conditions under which community colleges may earn budgeted FTE for training provided to law enforcement, fire and rescue services, and emergency medical service personnel. Allows the State Board to adopt temporary rules clarifying the definition of fees charged to students. Section: 8.6 Temporary Rules on FTE for Training Provided to Law Enforcement Personnel and on Generic Fees Title: Summary: Community Colleges Page F - 4 Directs Education Oversight, in conjunction with the State Board, to hire an outside consultant to study the organization and structure of the Community College System, the administrative formula, and the funding of multicampus colleges and off-campus centers. Also, allows Education Oversight to hire an outside consultant to study Community College System funding, including State funds, county funds, and tuition rates. Section: 8.7 Title: Community College System Study Summary: Allows the State Board to transfer funds within the System Office budget to implement budget reductions. Section: 8.8 Title: Flexibility to Implement Budget Reductions Summary: Transfer a receipt supported position from the Community College System Office to the Department of Public Instruction. This position was transferred to the System Office when the Bureau of Training Initiatives was moved from the Department of Labor in FY01-02. The position mainly works with the High School Apprenticeship program. (Note: Section 71 of SB 1217, 2002 Technical Corrections, SL 2002-159, adds this provision to SB 1115, S.L. 2002-126.) Section: 8.9 Title: Transfer of Community College Position Summary: Allows the Hosiery Center to keep fees collected by the Center for product testing; exempts purchases using those fees from State purchasing requirements. (Originally H.B. 1626) Section: 8.10 Title: Hosiery Center Funds Summary: Allows the State Board to use up to $1 million for a non-recurring grant to the North Carolina Community College Foundation to match a donation from Glaxo Smith Kline. (Originally S.B. 1467, H.B. 1681) Section: 8.13 Title: Scholarships for Prospective Teachers Summary: Directs the State Board to report to Fiscal Research on all reductions made in order to meet the management flexibility reduction. Section: 8.14 Title: State Board of Community College Management Flexibility Summary: Community Colleges Page F - 5 Public Education Total Budget Approved 2001 Session FY 02-03 Budget Changes $5,922,188,546 GENERAL FUND Overview: 2002 Session Fiscal and Budgetary Actions A. Adjustments to Budget Requirements $29,857,304 461.90 16 R Revi se the projected increase for FY 2002-03 to reflect an additional 8,695 in average daily membership (total i ncrease over FY 2001-02 i s 25,817). The dol l ar amount reflects the Continuation Budget impact of this increase on all position, dollar, and categorical allotments. Total funded student population for FY 2002-03: 1,326,865. The i ncrease for ADM growth for Driver Education is $236,139 which is transferred to the General Fund from the Hi ghway Fund. Total ADM i ncrease for the General Fund and Highway Fund i s $30, 093,413. Continuation Adjustment for Average Daily Membership 17 ($22,788,638) R Annual adj ustment of average budgeted salary for certified personnel. Adjustment is based on actual sal aries paid to certified personnel through December 2001. Average Annual Salary Adjustment 18 ($5,964,427) R I n addition to the annual Continuation Budget adjustment t o average budgeted sal ary for certified personnel, a more recent review of certified personnel salaries from updated salary data identified an additional reduction in projected salary needs for FY 2001-03. Additional Adjustments to Average Salary Projections ($5,361,201) 19 Adjustment based on the estimated actual utilization of NR posi t i o n a l l o t ments. Adjustment for Unutilized Position Allotments 20 ($2,273,979) R Adjust the increase for inflation to a 3% growth (in line with the Consumer Price Index) from the 5% growth used to build the Continuation Budget. The Instructional Supply a l l o t ment for FY 2002-03 will be $41.45 per ADM af t e r t h i s adjustment . Also see Speci al Provision related to instructional material/instructional supplies/equipment (SB 1115, Sect i on 7. 9). Classroom Materials/Instructional Supplies/Equipment Public Education Page F - 6 Overview: 2002 Session Fiscal and Budgetary Actions FY 02-03 21 ($5,800,000) R Current inventory levels (oil, tires, and parts) at local school administrative units indicate that additional supply needs for next year wi l l be mi ni mized. Last year's non-recurring adjustment of $4 mi l l i on will become a recurring reduction. Also, reduce for lower anticipated f uel cost $1.8 mi l l i on. Transportation ($19,600,000) 22 I mpl ement a lease/purchase process that will allow for the NR payment of school buses over a 3-year peri od. See related Special Provision (SB 1115, Section 7.14). School Bus Purchases ($44,549,776) 23 For the 2002-03 fiscal year, do not transfer corporate tax NR f unds t o t he Publ i c School Building Capital Fund or the Critical School Facility Needs Fund. Instead, transfer the f unds as a receipt to the Public School Fund to t emporarily offset the costs for public school operations. For FY 2002-03, General Fund appropriations will be reduced by the amount that was scheduled to be transferred t o t he capital accounts. Based on 1987 legisl ation (HB 1514, Sec. 178), the Office of State Budget Management shall continue to transfer f unding to support six staff members in the School Pl anning Division of the Department of Public Instruction ($450,224). See rel ated Speci al Provision (SB 1115, Section 7.16). Redirect Capital Funds to Support Public Schools through the General Fund 24 ($1,000,000) R State Board of Education Policy allows Local School Admi nistrative Units to convert teaching positions to dollars to cover the contract cost for Visiting I nternational Faculty. The conversion to dollars shall be based on an al l otted average teacher salary of $45,016 ( wi t h benefits) reduced by 2.963%. Thi s wi l l adjust the conversion amount to $43,682. The reduction included is based on FY 2001-02 program enrollment of approximately 750 teachers. Funding for Visiting International Faculty 25 ($4,768,604) R Adjust Continuation Budget to reflect actual April 1, 2002, headcount. The Continuati on Budget was constructed based on an estimated population of chi l dren with special needs. See rel ated Special Provision (SB 1115, Section 7.4). Revise Headcount for Children with Special Needs Public Education Page F - 7 Overview: 2002 Session Fiscal and Budgetary Actions FY 02-03 B. Reduction of Administration Cost ($3,338,893) -50.00 26 R Freeze local school admini stration units (LEAs) allotments at the FY 2001-02 al l ot ment l evel($1,574,452 reduction to t he Continuati on Budget) and reduce each LEA by 1.75% ($1,764,441) from their FY 2001-02 funding level. The new a l l o t ment formula devel oped by t he State Board of Educati on is not to be implement ed i n FY 2002-03. Also see Speci al Provision to study central office duties ( SB 1115, Sect i on 7. 19). Central Office Administration ($4,627,564) -87.10 27 R Decrease the allotment for Assistant Principals by changing the allotment formul a t o one t en-month position f or every 761.44 students in average daily membership ( ADM). The FY 2001-02 all otment was one t en-month position per 725.18 ADM. A reduction of 87.1 10-month positions. School Building Administration 28 ($3,017,317) R El i mi nate State funding distributed to local school admi nistrative units that could be used to support the Regi onal Education Service Alliances. See related Special Provision (SB 1115, Section 7.12). Regional Education Service Alliances ($5,000,000) 29 Based on t he current NC WI SE i mplementation schedule, the NR Department of Public Instruction has indicated that a one-t i me reduction in funding is possible. Also see Speci al Provision that authorizes the leasing or purchasing of equipment from these funds (SB 1115, Section 7.6). Uniform Education and Reporting System (UERS) ($2,750,000) -36.00 30 R The Depart ment of Public Instruction wi l l el i minate 36 positions. Of the 36 elimi nated positions, 9.6 are paid from recei pts and 26.4 are paid from State funds. Three (3) of the State positions were vacant. Total State savings from Positions: $1,460,280 Total Other Departmental Reductions: $1,289,720 Reducti ons to receipt-supported positions are not included i n meet i ng the $2,750,000 reduction target but are i ncl uded i n the position reduction count. See rel ated Speci al Provision (SB 1115, Section 7.13). Department of Public Instruction Public Education Page F - 8 Overview: 2002 Session Fiscal and Budgetary Actions FY 02-03 C. Continuation Budget Reductions ($10,000,000) -412.00 31 R Reduce al l otment approximately 3.3%. Funding is used to empl oy custodi ans, school clerical support and substitute t eacher pay. The reduction will not impact the amount of f unding available for substitute teachers. The estimated i mpact is the equivalent of 240 custodian positions and 172 clerical positions. Non-Instructional Support Personnel 32 ($3,134,984) R Restrict funding to mentor teachers assigned to State-paid first and second year teachers and first-year i nstructional support. See related Special Provision (SB 1115, Section 7.10). Mentor Pay 33 ($3,750,000) R Teachers are allowed to have excess annual leave over 30 days ei t her converted to sick leave or paid at the end of t he year. The amount of l eave t hat can be paid is limited t o t he excess days that can be attri but ed to required work days which made i t i mpossi ble for the teacher to take the l eave duri ng t he school year. The payment option was established since the amount of sick-leave allowed to be converted to empl oyment credit at retirement was restricted to the amount earned over the empl oyees term of empl oyment. Last year the sick leave conversion maximum was el i minated. By elimi nating this maxi mum, teachers can now convert all sick leave earned towards retirement credit; therefore, this special payment option is no l onger needed. See rel ated Special Provision (SB 1115, Sect i on 7. 11). Payments for Teacher Unused Vacation Days (Forfeited Vacation) 34 ($208,230) R Reduce funding to Publi c School Forum, Ci t i es/Communities i n Schools, NC Network, Teacher Cadet, and Schools Attuned by 10%. Appropriations to Non-Public School Agencies 35 $100,000 R Appropriate funds to ExplorNet non-profit for assistance t o public schools ExplorNet 36 $50,000 R Appropriate funds to TQE (a non-profit program) for assi stance to public schools. Total Quality Education (TQE) Public Education Page F - 9 Overview: 2002 Session Fiscal and Budgetary Actions FY 02-03 E. Management Flexibility ($42,613,922) 37 The State Board of Educati on shall distribute this local NR educati on agency discretionary reduction in an equitable manner and require allotment reductions in this amount within 30 days of budget passage. Local School Admi nistrative Units have flexibility to adjust their budgets to implement this reduction; t herefore, it is not possible to identify the number of posi t i o n s i mpacted. See rel ated Speci al Provision (SB 1115, Section 7.26). Local Education Agency Discretionary Reduction F. Other Budget Adjustments $101,000,000 38 Provide funding for ABC bonuses for school s meet i ng or NR exceedi ng expected growth in 2001-02. See related Special Provision (SB 1115, Section 7.7). ABC Bonuses $26,806,005 594.50 39 R Reduce the teacher to student al l otment r a t i o f o r f i r s t grade to 1:18 (down from 1:20). See related Special Provision (SB 1115, Section 7.25). Reduction in Class Size 40 $1,200,000 R Cont i nue State fundi ng for payment of Information Highway connectivity for sites previously funded. Information Highway Line Charges 41 $3,000,000 R I ncrease fundi ng for school districts in counties with l ess ability to generate local resources for public schools Low Wealth Supplemental Funding 42 $1,000,000 R I ncrease fundi ng to county school systems eligible for small county supplement al funding. See related Special Provision (SB 1115, Section 7.43). Small County Supplemental Funding ($100,827) 43 A one t i me adj ust ment i n f unding. NR Staff Development ($11,409,327) ($16,225,726) 471.30 Budget Changes Total Position Changes Revised Total Budget $5,894,553,493 R NR Public Education Page F - 10 Special Provisions SB 1115 Department: Public Education Outlines teacher salary schedules for fiscal year 2002-03. The schedule is the same schedule as authorized in FY 2001-02, however, teachers will receive a salary increase by moving up the schedule for another year of experience. The average teacher salary increase is 1.84% (ranging from 0% for teachers with 29+ years of experience to 5.85% for teachers with 3 years of experience). Teachers with 29+ years of experience will receive an additional 2 weeks of paid annual leave (see Section 28.3A and Section 82 of SB 1217 [technical corrections bill]). Section: 7.1 Title: Teacher Salary Schedules Summary: Outlines principal and assistant principal salary schedules for fiscal year 2002-03. The schedule is the same schedule as authorized in FY 2001-02, however, principals and assistant principals will receive a salary increase by moving up the schedule for another year of experience (principals also receive an additional step increase for every 3 years employed as a principal). The average salary increase is 2%. Section: 7.2 Title: School-Based Administrator Salary Schedule Summary: Authorizes the State Board to transfer $500,000 from the State Public School Fund to pay expenses related to pending litigation. Section: 7.3 Title: Litigation Reserve Funds Summary: Specifies the number of students funded (161,845) and the supplemental appropriation per funded student ($2,686.50), which will be adjusted for legislated salary/benefit changes. Section: 7.4 Title: Children With Disabilities Summary: Specifies that 4% of a local education agency's average daily membership (ADM) shall receive supplemental funding for services to academically and intellectual gifted students. Statewide funding is based on 53,075 students at a funding level of $888 per funded student. The funding factor will be adjusted for legislated salary/benefit changes. Section: 7.5 Title: Funds for Academically Gifted Children Summary: Allows for the use of up to $1 million from the funds appropriated for the new student information system to be used for the purchase or lease of equipment by the Department of Public Instruction for implementation of the NC WISE system. Section: 7.6 Title: Funds for the Testing and Implementation of the New Student Information System Summary: Public Education Page F - 11 Authorizes the State Board of Education to utilize funds appropriated for FY 2002-03 ($101 million) to assure that incentive awards earned in FY 2001-02 are paid. Bonus payments remain at the same level as previous years: - Up to $1,500 for certified school employees and $500 for teacher assistants in schools that exceeded ABCs expectations. - Up to $750 for certified school employees and $375 for teacher assistants in schools that met ABCs expectations. - Funding is included for the five school systems piloting a modified ABCs program that disaggregates student performance within designated demographic groups. This funding is in addition to the awards outlined above ($750 for certified personnel and $325 for teacher assistants if the goals are met). The five school districts are Bladen, Craven, Forsyth, Mecklenburg, and Pasquotank. Section: 7.7 Title: Funds to Implement the ABCs of Public Education Summary: Authorizes the State Board to transfer up to $1 million of funds appropriated to revise the reading and writing assessments. Section: 7.8 Title: Revision of Reading and Writing Assessments Summary: Eliminates the requirement to allow teachers access to $100 for the purchase of classroom supplies (established in the FY 2001-02 budget). Requires that the Joint Legislative Education Oversight Committee study the viability of the State utilizing an on-line school supply vendor to allow teachers to directly purchase supplies for the classroom. Section: 7.9 Title: Funds for Instructional Supplies Summary: Authorizes the use of State mentor funding for State-paid teachers and instructional support personnel only. Mentors will be paid $100 per month to work with newly certified State-paid teachers in their first two years of employment as teachers or for entry-level instructional support personnel who have not previously been teachers. Section: 7.10 Title: Funds for Mentor Pay Summary: Eliminates the ability for teachers to be paid for excess annual leave days (over 30 days at the end of the year when the teacher was not able to take the time due to required teacher work days). Since the General Assembly removed the limit on the amount of sick leave that can be converted toward retirement (in last year's budget), the special payment provision was no longer required. Excess annual leave will be converted to sick leave at the end of the fiscal year. Section: 7.11 Title: Conversion of Accumulated Leave Time Summary: Public Education Page F - 12 The budget eliminated funding for Regional Education and Technical Assistance Centers. Unused funds as of June 30, 2002 were allowed to carryover into FY 2002-03. This provision moves the carryover to staff development. Section: 7.12 Title: RESA Funds Shall Be Used for Staff Development Summary: Allows the Department of Public Instruction to shift and reclassify positions as necessary to implement the reduction in force required by the budget (36 positions were eliminated). Requires the Office of State Budget and Management to obtain bids for an outside review of the Department of Public Instruction's structure and operation. Authorizes the State Board of Education to reorganize, create an additional Associate Superintendent position, and move funding among fund codes. Section: 7.13 Title: Base Budget Reduction to Department of Public Instruction/Reorganization of the Department Summary: Authorizes the lease purchase of school buses. Buses can be purchased over a 3-year period. Waives the vendor payment of the electronic procurement transaction fee (1.75%) when purchasing school or school activity buses. Section: 7.14 Title: Replacement School Buses Funds Summary: Changes the State Board requirement to revise academic content standards for each core academic area from 5-year intervals to 'on a regular basis' (gives the State Board the discretion to establish when to revise academic content). Section: 7.15 Title: Curriculum Review Required on a Regular Basis Summary: Redirects, for one year only, the funding earmarked for the Critical School Facility Needs Fund and the Public School Building Capital Fund to the State Public School Fund to support ongoing school operations. The provision continues to allow some of the funding to be used by the Department of Public Instruction to support six positions in the School Planning Division. Section: 7.16 Title: Corporate Tax Transfer Moratorium Summary: Public Education Page F - 13 This provision extends several studies outlined in last year's budget bill since the Joint Legislative Education Oversight Committee was only able to meet a few times between sessions. Studies included are: - Compliance report on nonsupplant requirement related to low wealth and small county supplemental funding. - Study of the Textbook Distribution System. An outside contractor will review if the textbook warehouse is the most efficient way to distribute textbooks to public schools along with studying the effectiveness of the textbook distribution process. - Study the Salaries of School Fund Service Workers and Custodians. - Study the Salary Differentials for Instructional Support Personnel. The study examines how salaries are tied to degrees and credentialing. - Fairness in Testing. The study requires a complete review of the State's testing program. - Study of Professional Development for School Personnel. The provision also deletes the study for Noncitizen Tuition Rates (included in last year's Study Bill).. Section: 7.17 Title: Study Modifications Summary: Suspends for 2-years the requirement for teachers to complete a portfolio as a part of Performance Based Licensure. Interim requirements will be established by the State Board and presented to the Joint Legislative Education Oversight Committee for review. Requires the State Board to contract with an outside consultant to review and recommend changes to the initial certification, continuing certification, and the recertification programs. Results of the study/review shall be presented to the Joint Legislative Education Oversight Committee by January 1, 2004. Section: 7.18 Title: Performance-Based Licensure Program/Suspension of Portfolio Requirement and Study Summary: Requires the State Board to determine how duties can be coordinated among school systems that could lead to savings in the Central Office Administration funding formula. Section: 7.19 Title: Study of Coordination of Central Office Duties Summary: Authorizes the State Board of Education to move resources around to assure that school systems receive funding based on actual student enrollment (when actual average daily membership (ADM) exceeds projected ADM by 100 students or 2%). Authorizes the State Board of Education to reduce selected allotment categories when actual first-month ADM is 100 or 2% less than projected. The reduction to the selected allotment categories will be based on one-half of the excess ADM. Section: 7.20 Title: Discrepancies Between Anticipated and Actual ADM Summary: Public Education Page F - 14 Requires the State Board of Education to stop developing the High School Exit Exam until the State Board studies the high school equivalent exam requirements outlined in the federal No Child Left Behind Act of 2001. Section: 7.21 Title: High School Exit Examination Summary: Clarifies that the $1,800 bonus for math, science, and special education teachers in designated schools is only for teachers assigned to classes in grades 6 through 12. Designated schools are middle and high schools with 80% or more of the students eligible for free and reduced lunch or 50% or more of the students are performing below grade level in Algebra I and Biology. Section: 7.22 Title: Clarification to Provision on Addressing Teacher Shortage Summary: Extends the sunset date on this lateral entry option: When a LEA determines there is or anticipates there will be a shortage of qualified teachers for particular subjects or grade levels, the local board can employ an individual for up to one year under a provisional certificate so long as: ·The individual has at least a bachelors degree ·The individual has an out-of-state teaching certificate with one-year of teaching experience relevant to the subject or grade to be taught, or at least one year of relevant classroom teaching experience in an institute of higher learning, or three years of other experience that the local board believes is related to the subject the individual will teach (and the individual’s education must also be determined by the local board as relevant). ·The individual is eligible for re-employment by his or her prior employer. ·The individual must take and pass the PRAXIS to become permanently certified. The teacher certified in another state does not have to take and pass Praxis if the LEA wants to rehire them. Section: 7.24 Title: Extend Alternative Lateral Entry Program Summary: The provision follows the money that reduced the teacher to student allotment ratio from one teacher for every 20 students in average daily membership (ADM) to one teacher for every 18 students in ADM. The additional positions can only be used to reduce class size in the first grade. The maximum average class size for all first grade classes within an LEA for FY 2002-03 will be 21 students. Individual classes cannot exceed 24 students. Section: 7.25 Title: Additional Teacher Positions for First Grade Summary: Public Education Page F - 15 Within 14 days of the date the Budget Bill becomes law, the State Board of Education will notify the local education agencies (LEAs) as to the amount of reductions each LEA must identify to the State allotments distributed to the LEA in the Initial Allotment. The Flexibility Reserve will be adjusted (reduced) if any LEA's first-month average daily membership (ADM) is more than 500 students less than originally projected. Once adjusted, the Flexibility Reserve will be distributed to all LEAs based on each LEA's ADM. LEAs have 30 days from the date the Budget Bill becomes law to identify which State allotments will be reduced to zero out the Flexibility Reserve. Section: 7.26 Title: Local Education Agency Flexibility Summary: Establishes a 27 member Alliance to help ensure that the effective use of technology is a part of North Carolina's school system. The Alliance advises the State Board of Education of how to prepare for a technologically literate citizen in 2025. The Alliance also will advise the State Board of Education on: - a technology infrastructure, delivery, and support system - staff development programs for teachers - on what kind of funding and accountability system is needed No State funding will be used to support the Alliance (federal and private funding will support the Alliance). Section: 7.27 Title: Business and Education Technology Alliance Summary: Allows the State Superintendent of Public Instruction to grant a waiver for the FY 2002-03 school year which will allow a school not to implement the requirements outlined for High Priority Schools if: - the Local Board requests the waiver; and - the Superintendent determines that the school is making efforts comparable to the High Priority School requirements and the educational progress of the students in the school is satisfactory. High Priority Schools are required to have class size allotments of one teacher per 15 students, the State does not fund teacher assistants for these schools (this does not eliminate the placement of teacher assistants at the school), extends the school year for students by 5 additional days, and extends the employment period for teachers by 5-days. High Priority Schools also receive an additional Instructional Support position to assist with community relationships. Section: 7.28 Title: High Priority School Waiver Summary: Requires the State Board to minimize the frequency of field testing at a specific school and to notify schools by October 1 of each year if they will have field tests at the school and what tests will be involved. TECHNICAL CORRECTION in SB 1217 (Section 70): Changed the October 1, 2002 date to January 1, 2003 for FY 2002-03. Section: 7.30 Title: Notification of Field Testing Summary: Public Education Page F - 16 This provision emphasizes that funding for Driver Education will be adjusted based on changes in 9th grade average daily membership (ADM) . The provision also requests the State Board of Education to consider the needs of low wealth and small counties when allocating funding for driver education. Section: 7.31 Title: Driver Education Funding Summary: Allows the State Board of Education to have discretion on which strategies to implement and which schools to target with supplemental funding to support schools classified as continually low performing. A continually low performing school is one that has been identified as low performing (via the ABCs) in 2 of the 3 consecutive years. Funding is provided to the State Board based on a teacher to student allotment in grades 4-5 in identified schools of one teacher per 17 students. Grades K-3 is based on one teacher per 15 students. Funding is also provided based on extending teacher contracts by 10 days (5 for staff development and 5 for extended instruction). Section: 7.32 Title: Intervention Strategies for Continually Low-Performing Schools Summary: Allows the Joint Legislative Education Oversight Committee to study how standardized test are used to evaluate students in vocational education classes. Section: 7.33 Title: Study Vocational Education Tests Summary: This provision was required to comply with reporting requirements related to the federal 'No Child Left Behind Act of 2001'. The federal act requires that a report be distributed to the parents that outlines specific information about the school and the personnel assigned to the school. This information requires that the certification status of the teacher be included which previously was not allowed by North Carolina statute. Section: 7.36 Title: Availability of Information on Employee Qualifications Summary: Requires that the State Board of Education review the duties of school counselors which includes the examination of the amount of time school counselors are spending coordinating the testing programs in the school. Section: 7.37 Title: Study of the Duties of School Counselors Summary: Requires that a retired teacher who is returning to the classroom (returning under Section 28.10 of this bill) must be evaluated as a career teacher even though the teacher's employment is classified as probationary. The probationary classification relates to the returning teacher not being eligible for career status (tenure) once they return (when they return via Section 28.10 of this bill). Section: 7.38 Title: Definition of Retired Teacher Modified Summary: Public Education Page F - 17 Allows a retired teacher returning to the classroom (returning under Section 28.10 of this bill) to not have to renew their teaching certification for 5 years (as long as the certification was up to date when the teacher retired). Section: 7.39 Title: Limit Certification Renewal for Retired Teachers Summary: Requires that all school nurses employed in North Carolina's public schools after July 1, 1998, must be nationally certified. A nationally certified nurse must meet either the American Nurses' Association (ANA) or the National Association of School Nurses (NASN) requirements. Both of these organizations require a baccalaureate degree for certification. Requires the Joint Legislative Education Oversight to review what is the appropriate level of certification/qualifications for nurses in public schools. Section: 7.41 Title: Certification of School Nurses Summary: This provision addresses the distribution of the additional $1 million appropriated for this category. The minimum instructional supplies/equipment allotment for each eligible county school system was increased $37,037. 27 county school systems with average daily membership less than 4,000 receive this funding. Section: 7.43 Title: Small School System Supplemental Funding Summary: To allow limited one-year assessment of K-2 students with a standardized reading test . This assessment is a condition of receipt of $20 million in federal Reading First Grants. The assessment will be limited to 5% of the students in eligible public and charter schools. (Note: Section 70.5 of Senate Bill 1217 eliminates the one-year and 5% limitations and adds clarification that the assessment is authorized only to the extent necessary to receive federal Reading First grant funds.) TECHNICAL CORRECTION in SB 1217 (Section 70.5): Authorizes a pilot study to validate current K-2 assessment by utilizing a standardized reading assessment. Allows the assessment to be administered in eligible public schools which includes charter schools (eligibility relates to a school qualifying for the federal Reading First Grant). Standardized assessment will not be allowed if the federal reading first grant is not awarded to North Carolina. Section: 7.44 Title: Sample Test to Validate K-2 Assessment Summary: Authorizes the salary increase outlined in 7.1 and 7.2 of this bill to be granted to teachers and principals in other State agency schools and in the North Carolina School for Science and Mathematics. Section: 7.45 Title: Reserve for Experience Step Increase for Teachers and Principals in Public Schools Summary: Public Education Page F - 18 Special Provisions SB 1217 Department: Public Education Rewrites G.S. 115C-302.1(j) to allow teachers to use up to 30 days of sick leave to care for a child placed with the teacher for adoption. Adds 115C-336.1 which outlines current school policy that allows any school employee to take annual leave or leave without pay to care for a new born child or for a child being placed with an employee for adoption or foster care. An employee can take up to 30 days of sick leave to care for a child placed with the employee for adoption. Section: 37.5 Title: Use of Sick Leave for Child Adoption Summary: Specifies that nothing in the General Statutes or any local act entitles any charter school to retroactively recover any funds for penalties, fines, forfeitures, or supplemental taxes. Section: 91.1 Title: Ability for Charter Schools to Receive Funding Retroactively Summary: Public Education Page F - 19 UNC System Total Budget Approved 2001 Session FY 02-03 Budget Changes $1,798,320,830 GENERAL FUND Overview: 2002 Session Fiscal and Budgetary Actions Campus Reductions ($2,666,533) 44 Reduce funding in reserves for operation of new facilities NR due to del ays in completion dates. Reserves for New Facilities 45 ($800,000) R Budget tui t i on collected from 25% surcharge f or taking more than 110% of required credit hours for degree. Tuition Surcharges 46 ($50,245,059) R Budget a reduction of 2.88% i n all campus and ot her related budget codes. Deci sions on where to take the reductions will be made at campus or operating level. This reduction does not appl y to the NC School of Sci ence and Mathematics. Campus Flexibility Reserve ($250,000) 47 Reduce thi s year' s appropriation to the Endowment for the NR Cent er for Alcohol Studies. Center for Alcohol Studies Related Educational Programs ($1,938,000) 48 Use fund balances in schol arship trust funds to reduce NR General Fund requirements for one year. Fund bal ances in Principal Fellows, Nursing Fellows, Nursing Need-based, and dormant funds in old Social Work Schol arship Funds are affected. Scholarships UNC General Administration 49 ($2,063,801) R Reduce UNC General Admi nistration and its programs. Board of Governors has authority to allocate reductions. No more t han fi ve percent (5%) shall be taken from any component program of the Center for School Leadershi p Devel opment. Budget Reduction 50 ($400,000) R Reduce funding for contracted services from MCNC. Services may be provided on a fee for service basis, or MCNC may provide services for less cost. MCNC Contract UNC System Page F - 20 Overview: 2002 Session Fiscal and Budgetary Actions FY 02-03 University Expansion Funds 51 $66,803,142 R Provide funding for enrollment i ncreases as proposed by t he UNC Board of Governors. Provides fundi ng for regular t erm enrol l ment, distance education enrollment, and holding 3 campuses harmless from enroll ment declines. Enrollment Increases $11,000,000 $2,666,533 52 R Provide funding to 7 campuses desi gnated by UNC as NR "focused growth" institutions to prepare for enrollment i ncreases. $10 mi l l i on of the recurring funds shall be allocated in equal dollar amounts to the focused growth i nstitutions. Enrollment: Focused Growth 53 $115,000 R Provide funds for inflationary increases for operating budget. NC School of Science and Mathematics: Inflationary Increases 54 $500,000 R Funds t o conti nue the operati on of the NC TEACH program t o provide lateral entry alternatives for prospective public school teachers. NC TEACH 55 ($39,966,108) R Tui t i on increases of 8% for in-state students and 12% for out-of-state students have been approved by the Board of Governors for the 2002-03 academic year. Tuition Increases 56 Provides an additional $4,497,000 in need-based student f i nanci al ai d for UNC students from the Escheats Fund. Student Financial Aid ($15,228,000) 57 Fund conti nuat i on budget for UNC need-based scholarshi p NR f unds with income from the Escheats Fund. Student Financial Aid: Funding Shift 58 $2,249,105 R Provides financial aid funding for additional NC students attending private college in North Carolina. Aid to Students Attending Private Colleges ($12,807,721) ($17,416,000) Budget Changes Total Position Changes Revised Total Budget $1,768,097,109 R NR UNC System Page F - 21 Special Provisions SB 1115 Department: UNC System Consolidates the collection of loan repayments from the NC Teaching Fellows Commission to the State Education Assistance Authority. Section: 9.2 Title: Transfer Collection Responsibilities for Certain Scholarship Programs to SEAA Summary: Allows NCSU and NC School of the Arts to substitute bond projects. Section: 9.3 Title: Substitution of UNC Bond Projects Summary: Consolidates UNC Scholarships into one fund entitled UNC Campus Scholarships in order to protect the programs from potential lawsuits. Section: 9.4 Title: UNC Scholarship Programs Consolidated Summary: Saves the university money by requiring only one mailing explaining the federal education tax credits instead of two. Section: 9.5 Title: Eliminate UNC Mailing List Duplication Summary: Makes a technical correction to last year's codification of the Aid to Private College money. Section: 9.6 Title: Aid to Private Colleges Technical Corrections Summary: Requires each Chancellor to report the specific budget reductions made to implement the UNC Management Flexibility Reserve.(Note: Sec. 72 of Senate Bill 1217 changes the due date of the report from October 31, 2002 to November 30, 2002) Section: 9.7 Title: UNC Flexibility Guidelines Summary: Allows three universities to use focused growth enrollment money for up to twenty prospective teaching scholars by waiving out-of-state tuition for these students. Section: 9.9 Title: Focused Growth Pilot Program Summary: Requires a report from the Board of Governors to the Governmental Operations Committee on any activities undertaken under exemptions to the Umstead Act by the Centennial Campus at NCSU, the Horace Williams Campus at UNC-CH or any Millennial campus of the UNC system. Section: 9.10A Title: Report on Umstead Act Exemptions Summary: UNC System Page F - 22 Changed the aid to private college statute to allow eligibility for colleges accredited by the New England Association of Colleges and Schools with a main permanent NC campus. The intent is to make Johnson and Wales University students at a proposed Charlotte, NC campus eligible for student aid funds. Section: 9.11 Title: Out-of-State Institutions with NC Campuses Summary: Education Oversight shall study the School of Science and Mathematics. In addition, it prohibits the imposition of the proposed $850 fee for the 2001-02 academic year and requires General Assembly approval prior to initiating fees. Section: 9.12 Title: North Carolina School of Science and Mathematics Summary: Requires UNC-Chapel Hill to keep open the Horace Williams airport until January 1, 2005. Prior to moving the AHEC operations from this airport, the Chancellor must report to Governmental Operations Commission on the impact of any move. Section: 9.13 Title: Horace Williams Airport Summary: The UNC Board of Governors shall establish policies that allow the Chancellors with Cooperative Extension or Agriculture Research programs to redesignate EPA non-teaching faculty to EPA teaching faculty if it more accurately reflects the job responsibilities. Section: 9.14 Title: Cooperative Extension/Agriculture Research Faculty Summary: Universities shall not issue any debt or establish contracts for golf courses or transient accommodations facilities prior to providing the Governmental Operations Commission with specified financial and architectural information. Section: 9.15 UNC Institutions/Golf Course and Transient Accommodations Facility/Umstead Act Exemption Reporting Requirement Title: Summary: The UNC Board of Governors shall report to the Government Operations Commission on the fiscal and contingent liabilities and financing arrangements of all buildings on UNC property, regardless of ownership. Section: 9.16 Title: Report on University Fiscal Liabilities Summary: Changes the statute on the distribution of the Escheat Fund to allow the income to be used for grants for need-based financial aid, as well as loans. This allows a non-recurring reduction in the General fund of $20,725,000 to provide for need-based financial aid in higher education. $15,228.000 is in the UNC base budget. This funds an increase of $4,497,000 for UNC and $1 million for community colleges in need-based student financial aid. The Governor is required to replace these with recurring General Fund money in the 2003-05 continuation budget. Section: 9.19 Title: Funds for Need-Based Scholarships Summary: UNC System Page F - 23 HEALTH & HUMAN SERVICES Health and Human Services Total Budget Approved 2001 Session FY 02-03 Budget Changes $3,644,080,118 GENERAL FUND Overview: 2002 Session Fiscal and Budgetary Actions Division of Aging 1 ($6,000) R Reduces funding for 3 meetings per year from $9, 000 to $3,000 each fi scal year. Funds for Senior Tarheel Legislature 2 ($4,000) R Reduces funding for meetings of the Governor' s Advi sory Counci l on Agi ng. Governor's Advisory Council on Aging 3 ($165,000) R Reduces the operating budget for the Di vision of Aging. Central Office Administration 4 ($381,000) R Reduces funding for Senior Center Devel opment and Outreach. Senior Centers 5 ($370,000) R Reduces funding for planni ng and admi ni stration for 17 AAAs across the state. Area Agency on Aging Administration Division of Child Development 6 ($56,286) R El i mi nates the remai ning state funds that support the f ederal Early Head Start Program. Early Head Start Funds 7 ($500,000) R El i mi nates funding for the Smart Start evaluation. Smart Start Evaluation 8 ($16,000) R Reduces professional devel opment funds that are used to help child care empl oyees improve their educational qual i f i c a t i o n s . Smart Start Professional Development Funds 9 ($44,810) R Reduces funds to Divisi on of Information and Resource Management f o r i n f o r mat i on technology activities that support Smart Start. Smart Start Automation Health and Human Services Page G - 1 Overview: 2002 Session Fiscal and Budgetary Actions FY 02-03 10 ($20,000,000) R Reduces the amount of funds for acti vities at the local partnership level. (SB 1115, Section 10.55) Local Smart Start Partnership Funds 11 ($980,000) R Reduces the North Carol i na Partnership for Children's admi nistrative costs. NCPC Administration 12 ($12,000) R Reduces the budget for rei mbursement to the State Bureau of Investigation for the cost of obtaining record checks. Criminal Record Checks ($618,939) -6.00 13 R Reduces admi ni strative expenses including positions, operating costs, and equipment. El i minates three vacant and three filled positions: 1.0 Admi nistrative Secretary I I , 1 . 0 Office Assistant IV, 1.0 Child Program Speci al i s t , 2.0 filled Processing Assistant III's, and 1.0 filled Policy and Planning Consul t ant. Positions funded through a transfer of funding from the More At Four Program i ncl ude: 1.0 filled and 2.0 vacant Child Program Specialists, and 1.0 vacant Admi nistrative Assistant I. ( SB 1115, 10.56(d)) DCD Administration $15,000,000 14 I ncrease state appropriations for child care subsidy to NR replace federal funds historically used for this purpose. Due to a reduction i n t he Temporary Assistance for Needy Families (TANF) Block Grant, child care subsidy was funded at $3,800,000 less for 02-03 fiscal year. These funds will also be used to address the waiting list for child care subsidy. Child Care Subsidy Division of Facility Services 15 ($126,000) R Reduces operating expenses throughout the Divisi on of Faci l i t y Servi ces including computer equipment replacement . Operating Expenses 16 ($150,000) R Reduces travel expenses throughout the Division of Faci l i t y Servi ces. Travel 17 ($35,974) R El i mi nates the contract with the Department of Justice for one paralegal position. ( Not e: Section 84 of Senate Bill 1217, 2002 Technical Corrections, modified this reduction. The description reflects the modification. The Conference Commi t t ee Report f or SB 1115 el i mi nat ed one paral egal position in the Division of Facility Services.) Legal Services Health and Human Services Page G - 2 Overview: 2002 Session Fiscal and Budgetary Actions FY 02-03 18 ($244,731) R El i mi nates the following contracts: Solucient $54,000 Sheps Cent er $90,731 Reduce the fol l owi ng contracts: Miscellaneous Contracts $100,000 Various Contracts ($191,465) -4.00 19 R El i mi nates two vacant and two fi l l ed positions: 1.0 Faci l i t y Engineer Speci al i s t , 1 . 0 F a c i l i t y Survey Consul t ant I , 1 . 0 St aff Devel opment Coordi nat or in the Office of EMS, and 1.0 Admi ni strative Assistant II in the Office of EMS. Position Eliminations Division of Medical Assistance 20 ($3,028,281) R Adopts the Supplemental Security Income (SSI) method for considering equity value in income-produci ng property for aged, blind, and disabled persons. (SB 1115, Section 21.19(y) in Section 10.11(a) and amended by SB 1217, Sect i on 59) Asset Policy Change 21 ($37,374,352) R Expands implement ation of various drug utilization measures t o contain the cost of prescription drugs, i ncl udi ng expandi ng the use of generic drugs. (SB 1115, Sect i on 10.19(b) and amended by SB 1217, Sect i on 75) Drug Utilization Management 22 ($496,639) R Reduces reimbursement rates for private duty nursing service providers by 5%. Private Duty Nursing 23 ($2,655,057) R Reduces Personal Care Services by reducing the monthly l i mi t f or services from 80 hours per month to 60 hours per mont h. Personal Care Services Limitations 24 ($423,959) R Modifies transfer of asset policy by applying the policy t o persons receiving personal care services while residing i n t heir home. ( SB 1115, Sect i on 10. 11(b) and SB 1217, Sect i on 59) Asset Policy Changes for PCS Recipients 25 ($244,793) R Modifies policy for determi ni ng eligibility for pregnant women coverage for minors by counting parental i ncome. ( SB 1115, Section 21.19(n) 0f Section 10.11(a)) Pregnant Women Coverage for Minors Health and Human Services Page G - 3 Overview: 2002 Session Fiscal and Budgetary Actions FY 02-03 26 ($1,409,819) R Reduces payments to hospitals by 0.5%. Options for reducing payment include using waivers to reduce hospital costs associated with billing Medicaid and implementing a revised outpatient/emergency payment method to relate payment to services received. (SB 1115, Section 10.18) Hospital Payments 27 ($991,979) R Establishes prospective rate payment system f or Home Heal t h Services and pays for services based on an assessment of the specific needs of the Medicaid recipient. Payment for services will no longer be tied to t he number of provider visits. Prospective Rates for Home Health Services 28 ($88,809) R Reduces reimbursement rates for home infusion therapy providers. Home Infusion Therapy 29 ($190,000) R Reduces reimbursement rates for home health supplies providers. Home Health Supplies 30 ($250,000) R El i mi nates optional circumcision procedures except in cases of medical necessity. (SB 1115, Section 10.13) Optional Services 31 ($9,425,000) R Reduces expenditures for the Medicaid program to reflect anticipated savings from t he expansi on of Caroli na ACCESS II/III activities including reducing hospital admissions, reducing ER vi sits, using best prescribing practices, i ncreased generic prescribing, implementing polypharmacy review, reducing therapy visits, and better managing of high risk/high cost patients. (SB 1115, Section 10.12) Carolina ACCESS II/III Cost Savings 32 ($608,964) R Reduces reimbursement rates by 5% for the following services: ambul at ory surgical centers, and high risk i ntervention. Reimbursement Rate Reduction 33 ($569,954) R Reduces reimbursement rates for durable medical equipment providers. Durable Medical Equipment 34 ($202,840) R Reduces reimbursement rates for optical service providers by 5%. Optical Service Providers 35 ($1,900,000) R Appl i es Medicaid medical policy to Medi care Crossover c l a i ms. Medicare Crossover Claims Health and Human Services Page G - 4 Overview: 2002 Session Fiscal and Budgetary Actions FY 02-03 36 ($7,716,342) R Reduces case management services for adults and children by reducing rates, streaml i ni ng services and eli minating duplicative services. (SB 1115, Section 10.14) Case Management Services ($60,005) -2.00 37 R El i mi nates two filled positions: 1.0 Physician II and 1.0 Dent i s t I I . Position Eliminations ($43,747,538) 38 Transfers funds from G. S. 143-23.2 reserve to support NR current services and to reduce appropriations. (SB 1115, Sect i on 10.19D) Medicaid Reserve Funds 39 $81,751,234 R Provides Increased funding for the Medicaid Program due to t he revised forecast for SFY 2003. Revised Medicaid Forecast Division of Mental Health, Developmental Disabilities, and Substance Abuse Services ($630,487) -6.50 40 R Reduces expenditures for state-operated mental retardation centers by decreasing outreach expenditures by 10%, e l i mi nating 4.50 vacant and 2.0 filled positions, and reducing salary reserve. Elimi nated positions include: 1.0 Parent Trainer, 0.5 Housekeeper, 1.0 DHHS School Admi nistrator II, 2.0 Outreach Special i s t I I ' s , a n d 1 . 0 Rehab Therapy Tech, and 1.0 DHHS Policy and Planning Coordinator. (SB 1115, Section 10.23) ( Not e: Section 84 of Senate Bill 1217, 2002 Technical Corrections, modified this reduction. The description reflects the modification. The Conf erence Committee Report for SB 1115 i ncl uded 1.0 Outreach Specialist and 1.0 Patient Review Coordinator. SB 1217 i ncreased the number of Outreach Specialists to 2.0 and deleted the Pati ent Revi ew Coordinator.) Mental Retardation Centers Health and Human Services Page G - 5 Overview: 2002 Session Fiscal and Budgetary Actions FY 02-03 ($2,895,097) -61.00 41 R Reduces expenditures for state-operated psychiatric hospitals by elimi nating 35 vacant and 26 filled positions; reducing education, training, and staff development; reducing expenditures for supplies, printing, and equipment; cl osi ng 5-bed TB Uni t at Cherry hospital; Cl osing CPI outpatient unit at John Umstead Hospital, and e l i mi nating 10 psychiatric beds at Cherry Hospital with no community transfer of funding. Elimi nated position |
OCLC number | 213077756 |