North Carolina state budget ... recommended adjustments

              The North Carolina State Budget

2006- 2007

Michael F. Easley

Governor

Recommended Adjustments

The North Carolina State Budget

2006- 2007

Office of State Budget and Management

Office of the Governor

Raleigh, North Carolina

www. osbm. state. nc. us

David T. McCoy, State Budget Officer

Charles E. Perusse, Deputy State Budget Officer

May 2006

Recommended Adjustments

State of North Carolina

Office of the Governor

20301 Mail Service Center • Raleigh, NC 27699- 0301

Michael F. Easley

Governor

May 9, 2006

The North Carolina Senate

The Honorable Marc Basnight, President Pro Tempore

The North Carolina House of Representatives

The Honorable James Black, Speaker

The Citizens of North Carolina

Dear Mr. President, Mr. Speaker, Ladies and Gentlemen of the General Assembly and Fellow North

Carolinians:

I am pleased to submit to you my operating and capital budget recommendations for fiscal year

2006- 07. This budget reflects my continued commitment to build ONE NORTH CAROLINA, where all

North Carolinians have access to the educational opportunities they need to be successful in the global

economy.

When I took office in January 2001, North Carolina faced cumulative budget deficits that had not

been encountered since the Great Depression. A national recession, the terrorist attacks of September 11 and

unfair federal trade policies dealt a blow to North Carolina’s economy. Despite these challenges, together

we continued to make critical investments in education and job creation strategies to promote long- term

economic growth across our state. As a result of our efforts, our unemployment rate is now below the

national average and is at a six- year low of 4.5 percent. North Carolina has added 68,000 jobs over the last

12 months ( a 1.8 percent increase), ranking among the national leaders in job creation. Due to our strong,

transitioning economy and our commitment to conservative budget practices, we were able to report a

surplus of over $ 680 million at the end of fiscal year 2004- 05. It is estimated that the surplus will total

almost $ 1.1 billion at the end of fiscal year 2005- 06 and we anticipate continued revenue growth throughout

fiscal year 2007.

My fiscal year 2007 budget contains $ 10.7 billion in investments in education from pre- K through

the university to build a skilled workforce prepared to compete in the global economy. It includes an average

8 percent pay increase for teachers in order to surpass the national average by 2008- 09. Additional funds are

provided to expand the Disadvantaged School Supplemental Fund, to fully fund the Low Wealth formula,

and to expand middle and high school reform programs in order to improve graduation rates. It provides

increased access to higher education opportunities at the community college and university systems.

Additional monies are also included for need- based financial aid, scholarships for nurses, professional

training to recruit and retain quality teachers and principals, and several biotech and economic development

initiatives. In addition to the General Fund increases, the new North Carolina Education Lottery will provide

proceeds for reduced class sizes, additional academic pre- K slots, school construction and college

scholarships for needy students.

This budget makes unprecedented investments in improving our court system. Funds are included to

add core court personnel, including assistant district attorneys, deputy clerks, district court judges and

Location: 116 West Jones Street • Raleigh, NC • Telephone: ( 919) 733- 5811

magistrates. It also provides funds to modernize several court information programs and to operate the

Custody Mediation and Drug Treatment Court Programs statewide.

My budget recommendations continue our commitment over the last five years to keep spending at

responsible levels, while cutting taxes by $ 220 million for hard- working North Carolina taxpayers. It caps

the gas tax at current levels and reduces the state sales tax rate from 4.5 percent to 4.25 percent. The budget

also recommends depositing an additional $ 324 million in the State's Rainy Day Fund, setting aside $ 50

million for future disaster- related expenses, and providing an additional $ 195 million to the Highway Trust

Fund. By the end of the current fiscal year, the Rainy Day Fund balance will be $ 637 million, 4 percent of

last year’s operating budget.

My budget includes funds to hold several programs harmless due to federal budget cuts and reduces

the waiting list for child care subsidies. Funds are provided for community capacity enhancement and the

Mental Health Trust Fund to assist with mental health reform programs. Additional monies are also included

for early intervention services, adoption and foster care assistance, and child welfare services. I include a

recommendation for a new adoption tax credit based on the current federal tax credit.

The budget solidifies North Carolina as a national leader in recruiting new business and growing

existing businesses. It includes recurring funds for the One NC Fund, which has resulted in the creation of

18,875 jobs and $ 2.4 billion in investment throughout the state. The budget also provides support for new

and emerging companies through investments in the Small Business Innovation Research matching grant

program and in biotechnology. Sales tax refunds that would benefit the motor sports industry and a sales tax

exemption on research and development equipment will help strengthen these emerging industries.

The fiscal year 2007 budget proposal provides additional funds for the environment and agriculture.

It includes funds to enhance well water safety programs and to protect drinking water supplies. Funds are

provided for land conservation, forest development and habitat protection programs. The budget also

includes funds to increase disease surveillance and detection programs to ensure a safe food supply.

The budget provides funding for priority health, public safety, education and economic development

projects outlined in the state's Capital Improvement Plan. Projects include constructing a new public health

lab and emergency operations center, expanding facilities at the UNC Wilmington School of Nursing, UNC-Charlotte,

and the NC State University Engineering Complex, adding two skilled care nursing homes for the

state's veterans, and expanding the Museum of Art.

I recognize and appreciate the work of our state employees and recommend a 4% cost of living

increase. The fiscal year 2007 budget also provides a 3.7% cost of living adjustment for state retirees and

makes another payment to the retirement system for funds that were withheld in fiscal year 2000- 01.

I look forward to working cooperatively with members of the General Assembly to ensure that the

fiscal year 2007 budget is fiscally responsible and meets the needs of all North Carolinians.

With kindest regards, I remain

Very truly yours,

Michael F. Easley

Table of Contents

List of Figures and Tables....................................... vii

Preface...................................................................... ix

Introduction............................................................. 1

Executive Priorities and Budget Summary.............. 3

Major Expansion Budget Recommendations

by Subject Area......................................................... 9

Fiscal Responsibility.............................................. 11

Education............................................................. 12

Health and Human Services................................. 15

Economic Development and Infrastructure.......... 16

Courts and Public Safety...................................... 17

Environment and Agriculture............................... 18

Capital Improvements.......................................... 19

Teachers and State Employees............................... 20

Economy and Revenue by Topic............................ 21

Economy

Outlook for the Nation and State.................. 23

Revenue

General Fund Forecast................................... 27

Highway Fund.............................................. 31

Highway Trust Fund..................................... 33

General Fund

Recommended Appropriations

Education

Public Education ( 13510)................................ 37

The University of North Carolina ( 160xx)....... 47

Community Colleges ( 16800)......................... 53

Education Lottery Fund ( 23003)..................... 59

General Government

General Assembly ( 11000)............................... 63

Office of the Governor ( 13000)....................... 65

Office of State Budget and Mgt. ( 13005)......... 67

NC Housing Finance Agency ( 13010)............. 69

OSBM - Reserve for Special Appropriation

( 13085)........................................................... 71

Office of the Lieutenant Governor ( 13100)..... 73

Dept. of Secretary of State ( 13200).................. 75

Office of the State Auditor ( 13300)................. 78

Dept. of State Treasurer ( 13410)...................... 80

State Treasurer - Retirement for Fire and Rescue

Squad Workers and Line of Duty Death Benefits

( 13412)........................................................... 83

Dept. of Insurance ( 13900)............................. 84

Insurance – Volunteer Safety Workers’ Compen-sation

Fund ( 13901)........................................ 86

Dept. of Administration ( 14100)..................... 87

Office of the State Controller ( 14160)............. 92

Dept. of Revenue ( 14700)............................... 93

Dept. of Cultural Resources ( 14800)............... 96

Roanoke Island Commission ( 14802)............ 100

State Board of Elections ( 18025)................... 101

Office of Administrative Hearings ( 18210).... 103

Health and Human Services

Dept. of Health and Human Serv. ( 144xx).... 105

Div. of Central Management and Support

( 14410)....................................................... 108

Div. of Aging and Adult Services ( 14411).... 111

Div. of Child Development ( 14420)............ 113

Office of Education Services ( 14424).......... 115

Div. of Public Health ( 14430)..................... 118

Div. of Social Services ( 14440).................... 122

Div. of Medical Assistance ( 14445)............. 125

NC Health Choice ( 14446)........................ 127

Div. of Services for the Blind, Deaf, and Hard

of Hearing ( 14450)..................................... 128

Div. of Mental Health/ Developmental Disabili-ties/

Substance Abuse Services ( 14460)......... 129

Div. of Facility Services ( 14470).................. 132

Div. of Vocational Rehabilitation ( 14480)... 133

Justice and Public Safety

Judicial Branch ( 12000)................................. 135

Judicial Branch- Indigent Defense ( 12001)..... 140

Dept. of Justice ( 13600)................................ 142

Dept. of Juvenile Justice and Delinquency Pre-vention

( 14060)............................................. 146

Dept. of Correction ( 14500)......................... 149

Dept. of Crime Control and Public Safety

( 14900)......................................................... 154

Natural and Economic Resources

Dept. of Agriculture and Consumer Services

( 13700)......................................................... 159

Dept. of Labor ( 13800)................................. 162

Dept. of Environment and Natural Resources

( 14300)......................................................... 164

v

DENR- Clean Water Management Trust Fund

( 14301)......................................................... 170

Dept. of Commerce ( 14600)......................... 171

Commerce- State Aid to Non- State Entities

( 14601)......................................................... 175

Transportation

Overview............................................................ 179

Highway Fund ( 84210)...................................... 181

Highway Trust Fund ( 84290)............................. 190

Capital Improvements

General Fund ( 19600)........................................ 197

Reserves, Debt Service, and Other Adjustments

General Fund ( 190xx)........................................ 207

vi

List of Figures and Tables

Figures

1. Recommended Appropriation for General Fund Operating

Budget, 2006- 07.................................................................. 3

2. General Fund Supported Positions, 2006- 07........................ 4

3. Savings Reserve Account Balance........................................ 11

4. Average Daily Membership Budgeted................................. 12

5. Enrollment in Community College System........................ 13

6. Enrollment in the University System.................................. 14

7. Recommended Continuation Appropriations by Division,

Health and Human Services............................................... 15

8. Recommended Expansion Appropriations by Activity,

Health and Human Services............................................... 15

9. Recommended Capital Funding......................................... 19

10. Average Teacher Compensation.......................................... 20

11. NC Unemployment Rate Falls Significantly....................... 24

12. NC Employment Expands................................................. 24

13. Nonfarm Employment by Category................................... 25

14. State Income Expected to Exceed U. S................................ 26

15. State Maintains Employment Growth................................ 26

16. General Fund Revenue....................................................... 30

17. Highway Fund Revenue Collections................................... 31

18. Highway Trust Fund Revenue Collections.......................... 33

19. Funding Sources, NC Transportation Program................. 180

20. Appropriations, NC Transportation Program................... 180

Tables

1. Recommended General Fund Appropriations...................... 3

2. Recommended General Fund Supported Positions............... 4

3. Governor’s Recommended General Fund Budget................. 5

4. Recommended Availability and Appropriations.................... 7

5. Annual Nonfarm Employment by Category....................... 25

6. General Fund Revenue, Detailed Revised Estimates........... 29

7. General Fund Revenue, Revised Estimates......................... 30

8. Highway Fund................................................................... 32

9. Highway Trust Fund.......................................................... 34

10. NC Transportation Program............................................. 179

11. Condition of the Highway Fund...................................... 188

12. Changes to the Highway Fund Budget............................. 189

13. Condition of the Highway Trust Fund............................. 194

14. Recommended Highway Trust Fund Appropriations........ 194

vii

Preface

The North Carolina State Budget: Recommended Adjust-ments,

2006- 2007 reflects the work of multiple people

within the Office of State Budget and Management

( OSBM), including budget administrators and ana-lysts,

economists, technical staff, and paraprofessionals.

The OSBM team is listed below by administrative area.

This document is available online at www. osbm. state.

nc. us. For additional information about its contents,

please contact the appropriate administrator at the

e- mail address cited below or by telephone at 919/ 807-

4700. The mailing address for OSBM is 20320 Mail

Service Center, Raleigh, NC 27699- 0320.

OSBM Staff

David McCoy, State Budget Officer

david. mccoy@ ncmail. net

Debbie Young

Fiscal Office

Arnetha Dickerson

Frances Doak

Human Resources

Tonya Austin

Ursula Hairston

Janie Johnson

Katie Shearon

Carolyn West

Special Appropriations

Julie Mitchel

Charles Perusse, Deputy State Budget Officer

charles. perusse@ ncmail. net

Zorida Maighnath

Capital Projects

Jim Lora, Assistant State Budget Officer

jim. lora@ ncmail. net

Adam Brueggemann

Chris Harder

Jennifer Wimmer

Department of Correction, Department of Crime Control

and Public Safety, Department of Justice, Department

of Juvenile Justice and Delinquency Prevention, Judicial

Branch

Marc Nelson


Sheryl Stephens

Department of Transportation

Mercidee Benton

Emergency Management

Kevin Hutchinson

Statewide Information Technology

Jonathan Womer, Assistant State Budget Officer

jonathan. womer@ ncmail. net

Jim Dolan

Community Colleges, Public Education, University of

North Carolina

Elizabeth Grovenstein, Assistant State Budget Officer

elizabeth. grovenstein@ ncmail. net

Bryan Conrad

Kristen Crosson

Susie Esealuka

Pam Leaman

Trey O’Quinn

ix

Departments of General Government and Departments of

Natural and Economic Resources

David Brown, Assistant State Budget Officer

david. brown@ ncmail. net

Thomas Cheek

Celia Cox

Donna Cox

Pat Taylor

Economic Forecasting, Revenue Forecasting, Revenue and

Tax Issues, Economic Impact of Rules

Nathan Knuffman

Warren Plonk

Department of Health and Human Services

Daphne Lyon, Assistant State Budget Officer

daphne. lyon@ ncmail. net

Debbie Barnes

Kari Barsness

Pam Kilpatrick

Pat Taylor

Wayne Williams

Management

Tom Newsome, Assistant State Budget Officer

tom. newsome@ ncmail. net

Data Services

Bob Coats

Sue Farr

Joel Sigmon

Francine Stephenson

Bill Tillman

Information Systems

Agness Gunter

Paul Young

Management Analysis

Barbara Baldwin

Donald Crooke

Angela Houston

Kay Radford

Joe Turlington

Salary and Benefits

Bill Stockard

Salary Control

Emily Moore

x

Introduction

The purpose of this document is to describe the Gov-ernor’s

recommended state budget adjustments for the

second year of the 2005- 07 biennium. These recom-mended

changes are based on the certified budget for

2006- 07 approved by the 2005 session of the General

Assembly.

Recommendations for the General Fund, Highway

Fund, and the Highway Trust Fund are included in the

document, along with capital improvements, reserves,

debt service, and other adjustments.

Governor Easley’s priorities in budget development

precede key expansion budget recommendations. De-tails

of recommended appropriations by agency follow.

Items of change are described under one of three

categories within a department/ budget code or sec-tion:

reductions, expansion, or technical adjustments.

“ Reductions” denotes recommended decreases to

budgets that support current operations, while “ Ex-pansion”

denotes new programs, expansion of existing

programs, and salary and benefit increases. “ Technical

Adjustments” is a category for describing other perti-nent

changes in school- age populations or Medicaid

enrollments that necessitate a recommended change in

the certified budget.

For each item of change that is described, there is

a listing of the resulting fiscal change as well as the

change in number of positions, when appropriate.

Fiscal changes are categorized as “ Requirements” or

“ Nonrecurring Requirements.” They may also be

categorized as “ Receipts” or “ Nonrecurring Receipts”

to designate changes in departmental receipts. Always,

“ requirements” less “ receipts” equals “ appropriation.”

A summary table for the revised recommended budget

for 2006- 07 is presented at the beginning of each de-partment/

budget code or section. In addition, there are

summary tables for the items of change following each

of the change types, i. e., reduction adjustments, expan-sion

adjustments, and technical adjustments. At the

end of each department/ budget code or section, there

is a table that summarizes all recommended changes.

A summary of recommended adjustments by depart-ment/

budget code for the entire state budget appears

in table 3, “ Governor’s Recommended General Fund

Budget, 2006- 07.”

1

2

Governor Easley’s priorities guiding budget develop-ment

included the following:

Recommending a fiscally responsible budget that

replenishes the Rainy Day Fund, invests in the

state’s infrastructure, and provides tax relief

Continuing our investments in education from

pre- kindergarten through the university system to

build a skilled workforce prepared to compete in

the global economy

•

•

Executive Priorities and Budget Summary

for 2006- 07

Enhancing North Carolina’s aggressive strategies

for job creation and long- term economic growth

Providing quality health and family services to

those who can least afford them

Protecting and preserving our natural heritage

through land and water conservation, enforcement

of our Clean Smokestacks legislation, and other

environmental laws

Improving the court system and public safety of

our communities

•

•

•

•

Figure 1

Recommended Appropriation for General Fund

Operating Budget, 2006- 07

University System

13%

Community

Colleges 5% Public Schools

40%

Debt Service and

Other Reserves 4%

General

Government and

Natural and

Economic

Resources 5%

Justice and Public

Health and Human Safety 10%

Services 23%

Public Schools $ 6,881 $ 7,404 7.6% 40.0%

Community Colleges 828 912 10.1% 4.9%

University System 2,151 2,408 11.9% 13.0%

Total Education 9,860 10,724 8.8% 57.9%

Health and Human Services 4,057 4,249 4.7% 22.9%

Justice and Public Safety 1,783 1,917 7.5% 10.4%

Natural and Economic Resources 853 866 1.5% 4.7%

Debt Service and Other Reserves 588 765 30.1% 4.1%

Total Operating Budget $ 17,141 $ 18,521 8.1% 100.0%

Capital Improvements 55 329 498.2%

Total General Fund Appropriation $ 17,196 $ 18,850 9.6%

Table 1

Recommended General Fund Appropriations, 2006- 07

Compared with Authorized General Fund Appropriations, 2005- 06

($ million)

Authorized

2005- 06

Recommended

2006- 07

Change

2005- 06 to

2006- 07

Percent of Total

Operating Budget

3

Figure 2

General Fund Supported Positions

2006- 07

Health and Human

Services 4%

Justice and Public

Safety 12%

General

Government and

Natural and

Economic

Resources 3%

Public Schools

62%

Community

Colleges 6%

University System

13%

Public Schools 143,180 156,161 9.1% 62.1%

Community Colleges 14,082 15,589 10.7% 6.2%

University System 29,587 32,575 10.1% 12.9%

Health and Human Services 8,991 9,244 2.8% 3.7%

Justice and Public Safety 27,541 29,924 8.7% 11.9%

General Government and

Natural and Economic Resources 7,980 8,125 1.8% 3.2%

Total Positions 231,361 251,618 8.8% 100%

Table 2

Recommended General Fund Supported Positions, 2006- 07

Compared with Authorized General Fund Positions, 2005- 06

Authorized

2005- 06

Recommended

2006- 07

Change

2005- 06 to

2006- 07

Percent of

Total

Positions

4

2006- 07 Appropriation Appropriation 2006- 07 Net

Budget Certified Supported Supported Net Recommended Position

Code Function Appropriation Recurring Nonrecurring Positions Recurring Nonrecurring Positions Change Appropriation Change

Education

13510 Public Education $ 6 ,579,807,097 $ ( 184,044,719) $ - - $ 196,398,197 $ 115,221,507 3.00 $ 127,574,985 $ 6,707,382,082 3.00

16800 Community Colleges 7 67,295,886 - - - 39,606,340 232,423 5.00 39,838,763 807,134,649 5.00

160xx University System 2 ,120,397,081 - ( 9,634,513) ( 91.80) 120,313,014 12,707,409 - 123,385,910 2,243,782,991 ( 91.80)

Total Education 9 ,467,500,064 ( 184,044,719) ( 9,634,513) ( 91.80) 356,317,551 128,161,339 8.00 290,799,658 9,758,299,722 ( 83.80)

General Government

14100 Administration 58,818,473 - - - 3,089,529 2,602,289 18.72 5,691,818 64,510,291 18.72

13300 State Auditor 10,840,918 - - - 207,564 200,000 - 407,564 11,248,482 -

14800 Cultural Resources 62,917,147 - - - 3,903,858 348,744 33.00 4,252,602 67,169,749 33.00

14802 Cultural Resources - Roanoke Island 1,783,374 - - - - - - - 1,783,374 -

11000 General Assembly 46,965,432 - - - - 238,346 - 238,346 47,203,778 -

13000 Governor's Office 5,344,528 - - - 100,000 - - 100,000 5,444,528 -

13010 NC Housing Finance 4,750,945 - - - 5,000,000 - - 5,000,000 9,750,945 -

13900 Insurance 28,110,582 - - - 555,912 41,991 7.00 597,903 28,708,485 7.00

13901 Insurance - Worker's Comp. Fund 4,500,000 - - - - - - - 4,500,000 -

13100 Lieutenant Governor 753,037 - - - 2,600 - - 2,600 755,637 -

18210 Office of Administrative Hearings 2,969,712 - - - 357,000 8,000 2.00 365,000 3,334,712 2.00

14700 Revenue 80,673,250 - - - 570,173 789,887 10.00 1,360,060 82,033,310 10.00

13200 Secretary of State 9,369,633 - - - 711,621 127,050 9.25 838,671 10,208,304 9.25

18025 State Board of Elections 5,069,307 - - - 143,279 - 2.00 143,279 5,212,586 2.00

13005 State Budget and Management ( OSBM) 5,021,795 - - - 240,438 169,500 3.00 409,938 5,431,733 3.00

13085 OSBM- Special Appropriations 5,111,429 - - - 599,000 656,000 - 1,255,000 6,366,429 -

14160 Controller's Office 10,044,511 - - - - - - - 10,044,511 -

13410 State Treasurer 8,295,843 - - - 281,784 - - 281,784 8,577,627 -

13412 State Treasurer - Retirement / Benefits 8,651,457 - - - - - - - 8,651,457 -

Total General Government 359,991,373 - - - 15,762,758 5,181,807 84.97 20,944,565 380,935,938 84.97

Health and Human Services

14410 Central Administration 118,880,919 ( 66,646,653) - - 1,344,442 1,271,533 - ( 64,030,678) 54,850,241 -

14411 Aging 29,495,139 - - - 3,000,000 - - 3,000,000 32,495,139 -

14420 Child Development 267,356,799 - - - 30,453,222 12,291 10.00 30,465,513 297,822,312 10.00

14424 Education Services 34,281,895 - - - 778,548 50,000 23.00 828,548 35,110,443 23.00

14430 Public Health 150,814,496 - - - 19,889,744 416,000 203.00 20,305,744 171,120,240 203.00

14440 Social Services 190,679,285 - - - 12,399,153 2,287,393 - 14,686,546 205,365,831 -

14445 Medical Assistance 2,751,209,159 ( 150,000,000) - - - - - ( 150,000,000) 2,601,209,159 -

14446 Child Health 51,882,902 - - - - - - - 51,882,902 -

14450 Services for the Blind 9,681,220 - - - - - - - 9,681,220 -

14460 Mental Health/ DD/ SAS 602,556,655 - - - 54,133,395 35,000,000 163.00 89,133,395 691,690,050 163.00

14470 Facility Services 15,959,466 - - - - - - - 15,959,466 -

14480 Vocational Rehabilitation 42,142,193 - - - 699,856 - 4.00 699,856 42,842,049 4.00

Total Health and Human Services 4,264,940,128 ( 216,646,653) - - 122,698,360 39,037,217 403.00 ( 54,911,076) 4,210,029,052 403.00

Justice and Public Safety

14500 Correction 1,048,492,502 - ( 904,430) - 21,578,893 10,854,928 161.00 31,529,391 1,080,021,893 161.00

14900 Crime Control and Public Safety 35,153,488 - - - 3,960,741 8,000 30.00 3,968,741 39,122,229 30.00

12000 Judicial 345,760,410 - - - 18,577,456 7,581,365 249.75 26,158,821 371,919,231 249.75

12001 Judicial - Indigent Defense 88,648,414 - - - 3,591,162 2,622,438 - 6,213,600 94,862,014 -

13600 Justice 78,697,271 - - - 2,075,180 2,496,580 20.00 4,571,760 83,269,031 20.00

14060 Juvenile Justice 138,873,166 - - - 2,795,026 265,826 66.00 3,060,852 141,934,018 66.00

Total Justice and Public Safety 1,735,625,251 - ( 904,430) - 52,578,458 23,829,137 526.75 75,503,165 1,811,128,416 526.75

Reductions Expansion

Table 3

Governor's Recommended General Fund Budget

2006- 07

5

2006- 07 Appropriation Appropriation 2006- 07 Net

Budget Certified Supported Supported Net Recommended Position

Code Function Appropriation Recurring Nonrecurring Positions Recurring Nonrecurring Positions Change Appropriation Change

Reductions Expansion

Table 3

Governor's Recommended General Fund Budget

2006- 07

Natural and Economic Resources

13700 Agriculture and Consumer Services 51,032,884 - - - 1,003,323 317,516 10.50 1,320,839 52,353,723 10.50

14600 Commerce 36,728,265 - - - 17,366,828 1,880,000 10.00 19,246,828 55,975,093 10.00

14601 Commerce - State Aid 47,358,087 - - - 2,000,000 - - 2,000,000 49,358,087 -

14300 Environment and Natural Resources 168,451,089 - - - 9,888,956 1,336,072 11.00 11,225,028 179,676,117 11.00

14301 Clean Water Management Trust 100,000,000 - - - - - - - 100,000,000 -

13800 Labor 14,434,925 - - - 450,000 - 3.50 450,000 14,884,925 3.50

Total Natural and Economic Resources 418,005,250 - - - 30,709,107 3,533,588 35.00 34,242,695 452,247,945 35.00

14222 Transportation - - - - - - - - - -

Net Agency 16,246,062,066 ( 400,691,372) ( 10,538,943) ( 91.80) 578,066,234 199,743,088 1,057.72 366,579,007 16,612,641,073 965.92

19600 Capital Improvements - - - - - 329,453,300 - 329,453,300 329,453,300 -

Debt Service

19420 General Debt Service 619,291,140 - ( 50,000,000) - - - - ( 50,000,000) 569,291,140 -

19425 Federal Reimbursement 1,616,380 - - - - - - - 1,616,380 -

Total Debt Service 620,907,520 - ( 50,000,000) - - - - ( 50,000,000) 570,907,520 -

Reserves and Adjustments

19001 Contingency and Emergency Reserve 5,000,000 - - - - - - - 5,000,000 -

19003 Compensation Increase Reserve 229,300,000 - - - 585,761,473 8,775,417 - 594,536,890 823,836,890 -

19004 Salary Adjustment Reserve 14,094,294 - - - 20,000,000 - - 20,000,000 34,094,294 -

19008 Retirement Payback Reserve - - - - - 30,000,000 - 30,000,000 30,000,000 -

190xx Heating/ Cooling Assistance Reserve - - - - - 10,000,000 - 10,000,000 10,000,000 -

190xx Reserve for Innovative IT Projects - - - - 3,000,000 - - 3,000,000 3,000,000 -

19028 Longevity Svc. ( Clerks of Superior Court) Definition 41,411 - - - - - - - 41,411 -

19047 Disability Income Plan 6,586,500 - - - - - - - 6,586,500 -

19047 Death Benefit Trust 12,899,200 - - - - - - - 12,899,200 -

19027 ITS Rate Restructuring Reserve ( 2,300,000) - - - - - - - ( 2,300,000) -

19040 Minimum Fair Wage for SPA employees 750,000 - - - - - - - 750,000 -

19043 Health Plan Reserve 142,728,000 - - - - - - - 142,728,000 -

19037 State Business Infrastructure Project 2,525,000 - - - 7,260,523 34,527,880 50.75 41,788,403 44,313,403 50.75

19047 Retirement Rate Adjustment Reserve 13,810,800 - - - 48,000,000 - - 48,000,000 61,810,800 -

19044 IT Initiative 5,500,000 - - - 298,826 - 2.00 298,826 5,798,826 2.00

19040 Minimum Fair Wage Reserve ( DPI) 12,400,000 - - - 8,582,073 - - 8,582,073 20,982,073 -

19024 Reserve for Contingent Appropriations 85,000,000 - - - - - - - 85,000,000 -

190xx Reserve for Lawsuits - - - - - 2,000,000 - 2,000,000 2,000,000 -

190xx Reserve- Disaster Expenditures - - - - - 50,000,000 - 50,000,000 50,000,000 -

190xx Reserve- Military Morale, Recreation, and Welfare 1,000,000 - - - - - - - 1,000,000 -

Total Reserves and Adjustments 529,335,205 - - - 672,902,895 135,303,297 52.75 808,206,192 1,337,541,397 52.75

Total $ 17,396,304,791 $ ( 400,691,372) $ ( 60,538,943) ( 91.80) $ 1,250,969,129 $ 664,499,685 1,110.47 $ 1,454,238,499 $ 18,850,543,290 1,018.67

6

2006- 2007

Description Recommended

Budget Availability

Beginning Credit Balance

Unappropriated Balance from FY 2005- 06 $ 113,386,988

Anticipated Reversions from FY 2005- 06 125,000,000

Anticipated Overcollections from FY 2005- 06 1,072,100,000

Emergency Appropriation for Department of Correction ( 15,000,000)

Credit to Savings Reserve ( 324,000,000)

Credit to Repair and Renovation Reserve ( 200,000,000)

Anticipated Beginning Unreserved Credit Balance 771,486,988

Recommended Budgeted Revenue

Tax Revenue 17,631,550,000

Non- tax Revenue 520,300,000

Highway Fund Transfer -

Highway Trust Fund Transfer 252,663,009

Disproportionate Share Receipts 100,000,000

Total General Fund Revenue 18,504,513,009

Adjustments to Revenues

Reduce Sales Tax Rate by .25% on October 1, 2006 ( 196,500,000)

Cap Gas Tax Effective July 1, 2006 ( 23,550,300)

Reduce Highway Trust Fund Transfer to General Fund for FY 2006- 07 ( 195,176,407)

Sales Tax Changes ( Research and Development and Component Parts) ( 7,230,000)

Adoption Tax Credit ( 50% of Federal Tax Credit) ( 3,000,000)

Total Adjustment to Recommended Budgeted Revenues ( 425,456,707)

Total Availability 18,850,543,290

Recommended Appropriations

Original Certified Budget 17,396,304,791

Recommended Reductions ( 461,230,315)

Recommended Expansion 1,915,468,814

Total Appropriations Recommended 18,850,543,290

Total Ending Balance $ -

Table 4

Recommended Availability and Appropriations

2006- 2007

7

8

Major Expansion Budget

Recommendations

by Subject Area

Fiscal Responsibility

Education

Health and Human Services

Economic Development and

Infrastructure

Courts and Public Safety

Environment and Agriculture

Capital Improvements

Teachers and State Employees

9

10

Governor Easley recommends a fiscally responsible

budget that replenishes the Rainy Day Fund, invests in

the state’s infrastructure, and provides tax relief.

Save for the Future

Deposit $ 324 million in the Rainy Day Fund,

thereby increasing the balance to $ 637 million

or 4.0% of the prior year’s operating budget ( see

figure 3).

Set aside $ 50 million for disaster- related expenses.

Return Money to North Carolina Taxpayers

Cap the gas tax on July 1, 2006.

Reduce the state sales tax by 0.25% on October 1,

2006.

Enact a state tax credit for adoption expenses.

These actions will save North Carolinians over $ 220

million in 2006- 07.

•

•

••

•

Invest in Our Infrastructure

Reserve $ 200 million to repair university and state

buildings.

Appropriate $ 329 million in “ pay- as- you- go”

financing as well as $ 245 million in special financ-ing

to implement the Capital Improvement Plan.

Spend $ 42 million to replace and enhance the Hu-man

Resources/ Payroll System.

Reserve $ 195 million to replenish the Highway

Trust Fund.

•

•

•

•

Fiscal Responsibility

Major Recommendations

0

150

267

313

637

0

100

200

300

400

500

600

700

2002 2003 2004 2005 2006

Figure 3

Savings Reserve Account Balance

Rainy Day Fund

June 30 ($ mil)

11

For education, Governor Easley’s budget focus contin-ues

the state’s investments in education from prekin-dergarten

through the university system to build a

skilled workforce prepared to compete in the global

economy.

Public Education

Provide a significant increase in teacher salaries,

including a step increase plus a flat $ 2,250 ( for an

overall average of 8%), while substantially increas-ing

the competitiveness of North Carolina’s begin-ning

teacher salary.

Provide an additional $ 523 million for public

schools, a 7.6% increase over 2005- 06.

Continue funding for record enrollment increases,

projected at 38,103 or 2.7% more than the

1,397,372 students enrolled in the 2005- 06 school

year ( see figure 4).

Fully fund the ABCs accountability program.

More than double the disadvantaged- student

supplemental funding.

•

•

•

••

Appropriate $ 42 million to ensure full funding for

low wealth LEAs whose ability to generate local

revenue per student is below the state average.

Expand the governor’s 21st Century High School

program by $ 14.1 million to ensure operating

funds for 34 Learn and Earn schools and 32 small

redesigned high schools to improve graduation

rates, student performance, and competitiveness in

the 21st century.

Fund literacy coaches for professional develop-ment

of faculty in 100 middle schools to ensure

student mastery of 21st century skills.

Appropriate $ 4 million to expand access to the

NC Education Network for the state’s K- 12 public

schools.

Fund $ 2.8 million for the NC Virtual Public

School to provide statewide access to online

courses and learning opportunities.

Provide $ 16.4 million for the rising cost of diesel

fuel for buses.

•

•

•

•

•

•

Education

Major Recommendations

Source: Department of Public Instruction, Financial and Business Services School Allotment Section

Figure 4

Average Daily Membership Budgeted

NC Public Schools

1,150,000

1,200,000

1,250,000

1,300,000

1,350,000

1,400,000

1,450,000

1998- 99 1999- 00 2000- 01 2001- 02 2002- 03 2003- 04 2004- 05 2005- 06 2006- 07

0

0.5

1

1.5

2

2.5

3

Percent Change

ADM Percent Change

12

Budgeted FTE is the sum of curriculum, continuing education, and basic skills FTE. It is computed as

the three- year average or the prior year's enrollment for each college, whichever is higher. The community

colleges' enrollments are aggregated for the entire Community College System. ( The three- year average

creates slight differences between budgeted and actual FTE; recently, this systemwide difference has been

less than 100.)

Source: NCCCS System Office

Figure 5

Enrollment in Community College System

Curriculum, Continuing Education, Basic Skills

Budgeted FTE

-

50,000

100,000

150,000

200,000

250,000

1999- 00 2000- 01 2001- 02 2002- 03 2003- 04 2004- 05 2005- 06 2006- 07

0%

2%

4%

6%

8%

10%

12%

Percent Change

FTE Percent Change

Community Colleges

Provide an additional $ 84 million for community

colleges, a 10.1% increase over 2005- 06.

Fully fund enrollment growth ( an additional $ 7

million) for all community college campuses ( see

figure 5).

Appropriate a recurring enrollment reserve of $ 2

million to assist community colleges experiencing

fall semester enrollment growth of 5% above the

prior year.

Increase salaries for community college faculty and

professional staff by an additional 4% ( total of 8%)

to attract and retain highly qualified personnel.

Appropriate $ 3.9 million to improve and expand

distance learning opportunities, thereby increasing

access for North Carolina students regardless of

geography.

•

•

•

•

•

Approve $ 11 million to address equipment needs at

community colleges, including equipment to reduce

program waiting lists.

Allocate $ 500,000 in financial aid to community

college students enrolling in teaching or nursing

programs to address the growing demand for these

professionals.

Fund two new regional customized industry train-ing

coordinators to provide all North Carolina eco-nomic

development regions with training assistance.

Provide for additional student services and financial

aid staffing at community colleges, enabling them

to better serve growing student enrollments.

Appropriate funds for the State Board of Commu-nity

Colleges to direct start- up grants for new and

innovative college programs.

•

•

•

•

•

13

Source: UNC General Administration

Budgeted FTE is calculated by converting budgeted Student Credit Hours ( fall and spring)

into the measure of regular term full time equivalent students ( FTEs).

Figure 6

Enrollment in the University System

Budgeted FTE

-

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

200,000

1999- 00 2000- 01 2001- 02 2002- 03 2003- 04 2004- 05 2005- 06 2006- 07

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

Percent Change

Enrollment Units ( FTE) Percent Change

University System

Appropriate an additional $ 257 million for the Uni-versity

of North Carolina system, a 11.9% increase

over 2005- 06.

Fully fund university enrollment increases ($ 79 mil-lion

for a 4.1% FTE increase) ( see figure 6).

Provide $ 21.6 million to fully fund the need- based

financial aid program.

Approve $ 1.3 million for federally required state

agricultural research and extension program match-ing

funds.

Provide $ 4.8 million for nurses’ scholarships and

programs to address the growing demand for nurses

in North Carolina.

Appropriate $ 1 million for 400 additional prospec-tive

teacher scholarship loans.

•

•

•

•

•

•

Provide $ 1 million to continue the 2+ 2 E- learning

initiative between the University of North Carolina

system and community colleges in order to make

online teacher education accessible across the state.

Allocate $ 2 million for new professional develop-ment

programs for teachers and principals.

Appropriate $ 2 million for the DESTINY traveling

science laboratory to increase access to state- of- the-art

science instruction and high quality professional

development for science teachers.

Provide $ 11.5 million for rising electrical, natural

gas, fuel oil, gasoline, and diesel costs.

Approve $ 2.4 million to update information tech-nology

infrastructure at the 16 university campuses.

•

•

•

•

•

14

Governor Easley is committed to providing quality

health and family services to those who can least afford

them. His budget includes an expansion of over $ 160

million in this area, with 55% designated for mental

health, developmental disabilities, and substance abuse

services.

Supporting the Family

Continue funding quality child care services for

96,000 children currently receiving subsidies, plus

provide funds for an additional 3,000 children of

low- income working parents.

Provide mental health and social services support

to child and family teams in 100 schools across the

state.

Appropriate approximately $ 2 million to support

pregnant women who are substance abusers or

domestic violence victims.

Support the nationally acclaimed Smart Start pro-gram

with $ 10 million.

Supporting Individuals with Special Needs

Provide $ 12 million to meet the increasing needs

of children receiving foster care and adoption as-sistance

services.

Appropriate an additional $ 7 million for early

intervention for children with, or at risk for, devel-opmental

disabilities.

•

•

•

•

•

•

Continue funding services for about 5,500 people

with developmental disabilities threatened with

loss of support due to changes in federal policy.

Approve an additional $ 58 million investment in

mental health reform.

Increase grants to local programs to serve frail

seniors who want to remain in their own homes.

Provide 23 new positions to support preschoolers

and students attending residential schools for the

blind and deaf.

Establish an adoption tax credit.

Promoting Health

Provide antiviral medications for first responders

in case of an influenza pandemic.

Add influenza vaccine to the universal vaccine

program.

Appropriate $ 3.25 million to support 65 school

nurses.

Controlling Medicaid Expenditure Growth

Reduce Medicaid funding by $ 150 million,

primarily due to a higher federal match rate and

savings to the state from the new Medicare Drug

Plan.

•

•

•

•

•

•

•

•

•

Health and Human Services

Major Recommendations

Figure 7

Recommended Continuation Appropriations

by Division

Health and Human Services, 2006- 07

($ mil)

2,751

603

267 191 151 302

64.5%

14.1%

6.3% 4.5% 3.5% 7.1%

-

500

1,000

1,500

2,000

2,500

3,000

Medicaid MH/ DD/ SAS Child

Development

Social

Services

Public Health All Other

DHHS

Programs

Total: $ 4,265

Figure 8

Recommended Expansion Appropriations

by Activity

Health and Human Services, 2006- 07

($ mil)

89

30

17 13

8 3 2

8.2% 4.7% 1.9% 1.0%

10.3%

18.8%

55.1%

-

10

20

30

40

50

60

70

80

90

100

MH/ DD/ SAS Child

Develpment

At Risk

Children

Public Health Early

Intervention

Elder Care Residential

Schools

Total: $ 162

15

Governor Easley remains committed to fostering

long- term economic growth and enhancing the state’s

aggressive strategies for creating jobs. In addition, the

governor’s budget recommendations focus on restoring

and maintaining the state’s transportation infrastruc-ture

and promoting public transit initiatives as key

components for continued economic growth.

The One North Carolina Fund

Provide $ 10 million to recruit new businesses

or support industries interested in significantly

expanding in the state.

The One North Carolina Small Business In-novation

Research Program

Appropriate $ 5 million as incentive funding for

small businesses to apply for federal innovation re-search

grants. The program reimburses applicants

50% of the costs of preparing and submitting a

proposal and also helps bridge the funding gap

between proposal completion and initiation of an

award, up to an annual limit of $ 100,000.

Motor Sports Program

Fund the promotion of motor sports, an industry

contributing more than $ 5 billion annually to

North Carolina’s economy with its 24,400 jobs.

Establish a sales tax exemption for racing- vehicle

components.

Biotechnology

Provide $ 2 million for the North Carolina Bio-technology

Center to help the state remain an

internationally recognized biotechnology leader.

Approve $ 480,000 for community college biotech-nology

programs.

Appropriate $ 4.5 million for biomanufacturing

research and training at North Carolina State Uni-versity

and North Carolina Central University.

•

•

•

•

•

•

•

North Carolina as a Business Location

Allocate $ 1.5 million to advertise and promote

North Carolina as a location for business and

industry in order to help stem job losses and com-pete

with neighboring states and foreign countries.

Establish a research and development sales tax

reduction.

North Carolina Housing Trust Fund

Add $ 5 million in recurring dollars for the Hous-ing

Trust Fund to help families secure safe, decent,

and affordable homes, create jobs, increase state

and local tax revenues, and leverage millions of

dollars in additional business investment.

Transportation

Provide an additional $ 83 million ( a 44% increase

over the previous year) in contract resurfacing

funds to address degrading pavement conditions.

Approve $ 57 million for highway system preser-vation

and maintenance, including pavements,

bridges, and traffic signal systems.

Appropriate an additional $ 10 million ( a 29%

increase over the previous year) in small urban

construction funds for use statewide for economic

development, spot safety, or transportation im-provement

projects.

Allocate a $ 9.4 million increase ( 14% over the

previous year) in public transportation funding to

provide access to dial- a- ride services for citizens,

operating costs of fixed- route systems, and ad-ditional

state matching of federal funds for public

transportation initiatives.

Approve a $ 2 million increase ( 15% over the pre-vious

year) in state aid to assist rural airports with

capital improvements critical to attracting new

business and industry to local communities.

Provide $ 2 million for short- line railroad rehabili-tation

projects.

•

•

•

•

•

•

•

•

•

Economic Development and Infrastructure

Major Recommendations

16

Improving the court system and community public

safety are key aspects of Governor Easley’s budget

recommendations.

Criminal Investigation Resources

Allocate $ 1.5 million for the State Bureau of

Investigation to fund new field agent and crime

lab positions to improve conviction rates related to

identify theft, child exploitation on the Internet,

and methamphetamine and other drug trafficking.

Provide initial funding of $ 1.9 million for needed

replacement of the Statewide Automated Finger-print

Identification System, which is essential for

solving crimes and conducting criminal back-ground

checks.

Public Safety

Include $ 1.4 million to fund emergency manage-ment

staff and logistics operations to improve

emergency planning, response, and recovery

capabilities.

Provide $ 1.4 million to enable the state to monitor

convicted sex offenders with Global Positioning

System technology and to increase public aware-ness

of offenders establishing residency in North

Carolina communities.

Add $ 1.5 million for additional State Highway

Patrol troopers and support staff to reduce fatal ve-hicle

collisions and increase enforcement visibility.

Provide $ 10 million for improved communica-tions

between public safety agencies by expanding

the statewide interoperable voice radio network

( VIPER).

Appropriate $ 2.5 million to expand prison bed

capacity to meet both current and future projected

inmate population needs.

Approve $ 150,000 to ensure trained response

teams are in place statewide to protect the public

from incidents involving hazardous materials.

•

•

•

•

•

•

•

•

Provide an additional appropriation of $ 620,000

for services of urban search and rescue teams and

swift water rescue teams.

Fund $ 1.3 million to help reduce repeat criminal

offenses by substance abusers.

Court System Improvements

Fund a $ 9.5 million increase to expand the num-ber

of prosecutors, judges, and support staff to

reduce case backlogs and process child custody and

criminal cases more expeditiously.

Provide $ 5.5 million to support new and existing

technology initiatives, including a statewide war-rant

repository, electronic filing for civil cases, an

electronic traffic court, and an electronic payment

system for court fees.

Allocate $ 5.3 million to improve overall operating

efficiency by replacing outdated technology and

office equipment essential for court operations.

Approve $ 820,000 to expand custody mediation

and guardian ad litem programs to protect chil-dren

involved in custody, abuse, and neglect cases.

Financial Assistance

Include $ 500,000 for Operation ROTC ( Reaching

Out to Children) for extended day care needed by

military dependents when spouses are deployed.

Provide $ 700,000 in additional funding for the

Crime Victims Compensation Fund so that lost

wage and hospital expense payments to victims of

crime will be awarded faster.

Add $ 500,000 in increased funding for commu-nity

programs that reach out to delinquent and at-risk

youth to continue to improve recidivism rates.

•

•

•

•

•

•

•

•

•

Courts and Public Safety

Major Recommendations

17

Governor Easley’s budget recommendations reflect his

belief in protecting and preserving the state’s natural

heritage through land and water conservation and

enforcement of clean smokestack legislation and other

environmental laws.

Water Resources

Provide $ 467,000 for seven inspectors to monitor

construction sites to prevent further water pollu-tion

from sediment and erosion.

Allocate $ 500,000 for the expansion of the Con-servation

Reserve Enhancement Program ( CREP)

into additional watersheds in need of riparian buf-fers

and restored wetlands.

Provide $ 500,000 for the cleanup of orphan haz-ardous

sites throughout the state. These sites will

then be converted to safe uses.

Approve $ 2.9 million for the Drinking Water State

Revolving Fund as a 20% state match for $ 14.5

million in federal funds. The primary purpose of

the fund is to provide low interest loans for water

supply infrastructure improvements.

Fund $ 3.2 million to provide a 20% match as a

condition of the EPA Capitalization Grants for the

Clean Water State Revolving Fund programs. The

funding allows local governments to address their

wastewater treatment needs more efficiently and to

improve North Carolina’s water quality.

Provide $ 2.4 million for private well construc-tion.

The funding will support the enforcement of

standards for private well construction and provide

incentive funds for new county well programs.

Allocate $ 259,067 to support and maintain the

Basinwide Information Management System

( BIMS) by establishing three additional staff

positions. BIMS is the result of Water Quality

Division efforts to consolidate essential regulatory

agency data into one database.

•

•

•

•

•

•

•

One North Carolina Naturally Initiatives

Provide $ 277,527 to establish four coastal habitat

protection Compliance Coordinator positions to

concentrate on permit monitoring, enforcement,

and compliance activities, thereby allowing exist-ing

field staff to focus on permit delivery activities.

Appropriate $ 333,778 to soil and water conser-vation

districts and counties to implement best

management practices for water quality.

Approve $ 400,000 to help agricultural producers

implement best management practices on private

agricultural lands to improve water quality.

Appropriate $ 563,695 to encourage private wood-land

owners to reforest their land after harvest and

to plant trees on idle or unproductive land, thus

ensuring future timber supplies while providing

environmental protection to the state’s woodlands.

Provide $ 375,000 to implement the Coastal Rec-reational

Fishing License Program ( CRFL).

Agriculture

Approve $ 250,000 to fund three positions to ad-dress

the threat of avian influenza, exotic New-castle

disease, bovine spongiform encephalopathy,

and any other emerging or potential foreign

animal diseases.

Provide $ 345,000 for eight positions to provide

increased protection of the food supply by inspect-ing

slaughterhouses and processing plants and

surveying food samples.

Appropriate $ 350,000 to offset deficits of state

farms in transitioning from production facilities to

research facilities.

Approve $ 58,323 to establish an Export Certifica-tion

Specialist position to provide technical help to

North Carolina producers sending raw agricultural

products to markets outside of the United States.

•

•

•

•

•

•

•

•

•

Environment and Agriculture

Major Recommendations

18

Governor Easley recommends a balanced capital

financing package, using a combination of pay- as- you-go

and debt sources to prevent the state from an over-burdened

debt capacity and critical project delays. The

proposed capital budget totals approximately $ 764.2

million, including $ 329.5 million from General Fund

appropriations, $ 20 million in revenue bonds, $ 245

million in special financing, and $ 169.7 million from

receipts. In addition, $ 200 million is recommended for

the Repair and Renovation Reserve.

Education

Appropriate $ 27 million to expand the School of

Nursing at UNC- Wilmington.

Approve $ 61 million for the Engineering Complex

III at North Carolina State University to continue

the relocation of the College of Engineering to

Centennial Campus.

Provide $ 45.8 million for a new UNC- Charlotte

classroom building to house graduate and profes-sional

education programs.

Public Health

Approve the issue of $ 101 million in special

financing to construct a new public health lab and

office for the Chief Medical Examiner.

Appropriate $ 8 million from the General Fund to

combine with a $ 16 million federal grant to con-struct

two skilled- care nursing homes for North

Carolina’s veterans.

Justice and Public Safety

Provide $ 8.5 million to construct an Emergency

Operations Center within the new National

Guard Readiness Center.

Approve $ 151.7 million, including $ 144 mil-lion

in special financing and $ 7.9 million from

receipts, to build a Regional Medical Center and a

Mental Health Center at North Carolina’s Central

Prison in Raleigh.

•

•

•

•

•

•

•

Natural and Economic Resources

Approve $ 106.4 million, including $ 18.5 million

in appropriations and $ 87.9 million in federal and

local matching funds, for water resources develop-ment

projects.

Appropriate $ 15 million for land acquisition to

expand Chimney Rock State Park.

Provide $ 7.5 million from the General Fund to

add to $ 16.6 million in receipts to buy two new

container cranes for the Port of Wilmington.

Appropriate $ 1.5 million to combine with $ 1 mil-lion

in gifts and grants for the Children’s Discov-ery

Center to expand interactive and educational

exhibits at the North Carolina Zoo.

Approve $ 10 million to add to $ 40 million in

gifts and grants for the Nature Resource Center,

a Museum of Natural Sciences annex to engage

teachers, students, and the public in interactive

scientific research.

General Government

Appropriate $ 40 million to expand the Museum

of Art to showcase new collections and programs.

Approve the issue of $ 20 million in revenue bonds

for a new parking deck in the downtown complex.

Provide $ 50 million to construct a new building

to consolidate Department of Environment and

Natural Resources offices.

•

•

•

•

•

•

•

•

Capital Improvements

Major Recommendations

Figure 9

Recommended Capital Funding

2006- 07

329.5 ($ mil)

20.0

245.0

169.7

0

50

100

150

200

250

300

350

General Fund Revenue Bonds Special Financing Receipts

Total: $ 764.2 million

19

Teachers and State Employees

Major Recommendations

Appropriate $ 323 million as a step increase plus

a $ 2,250 flat increase for public school teachers,

equaling an average 8% increase. The $ 323 mil-lion

includes $ 8.8 million as nonrecurring salary

increases for school personnel at the top of the

scale. The proposal also includes an average 7%

increase for principals and assistant principals. ( See

figure 10.)

Provide $ 8.6 million to increase the minimum

hourly or monthly salary of noncertified public

education employees to the state employee mini-mum.

Approve $ 244 million for a 4% salary increase for

all other state employees, including community

college faculty and professional staff.

Provide $ 28 million for an additional 4% increase

•

•

•

•

Source: 1997- 99 to 2005- 06 Highlights of the North Carolina Public School Budget February 2006,

Information Analysis NCDPI.

Note: 2006- 07 to 2008- 09 National projections based upon National Education Association figures.

Figure 10

Average Teacher Compensation

1998 - 2009

$ 30,000

$ 35,000

$ 40,000

$ 45,000

$ 50,000

$ 55,000

1997-

98

1998-

99

1999-

00

2000-

01

2001-

02

2002-

03

2003-

04

2004-

05

2005-

06

2006-

07

2007-

08

2008-

09

Salary

- 2%

0%

2%

4%

6%

8%

10%

12%

Percent Change

NC US NC Percent Change US Percent Change

( 8% total) for community college faculty and pro-fessional

staff to attract and retain highly qualified

personnel.

Allocate $ 48 million for a 3.7% cost- of- living ad-justment

( COLA) for retirees of the Teachers’ and

State Employees’ Retirement System.

Approve $ 30 million to repay funds withheld from

the Retirement System in the 2001- 02 budget

crisis. This repayment is the fourth in the five- year

payback period.

Allocate $ 20 million to the Salary Adjustment

Fund. This fund provides salary adjustments for

job groups with state salaries that are not competi-tive

in the market place and increases where the

state is having difficulty recruiting and retaining

employees.

•

•

•

20

Economy and Revenue

by Topic

Economy

Outlook for the Nation and State

Revenue

General Fund Revenue Forecast

Highway Fund Revenue

Highway Trust Fund Revenue

21

22

Economy

Outlook for the Nation and State

Review of 2004- 05

Continued strong growth in U. S. economy. After

gathering momentum in 2002- 03 and 2003- 04, the

U. S. economy continued to expand at a solid pace

in 2004- 05. This growth was fueled by consumer

spending and business investment. The labor market

improved drastically after several years of minimal

growth.

Real Gross Domestic Product ( GDP) grew

strongly during 2004- 05. The value of all goods

and services produced within the U. S., adjusted

for inflation, grew at 3.7%. Most components of

demand that accounted for growth in 2003- 04,

such as consumer spending, business investment,

and exports, continued to grow in 2004- 05.

Hiring picked up. Employers created roughly two

million new jobs, while the unemployment rate

declined to 5.1% by the end of 2004- 05 ( down

0.5 percentage point from the previous year).

The service sector accounted for most of the job

growth, while the manufacturing sector continued

to lose jobs.

Consumers continued to spend more. Despite a

gradual cooling in the housing market, solid job

growth and rising household incomes drove con-sumer

spending. Total personal income increased

by 6.3% in 2004- 05, while wages and salaries

increased 2.4%. Consumer spending grew 3.7%.

The federal funds rate increased. The Federal

Reserve continued to move toward a neutral

monetary policy stance. The federal funds rate was

gradually increased to its current level of 4.75%.

Overall inflation, as measured by the Consumer

Price Index, increased very slightly during 2004-

05 to 3.0%. Core inflation, which excludes food

and energy prices, remained in the 2% range.

Solid growth in North Carolina’s economy. The

North Carolina economy continued to expand as the

labor market strengthened. Employers added jobs and

•

•

•

•

statewide unemployment dropped significantly from

its recession peak in the spring of 2002 ( see figures 11

and 12). Nonagricultural employment increased by

62,650 jobs or 1.7% in 2004- 05.

The service sector fueled employment gains.

Consistent with the trend in recent years ( see

figure 13 and table 5), the service sector experi-enced

outstanding job growth. In particular, the

professional/ business and education/ health services

sectors were the main drivers of this expansion.

After growth of 3.2% in 2003- 04, the education

and health sector gained another 4.1% in 2004-

05. Building on the 0.6% gain in 2003- 04, the

professional and business services sector increased

employment by 3.7% in 2004- 05. While job

growth has been a bit more inconsistent in the

leisure and hospitality services, the sector realized a

1.7% growth.

The pace of manufacturing employment losses

slowed. While the state’s manufacturing sector

continued to lose jobs in 2004- 05, the 0.5% loss

was the lowest since 1997- 98.

Outlook for 2006 and 2007

Continued growth expected in U. S. economy.

The U. S. economy is off to a strong start in 2006. The

value of all goods and services produced within the

U. S., adjusted for inflation, grew at 4.8% in the first

quarter ( one of the strongest quarters in the recent

past). The labor market also continues to grow as

employers add jobs. While rising energy prices and

the weakening housing market are a concern, most

economic forecasts project steady growth for the

remainder of 2005- 06 and 2006- 07. Highlights of this

economic outlook include the following:

Real GDP is expected to increase by 3.2% in both

2006 and 2007.

The labor market should continue its steady per-formance,

as an average of 182,000.

nonagricultural jobs is expected to be added dur-

•

•

•

•

23

Source: Labor Market Information, Employment Security Commission

Figure 11

NC Unemployment Rate Falls Significantly

Percent Unemployed

6.8

6.4

5.6

5.1

4.5

0

1

2

3

4

5

6

7

8

March 2002 March 2003 March 2004 March 2005 March 2006

Source: Labor Market Information, Employment Security Commission

Figure 12

NC Employment Expands

Total Nonfarm Employment ( 000s)

2002 to 2006

3,828.4

3,776.9 3,786.5

3,879.6

3,947.1

3650

3700

3750

3800

3850

3900

3950

4000

March 2002 March 2003 March 2004 March 2005 March 2006

24

Source: Labor Market Information, Employment Security Commission

Figure 13

Nonfarm Employment by Category

Percent of Total

0 5 10 15 20 25

Trade, Transportation, and Utilities

Government

Manufacturing

Education and Health Services

Professional and Business Services

Leisure and Hospitality Services

Construction

Financial Activities

Other Services

Other

1995 2000 2005

Category 1995 2000 2005

Trade, Transportation, and Utilities 19.6 19.1 18.8

Government 15.9 15.8 17.0

Manufacturing 23.7 19.3 14.5

Education and Health Services 8.8 9.6 11.9

Professional and Business Services 9.0 11.2 11.3

Leisure and Hospitality Services 8.0 8.2 9.1

Construction 5.1 5.8 5.9

Financial Activities 4.2 4.6 5.0

Other Services 3.6 4.1 4.4

Other 2.1 2.3 2.1

Table 5

Annual Nonfarm Employment by Category

Percent of Total

Source: Labor Market Information, Employment Security Commission

1995, 2000, and 2005

Percent of Total

25

ing the final two quarters of fiscal year 2006. Job

gains in 2007 are expected to average 149,000 per

month. The unemployment rate is projected to

remain at 4.8% in 2006, while increasing slightly to

4.9% in 2007.

Inflation is expected to remain near 2.5% over

the rest of 2006 and 2007. Core inflation, which

excludes food and energy, is expected to increase

slightly over the next two years.

The federal funds rate is expected to reach 5.25%

by the end of June, as the Federal Reserve Bank

continues to move toward a neutral monetary policy

stance.

After a sluggish fourth quarter in 2005, consumer

spending jumped 5.1% in the first quarter of 2006.

Consumer spending is expected to grow at 3.1% for

the remainder of 2006 before falling below 3.0%

in 2007 due to higher interest rates and a projected

slowdown in the housing market.

Large corporate profits and positive perceptions of

the economic outlook are expected to increase busi-ness

investment over the next two years. Business

investment is expected to increase by 9.1% and

6.4% in 2006 and 2007.

Continued expansion expected in North Caro-lina.

Driven by growth in the services sector, the

state’s economy is expected to expand and build on the

employment growth momentum generated in 2004- 05.

This growth, combined with business investment and an

increase in wages, is expected to fuel North Carolina’s

expansion.

Economists’ projections for the state’s economy in 2005-

06 and 2006- 07 include these forecasts:

Personal income is expected to outpace the U. S.

in 2006- 07 after falling slightly behind the U. S.

growth in 2005- 06 ( see figure 14).

Employment growth is expected to remain con-sistent

with that of the nation. Nonagricultural

employment is forecasted to expand 1.5% in 2005-

06, followed by 1.7% growth in 2006- 07 ( see figure

15).

Professional and business services employment is

expected to expand 4.6% in 2005- 06 and 4.2% in

2006- 07.

•

•

•

•

•

•

•

Employment in the leisure and hospitality services

sector is forecasted to grow 2.6% in 2005- 06 and

3.1% in 2006- 07.

Construction employment is expected to slow in

2005- 06 and 2006- 07, growing at 2.5% and 1.2%,

respectively.

High- tech manufacturing is forecasted to help limit

manufacturing losses in 2005- 06 to 1.6% followed

by losses of 1.9% in 2006- 07.

•

•

•

Data for fiscal years 2006 and 2007 are forecasts.

Source: Global Insight

Figure 15

State Maintains Employment Growth

Percentage Growth in Nonagricultural Employment

- 3

- 2

- 1

0

1

2

3

4

FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07

North Carolina U. S.

Data for fiscal years 2006 and 2007 are forecasts.

Source: Global Insight, U. S. Bureau of Economic Analysis

Figure 14

State Income Expected to Exceed U. S.

Percentage Growth in Personal Income

0

1

2

3

4

5

6

7

8

FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07

North Carolina U. S.

26

Revenue

General Fund Forecast

About half of North Carolina’s total revenue originates

from tax collections and other sources comprising the

General Fund. The other half consists of funds from

the federal government, highway funds, the education

lottery, and other receipts and fees ( e. g., tuition).

General Fund revenues are primarily derived from

three major sources: individual income tax, corporate

income tax, and the sales and use tax. Other important

sources include franchise, insurance, alcohol, and other

miscellaneous taxes. In addition, nontax revenues, such

as earnings from investment of state funds, also sup-port

the General Fund.

Forecast reflects the state’s growing economy.

As the North Carolina economy has expanded, Gen-eral

Fund tax revenue growth has exceeded expecta-tions.

Through the first nine months of 2005- 06, total

General Fund revenues ( including nontax receipts and

transfers from the Highway Trust Fund) rose 9.7% to

$ 12,324.3 million, about $ 400 million above expecta-tions.

By the end of 2005- 06, it is currently projected

that General Fund revenue collections will total

$ 17,890.7 million.

Baseline General Fund revenue growth is expected to

be 3.2% in 2006- 07. Recognizing the strong economic

forecast, General Fund revenue for 2006- 07 is adjusted

upward by $ 273.4 million ( net of tax cuts). Table 6

details this revised estimate for 2006- 07, adjusted for

the recommended tax changes discussed below. It also

shows the projected General Fund revenue for 2005-

06 and the certified budgeted revenue for 2005- 07.

For each of the major categories of General Fund rev-enue,

the current performance and 2006- 07 baseline

forecast are discussed below, along with any recom-mended

tax changes.

Individual income taxes. Through the first three

quarters of 2005- 06, net individual income tax receipts

totaled $ 6,312.7 million, about $ 136 million above

the official estimate. Individual income tax receipts of

$ 9,390.4 million are expected for the fiscal year, an

increase of 11.7% over the previous fiscal year.

This growth is fueled by North Carolina’s strong

employment gains over the past year. In particular, the

professional and business services and the education

and health services sectors have driven this expansion.

In 2006- 07, the strong job market is expected to

continue to lead growth in individual income tax

collections. Baseline growth is expected to be 3.2% in

2006- 07.

Tax changes will also affect individual income tax col-lections.

The Governor recommends that the General

Assembly enact a state tax credit for adoption expenses,

effective January 1, 2006, based on the existing federal

tax credit. The state credit would equal 50% of the

federal adoption tax credit claimed in the tax year.

Families who adopt children would save an estimated

$ 3 million from the credit.

Adjusting for the tax change, growth in individual

income tax collections is expected to be $ 295.2 million

in 2006- 07.

Sales and use taxes. Sales and use tax collections

exceeded the official forecast by $ 143.5 million in the

first three quarters of 2005- 06. By the end of 2005- 06,

growth in total sales and use tax collections is expected

to be 10.8% above 2004- 05. For 2006- 07, baseline

growth in sales tax collections is expected to equal

4.1%.

The following changes are also expected to affect col-lections

from sales and use taxes.

Sales tax rate reduced by 0.25%. To provide relief to

taxpayers, the Governor recommends reducing the

state sales tax rate from 4.5% to 4.25%, effective

October 1, 2006. There is a commensurate reduction

of 0.25% in state taxes on telecommunications and

satellite television. This reduction is expected to save

taxpayers $ 196.5 million in 2006- 07.

27

Motor sports exemption. The Governor recommends

refunding $ 3.2 million in sales taxes to professional

motor sports racing teams for racing- vehicle parts and

equipment. This refund will help increase the state’s

leadership position in building its $ 5.9 billion motor

sports industry.

Sales tax reduction for research and development. To

support and encourage research and development, the

Governor recommends reducing the sales tax on equip-ment

used for research. This reduction is expected to

save taxpayers $ 4 million in 2006- 07.

Adjusting for these tax changes, collections of sales and

use taxes are expected to be $ 4,972.6 million in 2006-

07.

Corporate income taxes. Corporate income tax

receipts for 2005- 06 reflect the strong business climate

in North Carolina. Through the first quarter of 2006,

corporate income tax receipts were up 7.7%, exceeding

the official estimate by $ 132 million.

Recognizing the historical volatility and cyclical nature

of this revenue source, baseline corporate income tax

receipts are expected to decrease 6.2% in 2006- 07.

28

2005- 06 2005- 06 2006- 07 2006- 07

Certified Revised Certified Revised

Budgeted Estimate Budgeted Estimate *

Tax Revenue

Individual Income $ 8,839,760,000 $ 9,390,400,000 $ 9,399,150,000 $ 9,685,600,000

Corporate Income 905,940,000 1,137,600,000 910,870,000 1,067,200,000

Sales and Use 4,692,700,000 4,972,400,000 4,915,325,000 4,972,600,000

Franchise 493,800,000 480,100,000 520,450,000 506,750,000

Insurance 441,700,000 451,400,000 485,600,000 490,400,000

Tobacco Products 161,274,000 169,900,000 231,171,000 232,000,000

Beverage 195,950,000 196,900,000 202,550,000 203,000,000

Inheritance 137,900,000 138,600,000 139,300,000 139,300,000

Licenses 46,300,000 42,500,000 47,500,000 43,700,000

Mill Machinery 16,600,000 11,400,000 40,000,000 32,400,000

Piped Natural Gas 35,500,000 32,800,000 35,900,000 33,200,000

Gift 20,000,000 15,700,000 22,500,000 18,200,000

Freight Car Lines 540,000 200,000 540,000 200,000

Miscellaneous 560,000 300,000 560,000 300,000

Total Tax Revenue $ 15,988,524,000 $ 17,040,200,000 $ 16,951,416,000 $ 17,424,850,000

Nontax Revenue

Investment Income 74,800,000 114,200,000 78,700,000 108,700,000

Judicial Fees 161,725,771 155,700,000 168,605,271 162,600,000

Disproportionate Share Receipts 100,000,000 91,200,000 100,000,000 100,000,000

Insurance Department 49,889,013 52,400,000 51,543,813 53,000,000

Miscellaneous 188,801,932 182,200,000 202,719,921 178,307,275

Total Nontax Revenue $ 575,216,716 $ 595,700,000 $ 601,569,005 $ 602,607,275

Transfers

Highway Fund 2,200,000 2,200,000 - -

Highway Trust Fund 252,558,117 252,558,117 252,663,009 51,599,027

Total Transfers $ 254,758,117 $ 254,758,117 $ 252,663,009 $ 51,599,027

Total General Fund Revenue $ 16,818,498,833 $ 17,890,658,117 $ 17,805,648,014 $ 18,079,056,302

Table 6

General Fund Revenue

Detailed Revised Estimates for 2005- 06 and 2006- 07

Totals may differ from the sum of their parts due to rounding.

* Net of tax cut proposals

29

Figure 16

General Fund Revenue

Revised Estimates for 2006- 07

Individual Income

Tax 53%

Corporate Income

Tax 6%

Sales and Use

28%

Franchise 3%

Insurance 3%

Other Tax Revenue

4%

Highway Trust

Fund Transfer 0%

Nontax Revenue

3%

Percent

Change

2005- 06 2005- 06 2006- 07 2006- 07 2005- 06 to

Budget Revised Difference Budget Revised Difference 2006- 07

Individual Income Tax 8,840 9,390 551 9,399 9,686 286 3.1%

Corporate Income Tax 906 1,138 232 911 1,067 156 - 6.2%

Sales and Use 4,693 4,972 280 4,915 4,973 57 0.0%

Franchise 494 480 ( 14) 520 507 ( 14) 5.6%

Insurance 442 451 10 486 490 5 8.6%

Other Tax Revenue 615 608 ( 6) 720 702 ( 18) 15.5%

Nontax Revenue 575 596 20 602 603 1 1.2%

Highway Trust Fund Transfer 255 255 0 253 52 ( 201) - 79.7%

Total Revenues 16,818 17,891 1,072 17,806 18,079 273 1.1%

Unreserved Credit Balance 771

Total Availability 18,850

Table 7

General Fund Revenue

Revised Estimates for 2005- 06 and 2006- 07, ($ mil)

Totals may differ from the sum of their parts due to rounding.

30

The Highway Fund receives its support from three pri-mary

sources: ( 1) three- fourths of the motor fuel taxes

collected by the Department of Revenue, 2) licenses

and fees collected by the Division of Motor Vehicles,

and 3) interest earned from investments of the High-way

Fund cash balance held by the State Treasurer.

In 2005, the North Carolina General Assembly autho-rized

an increase in many of the licenses and fees col-lected

under the Highway Fund. Some of these licenses

and fees were last adjusted in 1981. The certified rev-enue

increase from the Highway Fund fee package was

$ 105.78 million for 2005- 06 and $ 144.64 million for

2006- 07. As of March 2006, revenue collections from

the fee package exceeded projections by $ 15.3 million.

As for motor fuel tax collections for the same period,

revenues were up 1.2% or $ 9.4 million over budget.

The increase in motor fuel tax collections resulted from

higher motor fuel prices at the pump.

For 2006- 07, total Highway Fund revenue is expected

to reach $ 1,767.1 million, an increase of 4.1% over

the amount certified for 2006- 07. Demand for fuel is

expected to remain strong in 2006- 07, despite high

fuel prices. Consequently, motor fuel tax collections

are expected to increase 5.9%. Licenses and fees are

expected to show a slight decline of 2.5% in total

collections for 2006- 07. The increase in the rate of

growth in the motor fuels tax for 2006- 07 is the result

of the rising wholesale price of motor fuels and increas-ing

the variable component of the motor fuels tax rate

in 2005- 06. For the period, investment income will

be flat at $ 8.0 million. The decline in licenses and fees

is a result of slower than expected revenue collections

in staggered registration.

The transfer of $ 17.6 million from the General Fund

to the Highway Fund is to hold the Highway Fund

harmless from a freeze in the variable component of

the excise tax on motor fuels at the January 2006 base

rate.

Revenue

Highway Fund

Total excludes transfers to or from the General Fund

Figure 17

Highway Fund Revenue Collections

2006- 07

Other Licenses and

Fees 2.7%

Investment Income

0.5%

Truck Licenses

6.6%

Motor Fuel 67.1%

Gasoline

Inspection and

Highway Usage

Registration 0.9%

Staggered

Registration 12.2%

International

Registration Plan

( IRP) 3.8%

Driver Licenses

6.3%

31

2005- 06 2006- 07 2006- 07 2006- 07

Source Certified Certified Adjustments Revised

Motor Fuels Tax

Motor Fuels $ 1,087,640,000 $ 1,107,180,000 66,147,275 $ 1,173,327,275

Gasoline Inspection 15,000,000 15,450,000 ( 150,000) 15,300,000

Highway Use Reg. 160,000 160,000 - 160,000

Total Motor Fuel Taxes 1,102,800,000 1,122,790,000 65,997,275 1,188,787,275

Percent Change 13.10% 1.81% 5.9%

Licenses and Fees

Staggered Registration 214,098,050 236,607,067 ( 23,667,067) 212,940,000

International Registration Plan 62,256,816 67,809,104 ( 1,579,104) 66,230,000

Driver Licenses 107,762,811 119,416,209 ( 8,376,209) 111,040,000

Truck Licenses 87,487,148 95,555,438 19,184,562 114,740,000

Other Licenses and Fees 45,115,175 47,762,182 ( 22,182) 47,740,000

Total License and Fees 516,720,000 567,150,000 ( 14,460,000) 552,690,000

Percent Change 21.04% 9.76% - 2.5%

Investment Income 8,000,000 8,000,000 - 8,000,000

Percent Change - 16.35% 0.00% 0.0%

Total Highway Fund Revenue 1,627,520,000 1,697,940,000 51,537,275 1 ,749,477,275

Transfer from General Fund * 17,662,725 17,662,725

Total Highway Fund Availability $ 1,627,520,000 $ 1,697,940,000 $ 69,200,000 $ 1,767,140,000

Percent Change 15.30% 4.33% 4.1%

* Transfer from General Fund to hold Highway Fund harmless from capping variable component of Motor Fuels Tax at the January 1,

2006 rate for 2006- 07.

Table 8

Highway Fund

Recommended Budget Adjustments, 2006- 07

Revenue Availability

32

Established in 1989, the Highway Trust Fund receives

support from four primary sources: 1) one- fourth of

motor fuel tax collections, 2) highway use tax collec-tions

from the sales of motor vehicles in excess of the

amount transferred to the General Fund, 3) title fees

and various registration fee collections, and 4) interest

earned from investment of the Highway Trust Fund

cash balance held by the State Treasurer.

In 2005, the North Carolina General Assembly autho-rized

an increase in the fees collected under the High-way

Trust Fund. The fees were last adjusted in 1989.

The certified revenue increase from the Highway Trust

Fund fee package was $ 13.37 million for 2005- 06

and $ 18.27 million for 2006- 07. As of March 2006,

revenue collections from the fee package were down

$ 34.7 million over projected collections. For the same

period, motor fuel tax collections were up $ 2.8 million

or 1.1% of budget. The greatest decline in Highway

Trust Fund revenues occurred in the highway use tax,

where revenues were down $ 28.3 million or 6.2% of

budget. The decline in highway use tax collections

resulted from slow vehicle sales.

Highway Trust Fund revenue is expected to total

$ 1,100.6 million in 2006- 07 or 3.1% less than the

amount certified for 2006- 07. In spite of higher fuel

prices at the pump, the motor fuels tax collections

are expected to increase by 6.2% due to continued

fuel consumption. As a result of declining auto sales,

highway use tax collections are expected to decline

8% from the previously certified amount for 2006- 07.

Revenues from title fees are expected to show little

change. Interest on investments is expected to show a

significant decline as a result of decreases in cash bal-ances.

The transfer of $ 5.8 million from the General Fund

to the Highway Trust Fund is to hold the trust fund

harmless from a freeze in the variable component of

the excise tax on motor fuels at the January 2006 base

rate.

After a reduction of $ 195.2 million in transfers to the

General Fund, the available balance in the Highway

Trust Fund is expected to be $ 1,043.1 million.

Revenue

Highway Trust Fund

Total excludes transfers to or from the General Fund

Figure 18

Highway Trust Fund Revenue Collections

2006- 07

Interest on

Investments 0.2%

Miscellaneous Title

Fees 1.6%

Certificate of Title

Fees 8.5%

Highway Use

53.9%

Motor Fuels Tax

35.7%

33

2005- 06 2006- 07 2006- 07 2006- 07

Source Certified Certified Adjustments Revised

Motor Fuels Tax $ 362,590,000 $ 369,170,000 $ 21,942,425 $ 391,112,425

Highway Use 611,090,000 639,810,000 -$ 49,410,000 590,400,000

Certificate of Title Fees 95,801,827 101,193,164 -$ 7,613,164 93,580,000

Miscellaneous Title Fees 17,248,173 19,266,836 -$ 2,116,836 17,150,000

Subtotal 1,086,730,000 1,129,440,000 - 37,197,575 1,092,242,425

Percent Change 8.95% 3.93% - 3.3%

Interest on Investments 6,500,000 6,500,000 - 4,000,000 2,500,000

Percent Change 0.22% 0.00% - 61.5%

Total Highway Trust Fund Revenue 1 ,093,230,000 1 ,135,940,000 - 41,197,575 1,094,742,425

Transfer from General Fund1 - - 5,887,575 5,887,575

Total Highway Fund Availability 1,093,230,000 1,135,940,000 - 35,310,000 1,100,630,000

Percent Change 8.90% 3.91% - 3.1%

Transfer to General Fund2 252,558,117 252,663,009 - 195,176,407 57,486,602

Balance Available $ 840,671,883 $ 883,276,991 $ 1,043,143,398

2 Transfer required by G. S. 105- 187.9 ( Includes reduction of $ 115 million to allow for repayment of outstanding loan balance from 2002- 03).

Revenue Availability

Table 9

Highway Trust Fund

1 Transfer from General Fund to hold Highway Trust Fund harmless from capping variable component of Motor Fuels Tax at the January 1, 2006 rate for

2006- 07.

Recommended Budget Adjustments, 2006- 07

34

Recommended

Appropriations

General Fund

Education

General Government

Health and Human Services

Justice and Public Safety

Natural and Economic Resources

35

36

Public Education ( 13510)

Total Appropriations and Positions

2006- 07

Certified

2006- 07

Recommended

Percentage

Change

Requirements $ 7,652,962,737 $ 7,909,034,556 3.3 %

Receipts 1,073,155,640 1,201,652,474 12.0 %

Appropriation $ 6,579,807,097 $ 6,707,382,082 1.9 %

Positions 507.200 519.200 2.4 %

Appropriation Items -- Recommended Adjustments

Technical Adjustments

2006- 07

1. Average Daily Membership

Positions, textbooks, instructional equipment, and supplies allocated to the public schools are

budgeted on the basis of average daily membership ( ADM) of students in the classroom. The

revised ADM estimate for 2006- 07 is an increase of 18,363 over the 1,417,112 ADM in the

continuation budget, and a 38,103 increase over 2005- 06. This recommended appropriation

supports the ADM increase and includes a 2,000 ADM reserve due to military base closings.

Receipts from the Highway Fund for the Driver Education program are adjusted by $ 457,971

due to a projected increase in ADM in the ninth grade.

Requirements $ 76,757,787

Receipts $ 457,971

Appropriation $ 76,299,816

2. Average Annual Salary Adjustment

An adjustment is recommended to revise budgeted average annual salaries using actual 2005-

06 sixth pay period salaries as the base. This adjustment is made annually after reviewing

budgeted salary projections for all certified personnel. Typically, because of turnover in these

positions, the actual salaries are lower than budgeted salaries and a reduction is made

accordingly. This recommended adjustment does not reduce teacher salaries.

Appropriation ($ 56,180,428)

Recommended Budget Adjustments, 2006- 07 General Fund

Public Education

37

3. Reprogram Class Size Appropriation

It is recommended that $ 127.9 million of the 2006- 07 budget for class size be

reprogrammed to lottery proceeds, consistent with legislation establishing and directing the

use of proceeds from the NC Education Lottery. The General Fund money that has been

fronted for this purpose is redirected to pay for increased public school teacher salaries.

Requirements -

Receipts $ 127,864,291

Appropriation ($ 127,864,291)

Total Recommended Technical Adjustments

Recurring

Requirements $ 20,577,359

Receipts 128,322,262

Appropriation ($ 107,744,903)

Number of Positions -

Nonrecurring

Requirements -

Receipts -

Appropriation -

Number of Positions -

Expansion

2006- 07

Quality Teachers, Quality Pay

1. Teacher and Administrator Compensation

Funds are recommended in the Compensation Reserve for employees paid on the teacher

salary schedule or the principal and assistant principal salary schedule in schools operated

by local boards of education, the Department of Health and Human Services, the

Department of Correction, the Department of Juvenile Justice, and the North Carolina

School of Science and Mathematics. These funds will provide for movement on the salary

schedule based on years of experience, and will increase the salary schedule base by $ 2,250.

Teachers will receive an average increase of 8% and administrators 7% in 2006- 07.

Employees at the top of their respective salary schedules and who therefore do not receive a

step increase shall be paid a one- time bonus. The funds for this are shown in the Reserves

Section of this document.

Recommended Budget Adjustments, 2006- 07 General Fund

Public Education

38

2. School- Based Incentive Awards Under the ABCs Program

The ABCs initiative directs that each year a school must assure that students receive a year's worth

of education for a year of instruction. Nonrecurring funds in the amount of $ 90 million are

recommended for awards earned in the 2005- 06 school year and awarded in fall 2006. This

recommended appropriation will maintain the current incentive levels based on the

implementation of the new growth model.

Appropriation - Nonrecurring $ 90,000,000

Recruiting and Retaining Quality Teachers

1. Online Professional Development Resource Center

The Online Professional Development Resource Center is a web portal that catalogues

professional development opportunities available to teachers and administrators. The portal

includes searchable databases of professional development providers and criteria for determining

quality of professional development offerings. A $ 100,000 nonrecurring appropriation is

recommended for placement in a reserve in the NC Professional Teaching Standards Commission

budget. Funding for the IT project will be released upon approval of the State Budget Director and

the Chief Information Officer. The Professional Teaching Standards Commission will report to the

State Board of Education no later than March 15, 2007.

Appropriation - Nonrecurring $ 100,000

Investing More Resources and Demanding More Accountability

1. Full Support for Low Wealth Supplemental Funding

The Low Wealth Funding Formula provides supplemental funds based on a county's ability to

generate revenue to enhance the instructional program and student achievement throughout the

state. This appropriation increases the funding to local education authorities ( LEAs) with below

state- average ability to raise local revenue for public schools. The use of the funds distributed

through this formula is restricted to those items described in 2005 Session Law, Chapter 276,

Section 7.6 ( b). Local boards of education are required to report annually to the State Board of

Education on funds used for this purpose. This recommended appropriation fully funds the Low

Wealth Formula.

Appropriation $ 41,893,391

2. Disadvantaged Student Supplemental Funding ( DSSF)

The Governor recommends an appropriation increase of $ 26,697,440. This appropriation increases

the current budget of $ 22,500,000 allotted in fiscal year 2005- 06 to the sixteen pilot LEAs and

supports the distribution of funds to all 115 LEAs. Funds appropriated for Disadvantaged Student

Supplemental Funding ( DSSF) shall be allotted based upon a teacher to student ratio for the

eligible DSSF population using the following formula: ( 1) LEAs in counties with wealth greater

than ninety percent (> 90%) per the low wealth supplemental formula shall receive one teaching

position per 20.5 DSSF population, ( 2) LEAs in counties with wealth between eighty and ninety

percent (> 80% and < 90%) shall receive one teaching position per 20 DSSF population, ( 3) LEAs in

counties with less wealth than eighty percent (< 80%) per the low wealth supplemental formula

shall receive one teaching position per 19.5 DSSF population, and ( 4) LEAs receiving DSSF funds in

2005- 2006 shall receive one teaching position per 16 DSSF population based on county wealth.

LEAs receiving DSSF funds in 2005- 2006 shall receive no less than the DSSF amount allotted in

2005- 2006. LEAs are encouraged to reduce class size and/ or hire additional instructional support

personnel, such as counselors, social workers, and nurses.

Appropriation $ 26,697,440

Recommended Budget Adjustments, 2006- 07 General Fund

Public Education

39

3. Evaluate Effectiveness of DSSF and Low Wealth Initiatives

A key component of the Disadvantaged Student Supplemental Funding initiative is that local

boards of education that are eligible for this fund are to submit plans to improve student

performance by following specific strategies prescribed by the State Board of Education. To

determine the effectiveness of these strategies, a third- party evaluation independently reviews

the strategies being used to determine which ones lead to improved student performance. These

funds also make it possible to evaluate other reform initiatives, including the high school reform

programs and the impact of fully funding the Low Wealth Formula. The department received a

nonrecurring appropriation of $ 150,000 in 2005- 06. This recommended appropriation provides

recurring funds to evaluate the extent to which LEAs use DSSF and Low Wealth supplemental

allotments to improve outcomes for students at risk for school failure and the extent to which the

Department of Public Instruction supports the LEAs in using DSSF and other supplemental

allotments efficiently and effectively.

Appropriation $ 750,000

4. 21st Century Literacy Coaches

This recommended appropriation would support hiring 100 school- based literacy coaches to be

placed in 100 middle schools ( or other public schools with an eighth grade) starting with the 2006-

07 school year. Coaches will provide research- based teaching practices and job- embedded

professional development to assist teachers in the development of curricula that enable students

to develop mastery of 21st century skills. Funds for training the coaches are in the University of

North Carolina budget.

Appropriation $ 4,767,400

5. Director of High School Turnaround

The Department of Public Instruction is currently contracting with an individual to coordinate

assistance activities in school districts. Funding is recommended to continue this initiative. The

responsibilities of the director will be to plan, organize and implement activities that focus on

improving the performance of designated high schools in medium and small districts that have

performance composites below 60%. The current contract salary is based on an annualized salary

of $ 94,000 plus benefits of $ 17,350, totaling $ 111,350. The recommended expansion amount

supports the current costs plus $ 11,000 for operating expenses such as supplies and travel.

Appropriation $ 122,350

Number of Positions 1.000

21st Century Schools

1. Learn and Earn High School Initiative

A key element of the Governor's 21st Century High School Program is the Learn and Earn initiative,

created in 2004 to better prepare students for college and the workforce. The Governor

recommends an increase in appropriation to expand the Learn and Earn program from 13 to 34

high schools in 2006- 07. The funds will support program staff in each school and operating

expenses to support students in preparing for the workforce and college. The recommended

nonrecurring appropriation provides funds in the amount of $ 210,000 for start- up costs, $ 800,000

to support 20 planning grants for schools that will become operational in academic year 2007- 08,

and $ 523,360 to support the cost of four months principal's salary for each Learn and Earn

planning site prior to becoming operational in the 2007- 08 academic year.

Appropriation $ 8,232,388

Appropriation - Nonrecurring $ 1,533,360

Recommended Budget Adjustments, 2006- 07 General Fund

Public Education

40

2. New Schools Project High Schools

As part of the Governor's 21st Century High School Program, this program was funded to create

small specialty schools- within- schools at eight existing high schools. This recommended

appropriation will fund one additional principal, guidance counselor, and two clerical staff at 11

new sites, resulting in 21 new redesigned high schools in 2006- 07, bringing the total to 32. A

nonrecurring appropriation is recommended to support 10 planning grants in schools where the

instruction is specifically redesigned around the following curricula: science, technology,

engineering, and/ or math ( STEM). Nonrecurring funds recommended also include $ 261,680 to

support four months principal's salary for each planning site prior to becoming operational in the

2007- 08 academic year. Any implementation grants for STEM schools shall come from non- state

sources, such as private and other public sources.

Appropriation $ 3,805,970

Appropriation - Nonrecurring $ 661,680

State Board of Education Initiatives

1. State Board of Education Operating Support

The Governor recommends that the current operating budget for the State Board of Education be

increased by $ 50,000 on a recurring basis.

Appropriation $ 50,000

2. Virtual High School

This recommended appropriation provides funds to the State Board of Education to support 2006-

07 implementation of North Carolina Virtual Public Schools ( NCVPS) initiatives identified during the

pilot phase conducted in 2005- 06. This amount includes the cost of seven full- time positions for

administration and support functions; course reviews, acquisition, and/ or development; the cost of

22 positions for three months for instructional staff in preparation for 2007- 08 academic year; and

marketing and operational costs including rent, office supplies and furniture.

Appropriation $ 2,588,722

Appropriation - Nonrecurring $ 189,132

Number of Positions 7.000

3. School Connectivity

The Governor recommends an appropriation to support the NC Education Network and expand the

number of the state's K- 12 public schools to use technology as an instructional tool to prepare

students for the demands of the 21st century workforce.

Appropriation - Nonrecurring $ 4,000,000

4. Increase Noncertified Employee Pay

This recommended appropriation of $ 8,582,073 supports a salary increase for noncertified

personnel who are currently paid less than the minimum monthly or hourly state employee wage.

These personnel include bus drivers, custodians, and teacher assistants. These funds are shown in

the Compensation Reserve.

Recommended Budget Adjustments, 2006- 07 General Fund

Public Education

41

Agency Administrative Improvements

1. Civil Penalty and Forfeiture Fund

Session Law 2005- 276 directed a reduction of $ 120.5 million in appropriation in 2005- 06 and

$ 125.5 million in 2006- 07, to be replaced with receipts from fines and forfeitures. Actual

collections did not reach the projected amounts in fiscal year 2005- 06 leaving the department

with a shortfall. The recommended recurring appropriation is necessary to correct for actual

collection experience.

Appropriation $ 30,000,000

2. Reserve for Utility and Fuel Costs

Due to the increase in diesel fuel costs, the State Public School Fund

experienced a shortfall in the 2005- 06 fuel budget. A nonrecurring

appropriation is recommended to support actual diesel fuel cost

projections for fiscal year 2006- 07.

Appropriation - Nonrecurring $ 16,361,485

3. Legacy System Migration and Upgrade

This recommended nonrecurring appropriation brings the Department of

Public Instruction's information technology applications into compliance

with statewide architecture requirements. Funds will be placed in a

reserve in the Department of Public Instruction. These nonrecurring funds

may be carried forward into 2007- 08. Funds not expended for this project

will revert to the General Fund June 30, 2008.

Appropriation - Nonrecurring $ 2,000,000

4. Network Tool Replacement

The Department of Public Instruction currently relies on a network tool

that will no longer be supported by Information Technology Services ( ITS)

effective June 2007. This recommended nonrecurring appropriation will

support the cost of migrating to the tool that will be supported by ITS. The

migration needs to occur in 2006- 07 to meet the June 2007 deadline.

Appropriation - Nonrecurring $ 375,850

5. Information Technology Security Analyst

A recurring appropriation of $ 40,000 is recommended to support a half-time

IT security analyst position. The position will assist in the

development of a security program and the execution of the department's

security charter to ensure compliance with federal regulations and state

statute. The recommended appropriation includes salary and benefits in

the amount of $ 38,467, plus operating costs.

Appropriation $ 40,000

Number of Positions .500

Recommended Budget Adjustments, 2006- 07 General Fund

Public Education

42

6. Business Continuity Planning Analyst

This recommended recurring appropriation supports a half- time business continuity planning

analyst position. Currently the department does not have any FTE dedicated to continuity

planning for the agency. The department has not fully addressed the business continuity

planning function within the organization and requires additional staff to perform functions

that will improve the agency's score on the security assessment.

Appropriation $ 42,500

Number of Positions .500

7. Purchasing Agent II

A purchasing agent II position is recommended for the Department of Public Instruction to

meet workload demands to ensure that all contracts requiring bids are processed accurately.

The position grade is a 69 and position cost including benefits is $ 58,220.

Appropriation $ 58,220

Number of Positions 1.000

8. Facility Electrical Engineer III

A facility electrical engineer III position is recommended for the school planning section. This

position requires advanced electrical engineering work in the review of designs, installation

method, ease and economy of maintenance and repair of electrical systems. This review is

required by G. S 115C- 521 for all school construction regardless of the scope of work. This

position also functions as the electrical engineering advisor to the staff of local school systems.

The position is a grade 80 with a salary of $ 82,179. Total cost of the position is $ 101,925

including benefits and $ 4,000 of operating support. It is recommended that this position be

funded from Public School Building Capital Fund receipts.

Requirements $ 101,925

Receipts $ 101,925

Appropriation -

Number of Positions 1.000

9. Business Technology Applications Analyst

This recommended position would serve exclusively on the Exceptional Children's ( EC) project

team, which consists of five business units with 82 information technology systems. Critical

functions performed by this position include collecting business requirements, conducting

business process analysis, writing functional specifications. The EC delivery team is responsible

for seven software systems in addition to the large, statewide technology system for

exceptional children ( CECAS). Project risk is high without exclusively dedicated staff trained in

Exceptional Children Division business specifications. The total cost of the position is $ 72,647

including benefits. This position would be supported with federal receipts.

Requirements $ 72,647

Receipts $ 72,647

Appropriation -

Number of Positions 1.000

Recommended Budget Adjustments, 2006- 07 General Fund

Public Education

43

Expansion Pass- Through Funds

1. Communities in Schools

This recommended recurring appropriation expands the current 2006- 07 certified budget of

$ 607,500 by $ 750,000. The program connects at- risk students and their families with resources

to assist in school success and dropout prevention. Services include tutoring and mentoring.

Appropriation $ 750,000

2. NC Network

NC Network provides training for school- based management teams to improve the capacity of

local administrative units. LEAs may contract with this agency using allotments that can be

expended for professional development. The current budget is $ 312,625. This recommended

recurring appropriation will expand the current budget by $ 100,000.

Appropriation $ 100,000

3. Teach for America

The Governor recommends a recurring appropriation of $ 200,000 for the Teach for America

( TFA) program. These funds will support TFA's efforts to recruit teachers to North Carolina.

Teach For America is the national corps of outstanding recent college graduates of all

academic majors who commit two years to teach in urban and rural public schools and

become lifelong leaders in ensuring educational equity and excellence for all children.

Currently over 200 TFA corp members are teaching in North Carolina.

Appropriation $ 200,000

Total Recommended Expansion

Recurring

Requirements $ 120,272,953

Receipts 174,572

Appropriation $ 120,098,381

Number of Positions 12.000

Nonrecurring

Requirements $ 115,221,507

Receipts -

Appropriation $ 115,221,507

Number of Positions -

Recommended Budget Adjustments, 2006- 07 General Fund

Public Education

44

Total Recommended Adjustments for

Public Education

2006- 07

Recurring

Requirements $ 140,850,312

Receipts 128,496,834

Appropriation $ 12,353,478

Number of Positions 12.000

Nonrecurring

Requirements $ 115,221,507

Receipts -

Appropriation $ 115,221,507

Number of Positions -

Recommended Budget Adjustments, 2006- 07 General Fund

Public Education

45

The University of North Carolina ( 160xx)

Total Appropriations and Positions

2006- 07

Certified

2006- 07

Recommended

Percentage

Change

Requirements $ 3,044,371,616 $ 3,181,338,196 4.5 %

Receipts 923,974,535 937,555,205 1.5 %

Appropriation $ 2,120,397,081 $ 2,243,782,991 5.8 %

Positions 32,055.420 31,963.620 ( 0.3)%

Appropriation Items -- Recommended Adjustments

Technical Adjustments

2006- 07

1. Restore NC A& T's Library Book Inflation Increase

The universities received library book inflation increases for both years of the 2005- 07

biennium. NC A& T's library book increase for 2006- 07 was accidentally removed from the

continuation budget. It is recommended that NC A& T's library book inflation increase be

restored.

Appropriation $ 145,491

2. Restore NC A& T's Utility Inflation Increase

The universities received utility inflation increases for both years of the 2005- 07 biennium. NC

A& T's increase for 2006- 07 was accidentally removed from the continuation budget. It is

recommended that NC A& T's utility inflation increase be restored.

Appropriation $ 17,786

3. Correct NCSSM's Textbook Increase

The North Carolina School of Science and Math ( NCSSM) received funds in the continuation

budget for textbooks for 2006- 07. However, after the continuation budget was finalized,

NCSSM reported they had requested an insufficient amount. It is recommended that NCSSM's

2006- 07 textbook budget be increased.

Appropriation $ 52,250

Recommended Budget Adjustments, 2006- 07 General Fund

The University of North Carolina

46

4. Building Reserves

As a result of adjustments to schedules in constructing or renovating facilities at

constituent institutions of the University system, changes are recommended for funds that

had been appropriated for 2006- 07 for building reserves. Some campuses have buildings

for which scheduled completion is later than the original date for which building reserves

were approved. The budgets for the monthly operating costs are being

reduced or increased according to the updated anticipated activation. A second

adjustment is for replacing one- time appropriations lost during the 2005 session when

some building reserves were moved from 2005- 06 to 2006- 07. These one- time costs include

initial police officer supplies, equipment, moving costs and initial cleaning supplies.

Appropriation - Nonrecurring ($ 9,634,513)

Number of Positions ( 91.800)

Total Recommended Technical Adjustments

Recurring

Requirements $ 215,527

Receipts -

Appropriation $ 215,527

Number of Positions ( 91.800)

Nonrecurring

Requirements ($ 9,634,513)

Receipts -

Appropriation ($ 9,634,513)

Number of Positions -

Expansion

2006- 07

Increasing Quality Teachers Across the State

1. UNC and NC Community College System 2+ 2 Joint E- Learning Initiative

UNC and the NC Community College System are already working closely to develop 2+ 2

programs online. The Governor recommends recurring funding be provided to continue

this 2+ 2 joint online initiative that began in 2005- 06 with nonrecurring funds. This funding

will be used to continue to build online capacity, teacher education courses, and

accessibility for students in 2+ 2 teacher education programs.

Appropriation $ 1,000,000

Recommended Budget Adjustments, 2006- 07 General Fund

The University of North Carolina

47

2. UNC- Chapel Hill DESTINY Traveling Science Lab

It is recommended that funds be provided for the DESTINY mobile science lab at UNC- Chapel Hill.

These funds will support an additional mobile laboratory as well as the personnel and other costs

associated with the program. Besides providing additional laboratory space, DESTINY will expand

its subject area focus beyond high school biology, to extend collaborative partnerships with

schools, local school administrative units, and other external organizations, and enhance its ability

to provide teachers with science curricula and professional development.

Appropriation $ 1,650,000

Appropriation - Nonrecurring $ 350,000

3. PEP Initiative to Improve the Management and Leadership Skills of Principals in High Need Schools

The Governor recommends that recurring funding be provided to the Principals' Executive Program

( PEP) to provide focused support to eligible high schools based on criteria set by the State Board of

Education. PEP shall provide a customized professional development program and a

coaching/ mentor component that provides assistance at the school level. Important components of

this overall initiative are teacher recruitment and retention, as reported through the Teacher

Working Conditions Survey, and data driven decision making.

Appropriation $ 250,000

4. North Carolina Teacher Academy Training of 21st Century Literacy Coaches

Funds are recommended for the North Carolina Teacher Academy ( NCTA) to train 21st Century

Literacy coaches, as chosen by the State Board of Education, who will each be assigned to a middle

school ( or school containing an eighth grade) to provide professional development in 21st Century

Literacy skills. NCTA will use appropriated funds to design, develop, and implement face- to- face

training for these coaches. Additional online training modules will also be developed. Training will

begin in the summer of 2006.

Appropriation $ 1,675,000

Appropriation - Nonrecurring $ 225,000

5. Prospective Teacher Scholarship Loan

The Governor recommends recurring funds to provide an additional 400 Prospective Teacher

Scholarship Loans ( PTSL). The PTSL program currently awards $ 2,500 annually to undergraduates

working on teaching certification. Each year, over 900 qualified student applicants are unable to

receive funding. Priority for the additional awards shall be given to students seeking teacher

licensure in middle and high school mathematics and science and students participating in 2+ 2

teacher education programs.

Appropriation $ 1,000,000

Increasing Access to Higher Education

1. Enrollment

1. Enrollment Growth for UNC Campuses

The 2005- 06 budget funded 172,245 full time equivalent ( FTE) students, an increase of 6,736 FTE,

which represented an increase of 4.07% over the 2004- 05 levels. UNC campuses are projected to

experience additional enrollment of 7,110 FTE or 4.13% for 2006- 07 bringing the total FTE to

179,355. Full funding for enrollment growth is recommended by the Governor to support the

student growth at UNC institutions. 92,573,799

Recommended Budget Adjustments, 2006- 07 General Fund

The University of North Carolina

48

2. NC School of Science and Mathematics Enrollment Growth

The Governor recommends $ 240,000 in enrollment growth for 12 new students at the NC

School of Science and Mathematics. Funds will provide staff positions and student- related

costs for food, medical coverage, textbooks, and furniture. 240,000

Requirements $ 92,813,799

1. Enrollment Growth for UNC Campuses 13,580,670

Receipts $ 13,580,670

Appropriation $ 79,233,129

2. Need- Based Financial Aid

Full funding of the UNC System's need- based financial aid request is recommended to address

the system- wide enrollment growth as well as to hold needy students harmless from any

tuition and fee increases approved for 2006- 07. The program currently serves 30,000 needy

resident undergraduates and was fully funded at $ 67,248,016 from Escheats Fund receipts in

2005- 06.

Appropriation $ 21,587,990

Nursing and Health Care Programs

1. Temporary Space for the Pharmacy Program at Elizabeth City State University

A nonrecurring appropriation is recommended until additional budgetary data are made

available to the Office of State Budget and Management's Capital Section in order to manage

accurately the project's budget in accordance with S. L. 2004- 179, Section 1.1.

Appropriation - Nonrecurring $ 43,000

2. Nurse Scholars Program

Recurring funds are recommended to expand the maximum scholarship loan award from

$ 5,000 to $ 6,500 per year, as well as to increase the number of scholarships available from 450

to 750.

Appropriation $ 2,750,000

3. Graduate Nurse Scholarship Program for Faculty Production

The Governor recommends recurring funding to create a graduate nurse scholarship loan

program to provide $ 15,000 for up to two years for master's candidates in nursing education,

or three years for doctoral candidates. Within 7 years of graduation, each recipient is required

to teach in a public nursing education program in North Carolina for 12 months for each year

they receive a scholarship loan or they must repay the loan.

Appropriation $ 1,200,000

Recommended Budget Adjustments, 2006- 07 General Fund

The University of North Carolina

49

4. New Bachelor of Science in Nursing Programs

It is recommended that Fayetteville State University ( FSU) and the University of North Carolina at

Pembroke ( UNCP) receive funds to support two new Bachelor of Science in Nursing programs, and

that Appalachian State University ( ASU) receive funds to support its new RN to

BSN program. The new programs can be established more rapidly if initial funding is made

available for faculty hiring, equipment and other necessities. FSU and UNCP will each receive

$ 300,000 and ASU will receive $ 250,000.

Appropriation $ 301,368

Appropriation - Nonrecurring $ 548,632

Other UNC Initiatives

1. Judicial College at UNC- Chapel Hill

It is recommended that recurring funding be provided to expand the Judicial College program at

UNC- Chapel Hill to provide ongoing training to judicial officials throughout the State.

Appropriation $ 750,000

2. Information Technology

A recurring appropriation for campus level information technology is recommended. Campuses are

encouraged to use these funds for Banner implementation and disaster related costs, where

applicable. Banner is a replacement of the legacy system; it has modules for finance, human

resources, financial aid, student services, and advancement.

Appropriation $ 2,400,000

3. NC A& T State University Matching Funds

The Governor recommends that NC A& T receive $ 1,300,000 in mandated matching funds. The

campus match of federal funds was increased from 90% to 100% for agricultural research and

extension programs as mandated by the Agricultural Research, Extension, and Education Reform

Act of 1998. The funds are appropriated to the School of Agriculture and Environmental Science.

Appropriation $ 1,300,000

4. Biomanufacturing Research Institute and Technology Enterprise ( BRITE) at NCCU

In 2005- 06, the General Assembly appropriated $ 2 million in recurring funds to the

Biomanufacturing Research Institute and Technology Enterprise ( BRITE) at NCCU. Funding was to be

used for scientific equipment and supplies and hiring administrative and research personnel. It is

recommended that BRITE be appropriated $ 2.5 million in recurring funds for operating support,

curriculum development and equipment. BRITE's current budget is $ 2.5 million.

Appropriation $ 2,500,000

5. Biomanufacturing Training and Education Center ( BTEC) at NCSU

In 2005- 06, the General Assembly appropriated $ 2.94 million in recurring funds to the

Biomanufacturing Training and Education Center ( BTEC) at NC State University. Funding was to be

used for scientific equipment and supplies and hiring administrative and research personnel. It is

recommended that BTEC be appropriated $ 2 million in recurring funds for operating support,

curriculum development and equipment. BTEC's current budget is $ 3.44 million.

Appropriation $ 2,000,000

Recommended Budget Adjustments, 2006- 07 General Fund

The University of North Carolina

50

6. Economic Development Partnership Initiative at NCSU

The Governor recommends that NCSU be appropriated $ 300,000 to support the New Business

Creation Initiative ( NBCI) to advance business opportunities of university intellectual property.

Appropriation $ 300,000

7. North Carolina in the World Project

In 2005- 06, the legislature appropriated a nonrecurring $ 200,000 grant to The Center for

International Understanding for the project '' North Carolina in the World: A Plan to Increase

Student Knowledge and Skills about the World.'' It is recommended that $ 200,000 be provided in

recurring funds to The Center for International Understanding to continue the project. The

Center's current budget is $ 492,668.

Appropriation $ 200,000

8. Salary Increases for Faculty and Staff

The Governor recommends funding in the compensation reserve for salary increases for

employees of the University of North Carolina and the North Carolina School of Science and

Mathematics ( including those supported by state funds and who are either exempt from the State

Personnel Act ( EPA) or subject to the act ( SPA)) effective July 1, 2006. For all EPA teaching and

nonteaching faculty, funds are recommended for an increase of 4% in 2006- 07 according to rules

adopted by the UNC Board of Governors. For all SPA employees, funds are recommended to

provide a 4% increase in 2006- 07. North Carolina School of Science and Mathematics teachers will

receive an increase equivalent to other public school teachers.

9. Reserve for Utility and Fuel Costs

It is recommended that $ 11,540,777 in funding be appropriated into a Utilities Reserve to

compensate for shortfalls in university utility budgets caused by higher utility rates. The shortfalls

occurred in the electrical, natural gas, fuel oil, gasoline and diesel utilities.

Appropriation - Nonrecurring $ 11,540,777

Total Recommended Expansion

Recurring

Requirements $ 133,678,157

Receipts 13,580,670

Appropriation $ 120,097,487

Number of Positions -

Nonrecurring

Requirements $ 12,707,409

Receipts -

Appropriation $ 12,707,409

Number of Positions -

Recommended Budget Adjustments, 2006- 07 General Fund

The University of North Carolina

51

Total Recommended Adjustments for

The University of North Carolina

2006- 07

Recurring

Requirements $ 133,893,684

Receipts 13,580,670

Appropriation $ 120,313,014

Number of Positions ( 91.800)

Nonrecurring

Requirements $ 3,072,896

Receipts -

Appropriation $ 3,072,896

Number of Positions -

Recommended Budget Adjustments, 2006- 07 General Fund

The University of North Carolina

52

Community Colleges ( 16800)

Total Appropriations and Positions

2006- 07

Certified

2006- 07

Recommended

Percentage

Change

Requirements $ 991,953,715 $ 1,025,531,719 3.4 %

Receipts 224,657,829 218,397,070 ( 2.8)%

Appropriation $ 767,295,886 $ 807,134,649 5.2 %

Positions 192.000 197.000 2.6 %

Appropriation Items -- Recommended Adjustments

Technical Adjustments

2006- 07

1. State Aid - Hospitalization Insurance

It is recommended that the hospitalization insurance for community college faculty and

staff be fully funded at the 2006- 07 rate. The NC Community College System's 2006- 07

request was inadvertently made at the 2005- 06 rate.

Appropriation $ 1,398,201

Total Recommended Technical Adjustments

Recurring

Requirements $ 1,398,201

Receipts -

Appropriation $ 1,398,201

Number of Positions -

Nonrecurring

Requirements -

Receipts -

Appropriation -

Number of Positions -

Recommended Budget Adjustments, 2006- 07 General Fund

Community Colleges

53

Expansion

2006- 07

Increasing Access to Higher Education

1. Enrollment Growth

The Governor recommends full funding for enrollment growth. The spring semester 2005-

06 census from the Community College System Office shows a total enrollment increase of

2,250 full- time equivalent ( FTE) students above the 2005- 06 budgeted enrollment of

190,750. The 2006- 07 budgeted enrollment is 193,000 FTE, a 1.18% increase over 2005- 06.

Curriculum enrollment increased by 1,126 FTE ( or 0.75%), continuing education

enrollment by 1,083 FTE ( or 4.77%), and basic skills enrollment by 41 FTE ( or 0.22%).

Requirements $ 8,987,043

Receipts $ 1,946,953

Appropriation $ 7,040,090

2. Multi- campus Funding

Community colleges offer courses at multi- campus sites to accommodate student

educational needs. These sites must provide student services and offer at least one degree

program entirely on- site. Funds are recommended to serve higher enrollments and to

support the operation of these multi- campus sites.

Appropriation $ 601,171

3. Enrollment Growth Reserve

It is recommended that funds be provided as an enrollment reserve to assist colleges that

experience high growth in the fall semester. The State Board of Community Colleges shall

distribute funds to colleges in which the fall semester enrollment growth exceeds 5%

above the previous fall.

Appropriation $ 2,000,000

4. Need- Based Financial Aid for Teaching and Nursing Students

The Governor recommends providing $ 500,000 for need- based financial aid. These funds

shall be targeted to NC students enrolling in programs that prepare the student for a

teaching or nursing career.

Appropriation $ 500,000

5. Course Management System and Learning Objects Repository

An enterprise course management system and learning objects repository are needed by

the NC Community College System to provide a state- of- the- art online teaching and

learning platform. These resources will support online, hybrid, and traditional instruction,

and will include online learning modules for statewide use.

1. Course Management System accessible for all 58 community colleges. 1,500,000

2. Learning Objects Repository to be hosted by MCNC 500,000

Appropriation $ 2,000,000

Recommended Budget Adjustments, 2006- 07 General Fund

Community Colleges

54

6. Virtual Learning Community Development Centers

The Governor recommends funds be appropriated to establish four Virtual Learning

Community development centers. Of these centers, three shall be devoted to curriculum

development and one shall be devoted to continuing education courses, such as public safety.

The centers will be located at community colleges and will develop online curriculum and

continuing education courses and learning modules to be shared among all 58 community

colleges.

Appropriation $ 1,025,000

7. Online Help Desk

An online help desk is recommended to meet student needs with reliable and well managed

support services that are deployed quickly, accurately, and satisfactorily and which will be

available at any time. Online assistance can be delivered at significantly reduced costs when

compared to locally supported or contracted help desk support.

Appropriation $ 740,000

8. NC Information Highway Expansion

It is recommended that funds be provided to expand the NC Information Highway ( NCIH) to

the eight community college main campuses without NCIH access. Expansion of the NCIH will

locate one videoconferencing site in each NC community college's service area. Completion of

this network would deliver real- time, multi- point ( multiple site), interactive, high quality voice,

video, and digital transmission to facilitate instruction, meetings, staff development, training,

interviews, and student services.

Appropriation - Nonrecurring $ 120,000

Quality Teachers, Quality Pay

1. Faculty and Professional Staff Salary Increases

The Governor recommends providing $ 28.2 million for a 4% salary increase for the State Board

of Community Colleges to distribute to community college faculty and professional staff. This

amount is in addition to the 4% statewide salary increase that is being recommended for the

2006- 07 fiscal year. The actual appropriation is located in the Compensation reserve section of

this document. These funds shall not be transferred by the State Board or used for any other

budget purpose by the community colleges.

Other NCCCS Initiatives

1. Tuition Receipts Adjustment

An $ 8,207,712 appropriation to replace under realized tuition receipts is recommended. These

receipts are being reduced to reflect actual receipts collected in the 2004- 05 fiscal year. This

reduction is in accordance with NC General Statutes Chapter 143- 11, as amended by the 2005

General Assembly ( S. L. 2005- 276, Section 6.4).

Re