Ad Valorem Tax
Tax based on the assessed value of real property, as opposed to personal property.
Appropriation-supported Debt
One of two forms of taxpayer supported debt issued by the state, the other being general obligation bonds. Unlike general obligation bonds, appropriation-supported debt is not technically guaranteed by the state, but by liens on property or equipment. Hence, such debt can be issued without voter approval. Certificates of Participation (COPs) are the most popular form of appropriation-supported debt. COPs are tax-exempt lease financing agreements that promise investors a share of whatever revenue is derived from the lease (or lease-purchase) of the property or equipment the COP is tied to. As of June 30, 2005, the state owed more than $740 million in COPs debt.
Authorized Budget
Although the certified budget specifies how much money can be spent on each line item in an agency’s budget, the actual expenditures of a fiscal year are documented upon completion of the year and captured on an ongoing basis in the authorized budget. Differences between the certified budget and the authorized budget arise because agencies are allowed to move money between certain line items as needed. For example, an agency can move money from “office supplies” to “office equipment.” Each transfer between line items requires authorization from the Governor’s Office of State Budget and Management (OSBM).
Base Budget
See Continuation Budget.
Baseline Revenue Growth
Increase in the state’s revenue, assuming no changes in the tax structure.
Budget Appropriation
Money authorized by the legislature to be spent on a particular program or line item; an unexpended appropriation is one that could have been spent, but was not; an
unappropriated balance refers to cash reserves that have not been allocated for any purpose.
Budget Bill
The session laws that appropriate funds for the next biennium (or fiscal year). In sections called special provisions, the budget bill enumerates the total budget appropriated to each agency, salaries of government officials and other public employees, and the legal language that specifies how agencies and other entities may or may not spend their money and report on their expenditures. See Special Provisions.
Capital Budget
According to the OSBM, a “budget comprised of nonrecurring appropriations for capital improvement projects, such as new state buildings, repairs and renovations of facilities, walks and drives, land purchases, and civil works projects.” The capital budget frequently includes appropriations for new or renovated buildings in the UNC system, plus other miscellaneous projects and renovations. The state portion of the funds for water resources projects are contained in the capital budget as well.
Carryforward
As defined by the state’s Fiscal Research Division, carryforward funds consist of appropriated monies that were unused in the first fiscal year of a biennium with the result that they are “brought forward for expenditure in the second year of the same biennium.”
Certificates of Participation (COPs)
See Appropriation-Supported Debt.
Certified Budget
The total state budget (including federal funds and special funds) as certified by the governor’s director of the budget. Although the General Fund budget receives the most attention, the certified budget encompasses the General Fund, special funds such as the Highway Fund, and other sources, including federal funds. As indicated above (see Authorized Budget), the certified budget does not necessarily reflect actual expenditures for each line item. Monies may be moved among line items within a specific department after the budget has been certified. But legislative permission – through the budget bill – is required before an agency can transfer money between personal services (salary and benefits) and other line items. Even when money is moved from one line item to another, however, total appropriations for each department must remain unchanged from the certified budget. Total expenditures are allowed to be changed only under certain circumstances, such as: a court or Industrial Commission order; exercise of the Emergency Management Act; extra expenditures required to call out the National Guard; or if an “overexpenditure is required to continue the purpose or programs due to complications or changes in circumstances that could not have been foreseen when the budget for the fiscal year was enacted.” See Authorized Budget
Component Units
Legally separate institutions and entities for which the state is financially responsible. Along with local governments, such “nonprimary government” units receive much of their funding from general bond issues. The largest component units funded by the state are: the University of North Carolina system, the community college system, the Golden LEAF Foundation, the State Education Assistance Authority, and the North Carolina Housing Finance Agency. Non-major component units are: the N.C. Ports Authority, the N.C. Agriculture Finance Authority, the N.C. Global TransPark Authority, N.C. Partnership for Children, Inc., Regional Economic Development Commissions, North Carolina Railroad Company, N.C. Phase II Tobacco Certification Entity, Inc., and the N.C.Turnpike Authority.
Comprehensive Annual Financial Report (CAFR)
By law (G.S. 143-20.1), every state agency is obligated to submit an annual financial statement to the state controller, who combines the statements to create the state’s Comprehensive Annual Financial Report (CAFR).The CAFR is generally divided into two sections: 1) financial statements and analysis; and 2) statistical data on financial, nonfinancial and demographic trends. The CAFR is used by bond rating agencies, such as Moody’s and Standard & Poor, to determine the credit risk, and thus interest rates, for bonds issued by the state.
Continuation Budget
Also known as the base budget, this is the budget required to continue existing programs at current levels. The continuation budget grows each year based on increases in inflation rates and population increases affecting institutional and entitlement programs, such as public schools or Medicaid. The budget also annualizes (i.e., provides full annual funding for) new programs and positions and includes new operational costs of facilities opened in the last year. It does not contain nonrecurring cuts or expansion from the previous year. The biennial continuation budget is organized by issue area and published in multiple volumes by the governor’s office.
Continuing Budget Resolution
Legislation passed to continue critical operations of the state during those sessions when debate over the budget bill extends beyond the end of the fiscal year. In even-numbered years, continuing resolutions are less important because the biennial budget that passed the prior year is still in effect. Resolutions are typically for a short period (one month or less), and more than one resolution may be passed if the budget process remains stalled. Not infrequently, the legislative leadership will use continuing budget resolutions to pass substantive legislation. In 2001, for instance, the Legislature used a continuing budget resolution (S.L. 2001-395) to increase spending for education, in particular, a $20 million initiative to reduce K-3 class sizes. Even more controversial was a 2005 resolution (S.L. 2005-144) that continued the half-cent increase in the sales tax and the half-percent increase in the highest income tax bracket, both of which were scheduled to sunset at the end of the fiscal year.
Deed Stamp Tax
Commonly referred to as the “transfer tax,” this is a statewide tax paid by the seller when any real interest in real property is conveyed to another person – i.e., when a home is sold by one person to another. The applied rate is 0.02 percent, or $1.00 for every $500.00 paid for the property. For a $200,000 home, for example, the transfer tax would amount to $400. The revenue from the tax is shared by North Carolina’s local and state governments, with one-half of the proceeds going to the respective county’s General Fund and the remaining half, less administrative expenses, going to the state Department of Revenue. Of the funds remitted to the state Department of Revenue, 75 percent is credited to the Parks and Recreation Trust Fund and 25 percent goes to the National Heritage Trust Fund.
Disproportionate Share Reserve
A reserve account established in 1993 (S.L. 1993-321) to hold excess payments dispersed by the Medicaid Disproportionate Share Hospital (DSH) program to hospitals that serve a “disproportionate number of low-income patients with special needs.” Throughout the 1990s, federal policymakers expressed concern that many states were taking advantage of the DSH program to decrease their own contributions to Medicaid and subsidize general spending initiatives.
Earmark
A requirement that revenue be spent on a specific project or purpose, therefore intercepting the money before it is pooled with other revenue and appropriated as part of the General Fund. At the federal level, earmarking is often equated with pork spending.
Executive Budget Act
See G.S. §143-1. Until the passage of the State Budget Act (S.L. 2006-203; G.S.
§143c), the Executive Budget Act delineated the process by which the budget is made and the powers, duties, and authorities of the governor and other officials with respect to issues that affect the budget. The Executive Budget
Act is repealed, effective July 1, 2007.
Expansion Budget
Appropriations for new or expanded programs, new positions, increased expenditures above those allowed in the continuation budget, and salary increases.
Fiscal Year (FY)
The 12-month period covered by the state budget: July 1 to June 30.
Gas Tax
The Motor Fuels Excise Tax levied on all fuels (including alternative fuels) sold, distributed, or used in the state; the excise tax has a fixed rate of 17.5 cents per gallon plus a variable component rate that is 7 percent of the average wholesale price of motor fuels. The gas tax is computed twice a year in January and July and cannot fall below 3.5 cents per gallon. In January 2006, in the aftermath of Hurricane Katrina and the war in Iraq, the gas tax reached a high of 29.9 cents. The governor and the
Legislature capped the rate at this level for the 2006-07 fiscal year, thus preventing a further increase but providing no additional tax relief at the pump. North
Carolinians actually paid 30.15 cents per gallon in state taxes in 2006, with the additional one-quarter cent going to the Department of Agriculture.
General Fund
Funds general needs, as opposed to specific or restricted purposes. The General Fund accounts for about half of the state’s total budgetary financing and is supplied by revenue from a wide variety of taxes and fees, as well as money from court fees, disproportionate share receipts, investment earnings and bonds, the tobacco settlement, the Highway Fund, and the Highway Trust Fund.
General Obligation Bond
A debt, issued in the form of a tax-exempt bond, secured by the taxing power of the state, or what is referred to as “the full faith and credit of the State.” North Carolina’s
Constitution (Art.V, Sec. 3) requires that voters approve all general obligation bond issues. As of June 30, 2005, North Carolina’s tax-supported general obligation bond debt was more than $4.8 billion.
Governor’s Recommended Adjustments
After releasing the multivolume biennial continuation budget, the governor submits another document detailing recommendations for expansion and reductions to the continuation budget. These recommendations include funding for new programs and the expansion of existing programs, as well as the proposed reduction or elimination of existing line items or programs.
GPAC (Government Performance Audit Committee)
Legislative committee established by the General Assembly in 1991 in order to review the efficiency and efficacy of various state departments and programs. The 1991 GPAC audit resulted in more than 300 recommendations, ranging from broad initiatives, such as establishing a strategic planning process, to agency-specific recommendations, such as closing small, inefficient prisons. The committee was dissolved in 1993 following the final audit report. A new GPAC was established in the 2006 Studies Bill (S.L. 2006-248) and is expected to complete its work by February 1, 2008.
Highway Fund
Dedicated to supporting the operations and capital construction needs of the Department of Transportation (DOT) and related services, the Highway Fund is derived from the following sources: 75 percent of fuel tax revenues, various fees collected by the Division of Motor Vehicles, and investment income from the existing Highway Fund. The Highway Fund pays for road maintenance and construction, the operations and capital needs of the Division of Motor Vehicles and the State
Highway Patrol, and other transportation-related functions. While the Highway Trust Fund is focused on construction, the greatest expenditures from the Highway Fund are for road maintenance. The Highway Fund also pays for some non-DOT operations that were originally part of the DOT, such as highway patrol and motor carrier enforcement (now in the Department of Crime Control and Public Safety), and prison road crews. Under the auspices of the Highway Patrol, the Highway Fund was also used to pay for part of the development of the proposed 800 MHz statewide emergency communications network, VOICE. In addition to roadwork, the DOT is directly responsible for various matters related to aviation, ferries, bikeways and walkways, bridges, public transportation, and rail.
The Highway Trust Fund (HTF)
Created in 1989 with the goal of rapidly expanding North Carolina’s highway/road system for economic development purposes, the HTF is supplied by the following taxes and fees, totaling $1 billion annually: 25 percent of motor fuel and related tax revenues; a special 3 percent highway use tax levied on title transfers; various title and registration fees; and investment income from the existing trust fund. In 1996, voters approved an additional $950 million in general obligation bonds to support the HTF. By law, $170 million is transferred annually from the HTF to the General Fund, but between 2001 and 2005 the governor and the Legislature raided the fund to subsidize other projects. The HTF was originally projected to be fully funded at $8.2 billion by 2003 – triggering the elimination of the tax increases that supply the fund. As of 2006, only half the original mileage had been funded, at a cost to taxpayers of $8 billion.
Information Technology Budget
Refers to agency requests for expenditures exceeding $500,000 for the state’s technical infrastructure, generally included in the expansion budget for each agency. In some years, the General Assembly has appointed a separate Appropriations Information Technology Subcommittee to review large requests of this type. In other years, these requests have been reviewed by the appropriate subject area subcommittees (i.e., Health and Human
Services) or by the chairs of the full appropriations committee. All requests for technology expenditures over $500,000 must be approved by the Chief Information Officer (CIO). Passed in 2004, S.L. 2004-129 required a review and evaluation of all major technology projects proposed or being undertaken, gave the state CIO more authority, and created the Information Technology Advisory Board and the Information Technology Fund.
Intangibles Tax
The intangibles tax was enacted in 1937, but was repealed in 1995 after being challenged on the grounds that it violated the Interstate Commerce Clause of the U.S. Constitution. Along with taxing accounts receivable, notes and bonds, and beneficial interests in foreign trusts, the intangibles tax stipulated that all shares of stock owned by either a business or an individual taxpayer be taxed at a rate of 25 cents per $100 of total fair market value of stock, regardless of whether the stock earned a dividend or not (cf. G.S. §105-203). See Q & A: 12.
Joint Conference Committee
This committee is comprised of legislative members appointed by the House speaker and the Senate president pro tempore. Typically, the committee is chaired by the Appropriations chairs and includes the Appropriations subcommittee chairs and some of the members of the Appropriations subcommittees. The conference committee is charged with reviewing the approved House and Senate budget proposals and reconciling differences between the two budgets. Conferees are supposed to follow certain self-imposed ground rules when they come together to craft a final budget:
1. Items that are the same in both budgets are no longer negotiable: they are to be included as is in the final budget.
2. Items in which the two chambers differ in terms of money may be negotiated to the Senate position, the House position, or any point in between. For example, if the Senate appropriated $200,000 for a certain item, and the House appropriated $400,000, the conference committee may appropriate $300,000 – but not $500,000.
3. Only items that are in either budget may be considered by the joint conference committee. No new items may be added to the reconciled budget.
The reconciled budget produced by the joint conference committee is presented to both chambers, each of which must vote for or against the “conference budget” without amendments. Once the conference budget is passed by both bodies, it goes to the governor who can either sign it into law or veto the budget – sending it back to the General Assembly.
Joint Conference Committee Report on the Continuation, Expansion and Capital Budgets
See Money Report.
Lapsed Salary
Funds budgeted for positions that are temporarily vacant. Lapsed salary is sometimes used by an agency to hire contractual or temporary employees, but may also be used to fill a negative reserve, or with legislative permission through the budget bill, to pay for other line items. Lapsed salary that has not been obligated by the end of the fiscal year reverts to the General Fund and is carried forward into the next fiscal year. The spending of lapsed salary is one of the most common instances of spending reversions and reduces the General Fund cash balance available in the following year. See also Reversions.
Line Item
Itemized appropriation that appears on its own line in the budget – i.e., office supplies or travel or aid to non-state entities, such as the John A. Hyman Memorial Youth Foundation.
Long Session
With elections held in November of each even-numbered year, the General Assembly convenes from January to July (but often even longer) of each odd-numbered year for what is called the long session. The biennial budget is crafted and adopted during the long session.
Management Flexibility Reserve
See Negative Reserve.
Money Report
Informal name for the Joint Conference Committee Report on the Continuation, Expansion and Capital Budgets. The Money Report contains an itemized account of changes – reductions and expansion – to the continuation budget. It is passed by the General Assembly along with the Budget Bill, and together these two documents direct the executive branch in spending appropriations.
Negative Reserve
Also called a “management flexibility reserve,” a negative reserve is a one-time “hole” placed in an agency’s budget by the General Assembly in lieu of specific line item cuts. The deficit must be filled over the course of the fiscal year with budget cuts determined by the agency. Negative reserves are frequently filled with lapsed salaries generated by vacant positions (see Lapsed Salary). See also Q & A: 4.
Nonrecurring
Applies to revenue or changes to appropriations – increases and decreases – that are not continued beyond the biennium (and typically not beyond one fiscal year).When nonrecurring revenue or nonrecurring reductions in expenditures are used to fund recurring expenditures, other revenue sources must be found to pay for those expenditures in future years. For example, the 2006 General Assembly added to the FY2006-2007 budget more than $850,000 in new recurring expenditures, using $500,000 in new recurring revenue and $350,000 in new nonrecurring money.
Nontax Revenue
Revenue from a source other than taxes, including Medicaid disproportionate share money, investment income, and fees collected by various state agencies that are deposited in the General Fund. These funds cannot be retained and used by the agencies without legislative approval. One of the largest sources of nontax revenue is judicial fees – court costs charged to individuals whose civil or criminal cases are not dismissed. In 2005, such fees brought in approximately $145 million.
Performance-Based Budgeting
A method of budgeting that ties funding to results by reporting on select outcome measures. For instance, the 1999-2001 Justice and Public Safety budget tied funding for district attorney positions to the ability to dispose of all superior court felony cases filed each year. During the 2001 budget crisis, Governor Easley abandoned performance-based budgeting and eliminated the performance planning division of his office. Easley resurrected performance-based budgeting as “Results- Based Budgeting” after the passage of the budget in 2006.
Recommended Budget
Budget the governor submits to the legislature. Includes the continuation budget and the reductions and expansion – including capital – detailed in the Governor’s Recommended Adjustments to the Continuation Budget. By law, the governor is charged with preparing a budget that “will promote the more efficient and economical operation and management” of the state (G.S. §143-3).
Recurring
Applies to revenue or changes to appropriations – increases and decreases – that will continue beyond the biennium. Recurring cuts or increases in the budget are built into the base (continuation) budget in the next biennium. If an agency is undertaking a project that will continue for several years, the money for the project is placed in the budget on a recurring basis, and then must be cut when the project is complete.
Reversions
Unspent appropriations from previous years. Unless otherwise authorized, these funds generally return to the fund from which they came. Reversions to the General Fund are included as nonrecurring revenue in the following year’s budget. Reversions come from lapsed salary, other unspent funds, and any funds the governor may have held back over the course of the year in anticipation of a budget shortfall. See Lapsed Salary.
Savings Reserve Fund
Also called the “Rainy Day Fund,” the Savings Reserve Fund was established in 1991 as a means for setting aside General Fund monies in anticipation of economic fluctuations or fiscal crises (G.S. 143-15.3). Under the law, the Legislature is required to earmark 25 percent of the year-end credit balance for the Savings Reserve Fund until the account balance equals 5 percent of the prior year’s General Fund operating budget. The Fund reached its 5 percent cap in 1995-96 and remained fully funded through 1997-98. During the 1998- 99 and 2001-02 bienniums, however, the balance dropped to zero, thanks to withdrawals made for the intangible tax lawsuit settlement (1998-1999), the Hurricane Floyd recovery effort (1999- 2000), and a 2001-02 transfer to the General Fund to cover a revenue shortfall. Subsequently, the balance has inched back up, with 2006 funding reaching approximately $636 million, just short of the 5 percent cap of $795 million.
Short Session
The legislative session that convenes in even-numbered years. The session meets from May to July (and often longer) in order to make adjustments to the biennial budget adopted during the long session.
Short Snappy
Informal term for the text description that accompanies each budget change – i.e., increase or decrease to the continuation budget – in the Money Report.
Special Indebtedness
See Appropriation-Supported Debt.
Special Provisions
The provisions that comprise the actual budget bill containing the statutory changes and session laws that delineate how the budget should be implemented. “Substantive” special provisions are often not related to budgetary matters and may be inserted into the budget bill when a legislator wishes to avoid debating a bill on its own merits. The 2005 Budget Bill, for example, contained a substantive special provision (section 10.59F.(g)) mandating eye exams for all kindergartners.
State Budget Act
See G.S. §143c.The State Budget Act recodifies and amends the Executive Budget Act, but will not go into effect until July 1, 2007.The act will apply to the 2007- 2009 biennium and every biennium thereafter.
Zero-based Budgeting
Budgeting approach that advocates crafting the budget from the ground up – or a zero base – rather than using the previous year’s budget as a starting point. “Modified” zero-based budgeting entails “zeroing out” specific programs or agencies or line items, with the intention of inviting an agency to justify each expenditure. In 2001 and 2005, for example, the appropriations committees chose to examine line items such as travel, cell phone usage, and contracted miscellaneous and personal services across all agencies in an effort to find efficiencies. In previous years, the chairs of the appropriations committees have determined when and how to implement any form of zero-based budgeting.