What--Me Worry? | News Feature | Indy Week
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What--Me Worry? 

Facing a huge budget deficit, Gov. Easley wants to pass a lottery--while he passes the buck.

Deby Schneider is the lucky recipient of something known as a CAP slot from the state. It entitles her to a trained assistant, for about 20 hours a week, to help with her son. Because she has it, she can keep her job as a medical researcher with Quintiles Inc. in Research Triangle Park. Lose it, and she would have to quit working--for money, anyway--because Colin, who's 5 and crippled by cerebral palsy, needs someone with him every minute of the day.

And Schneider is afraid she will lose it if deep cuts planned by Gov. Mike Easley to the state's social service programs--one way Easley's addressing the worst budget shortfall in years--aren't overturned this summer by the General Assembly.

So last week, Schneider took a vacation day and drove up with Colin from Fuquay-Varina to the legislative building in Raleigh to plead their case. There's nothing wrong with her son's cognitive development, she said, wheeling his chair from one lawmaker's office to the next, but physically he requires special equipment, training and help. That's where the state comes in: Under an optional Medicaid program, it pays some of the cost of a part-time aide named Becky Ray (who was in Raleigh too--on her own time). Ray works with Colin on his "living skills" so that, when he's older, he'll be able to take care of himself, feed himself and operate a motorized wheelchair by himself. The program also helps pay for things like the special feeding bags--and $3,500 feeding tube--that Colin must have to live.

Under Medicaid, if the state is willing to pay for a slot, the federal government will pay too--usually, more than half.

Easley's proposed budget, however, cuts direct funding for Community Area Programs around the state by some $38 million and slices another $40 million from the CAP portion of the Medicaid budget. Add in the lost federal share, and the total reduction for the alphabet soup programs run through the state's MH/DD/SA Division--mental health, development disabilities and substance-abuse treatment--will total $150 million for the fiscal year that starts July 1, according to the advocacy groups that work in the field.

That makes them, proportionately, the big losers in Easley's scheme to balance the budget. Facing a deficit of some $2 billion between projected revenues and the cost of continuing state operations as planned, Easley's chosen not to ask for tax increases, not to cut education programs too much and not to reach too deeply into trust funds that pay for highway construction and repairs. Instead, he's dropped the hammer on social programs: The $21 million in state funding for alcohol- and drug-treatment programs, for example, is virtually wiped out, including some that are offered as alternatives to prison sentences and others that help addicted mothers and mothers-to-be stay clean.

Supporters of social services are up in arms, predicting that one in six people now receiving CAP services could be dropped. "The test of any great state is what it does for people with disabilities," says C.L. (Connie) Cochrane, an official with United Cerebral Palsy of North Carolina who chairs Coalition 2001, a statewide network of charitable and professional groups. "The governor is playing games with the lives of hundreds of thousands of people."

Altogether, the state estimates that more than 300,000 people are helped by the various MH/DD/SA programs, but it's not like they've ever been generously funded. Quite the opposite, says state Rep. Beverly Earle, D-Mecklenburg, who chairs the House appropriations committee for social services. "We've never fully funded the need, and now we're talking about taking more away."

As if to underscore that point, just as Deby Schneider and Colin headed off in one direction, here came Karen Barbour, who lives in Raleigh, from another. Barbour was showing off pictures of her 4-year-old son, Joshua. "My beautiful boy," she declared. And to look at him, he is. But he also suffers from autism, the mysterious disease of the mind that robs people of the ability to talk and act in ordinary ways. Barbour has been on the waiting list for a CAP slot for 18 months, she said--one of at least 20,000 on the various MH/DD/SA lists, according to Coalition 2001.

Barbour said Joshua's been improving with the help of a private speech therapist. He can answer questions sometimes. Sometimes, he even asks a question--"Where's the puppy?"--and that's a great sign of progress, she thinks.

But recently, the Barbour's private insurer changed--and cut back. The new one will cover one therapy session a week, not two, and only 20 a year. A CAP slot would supplement that. It would also give her some hours of respite from the constant task of Joshua's care--which she would appreciate.

Shortly, Barbour, Schneider and several hundred others gathered on the front steps of the legislative building for a Coalition 2001 rally. "The governor's mansion is right over there," one of the leaders, David Richard, cried. Richard heads ARC-NC, which works for the mentally retarded. "Let the governor hear what you think about his budget!"

"Nooo!" the crowd chanted. But frankly, they'd have had to yell a lot louder than they did to get Mike Easley's attention, because he seems to be worried about just one thing: A state lottery.

How is a lottery going to solve the budget shortfall? It isn't, but complaining that the General Assembly refuses to vote on it gives Easley a convenient way out of the budget mess while his fellow Democrats snipe at each other in the halls.

From one side, a relative handful of progressive Democrats, mainly House members, are fighting to stave off cuts to both social service programs and education funding. To do that, they're pitching a variety of tax increases, with most agreeing on higher cigarette taxes and some also calling for beer, liquor, soda or other excise tax hikes.

But most Democrats, including the top leaders in the Senate, are promising only that they will try to minimize Easley's relatively small cuts in education. And few senators have been willing to suggest specific tax increases they'd support, making it unclear how they plan to do even this much. Without big tax hikes, though, one thing is certain: If education funding is restored, social services will be decimated.

Republicans, the minority party in both houses, are virtually all opposed to new taxes. Cut spending, they say. And by the way, with the help of the Republican-controlled N.C. Supreme Court and a friendly Johnston County judge, Knox Jenkins, the GOP got the legislative district map redrawn to their liking--a lot of Democratic legislators who thought they had safe re-election campaigns ahead this fall now find themselves running scared in unfamiliar territory.

Meanwhile, the budget gap this timid bunch faces is being called the worst since the Great Depression of the 1930s. Any comparison to the Depression itself, of course, is a wild exaggeration. But the mention of it has served one useful function: Progressives are reminded how state leaders of the '30s addressed their economic woes, as compared to what Easley is putting forward now.

Back then, the state assumed a much larger share of school and other local costs because the poor areas of the state, especially, could no longer afford them.

"In the Depression," Rep. Verla Insko, a Chapel Hill Democrat, stopped to note during a press conference the other day, "the state stepped forward to relieve the burden on the counties."

That's not what Easley's proposing now. Quite the opposite, in fact--he's handing a big share of the state's budget problem down to county and local governments and low-income folks.

Easley's budget proposes to commandeer some $334 million in tax revenues that are collected by the state but, by law, are supposed to be turned over to the counties and municipalities. (Of course, the budget is also a law that, if enacted, can supercede conflicting statutes.)

Rather than raise state taxes, Easley says he'll support a bill to allow each county to impose its own half-cent sales tax increase--to replace the money he's taking.

Easley's cuts to social services, including cuts in Medicaid reimbursements to doctors and hospitals, come to about $230 million, not counting the federal matching funds that would be lost as a result. In effect, they too hand more of the burden of caring for the needy to the counties where the programs are located.

Easley proposes to cut education spending by $300 million, but another $250 million for education is supposed to come from his lottery--if it's enacted, and if it's up and running for most of the fiscal year. Most estimates of lottery revenues for a full year are in the $300-$400 million range. Critics of a lottery point that, if enacted, it will be a regressive form of taxation, since low-income people are disproportionately heavy players of lotteries in the states that have them.

And if the General Assembly once again rejects the lottery? "If anyone says no to this budget," Easley declared when he introduced it last month, "then they have a duty to specify how they will protect education." Over and over, he pledged to "protect classrooms." Education "trumps all other items," he said.

Would Easley support tax increases other than the lottery? His communications director, Cari Boyce, says he will "consider any budget plan the General Assembly sends over as an entire package," but adds that Easley doesn't think there's support in the legislature to pass any other tax hike. Given that, she says, he's doing the best he can to protect social services "consistent with" his promise to safeguard the schools.

Adds Easley's budget advisor, Dan Gerlach: "If we're not competitve educationally, and people don't want to come here because the schools aren't good enough, we'll never have enough money to fund mental health and disability programs the way we should."

Thus, Easley proposes to trim education by 3.6 percent of the $8.5 billion total. Cuts in social services are about 6.3 percent of state spending, not counting the lost federal dollars, Gerlach says.

Overall, says progressive critic Chris Fitzsimon, the head of the Common Sense Foundation in Raleigh, "the governor's looking to poor folks and the working poor to solve three-fourths of the budget problem." Meanwhile, Fitzsimons notes, corporations are asked to do nothing.

Such regressive tax policies are exactly what got the state into this budget mess, not coincidentally. True, the proximate cause is the 2001 recession, according to the nonprofit N.C. Budget and Tax Center: Taxes on corporate profits and personal income tax revenues are down (the stock market decline has made capital gains disappear); sales tax receipts, through March, were down 3 percent compared to a year ago. Meanwhile, recession-related costs are up: Medicaid caseloads are up 7.5 percent (total costs, driven by skyrocketing prescription drug prices, are up close to 20 percent); community college enrollments are up 8.5 percent as those thrown out of work seek new job skills.

But underlying the shortfall is the tax-cutting splurge enjoyed by Democrats and Republicans alike during the boom years of the '90s. A series of tax cuts during the decade, mainly benefiting the wealthy and corporations, reduced current tax yields by, yes, $1.5 billion a year, according to the Budget and Tax Center.

On top of that, Democrats led by former Gov. Jim Hunt and Senate President Marc Basnight steadily pushed for higher teacher salaries and more money for the UNC system, allowing them to win one election after another as the party of public education. They also added optional Medicaid programs like dental care and eyeglasses for the poor and expanded the number of CAP slots, allowing the state to draw in more federal money while cutting back on programs--like substance-abuse treatment--that the federal government doesn't subsidize.

The rising economy, says the Budget and Tax Center's Kim Cartron, made it possible for awhile to have the best of both political worlds: Higher spending and tax cuts. But now the chickens are coming home--plucked--and the Democrats are flying apart.

How bad is it? Try this: While progressive Democrats were welcoming the Coalition 2001 crowd to Raleigh, Easley, Basnight and Co. not only ignored them, they brought in their own education show to drown the progressives out. They weren't worried by Rep. Earle's warning about "pitting social programs against education."

As Earle added, "That's exactly what's happening though."

"Segue to the neighboring legislative office building, where top Senate leaders led by Basnight were gathered to hear the top education officials in North Carolina urge that they be spared the budget ax. UNC President Molly Broad, State Board of Education Chair Phil Kirk and a cast of hundreds of university chancellors, community college presidents and county school superintendents all said they were straining to balance their budgets even before the Easley budget cuts take hold. Calling their plight "desperate," Basnight concluded the two-hour session this way: "You have helped your budgets today," he said. "That's a promise."

Afterward, however, Sen. Howard Lee, D-Orange, who heads up education appropriations in the Senate, was unsure how the promise can be met. "We're looking at a number of revenue enhancers," he said, but no consensus had been reached on specific tax hikes, at that point anyway.

In fact, the next day Sen. David Hoyle, the influential Senate Finance Committee co-chair, said that as far as his chamber was concerned, a tax increase was "as dead as 4 o'clock in the morning in Tyrrell County."

And the lottery? The rumor mill had it that Senate Democrats might include in their budget not just the $250 million from it but the language to create it as well. In other words, the budget vote would also be the lottery vote.

The House, vowed Durham Rep. Miller, would just yank the lottery right out of the budget though. The best Easley and the pro-lottery Senate can hope for is that the House will approve an advisory referendum on the November ballot. "There'll be no up or down vote" that would bypass the voters, Miller said.

Polls consistently show that a lottery, if put to referendum, would be approved by the voters. But if the vote isn't until November, and isn't up and running until next spring, it isn't going to bring in any $250 million. Not that it needs to.

There are lots of progressive ways to raise tax money without having to extract it from low-income lottery players. The Budget and Tax Center, for instance, points out that a 1 percent across-the-board raise in personal income tax rates would bring in $1.3 billion a year--more than enough, when combined with reserve funds, to balance the budget.

Short of that, a host of other ideas are floating around, some of them courtesy of the Common Sense Foundation, others left over from last year's budget battles. For example:

$100 million a year is available by closing the so-called bank tax loophole, which allows North Carolina banks a deduction on the interest earned from tax-free revenue bonds--just as if they weren't tax-free.

$525 million could be raised by putting the same sales tax on services (lawyers, accountants, advertising firms, other consultants) that the state collects on merchandise.

$55 million a year could be added just by raising the corporate income tax rate from 6.9 percent to 7.75 percent, where it was until a few years ago.

$125 million could be added by restoring the intangibles tax--a property tax on stocks and bonds--which was repealed in the '90s.

$50 million could be raised by closing the loophole that lets out-of-state credit card issuers escape taxation on their transactions here.

A year ago, Easley stayed on the sidelines at the beginning of a grueling budget battle in the General Assembly, but he jumped in eventually to call for a tax hike, helping pave the way for a $650 million a year package of sales and income tax surcharges. Without that, the budget situation now would be even grimmer.

Will he do the same thing this year? Perhaps, but it seems like this year he wants local officials to raise their taxes so the General Assembly doesn't have to. Democratic Party leaders, fearing that a tax increase will cost them control of both legislative chambers in November, are right behind Easley. "They won't do anything," Rep. Dan Blue, the Raleigh Democrat, says dismissively.

Blue, on the other hand, has every reason to try to crank up the progressive volume in favor of tax hikes and against devastating cuts to social programs. The former House speaker is running in the Democratic primary for the U.S. Senate seat being vacated by Jesse Helms, and virtually the entire state party apparatus--including current Speaker Jim Black, Basnight and Hunt--have lined up behind banker Erskine Bowles, the former White House Chief of Staff.

Blue was a key member of the so-called "Gang of Eight" that pushed successfully to make last year's tax package more progressive when it came over to the House. This year, members of the gang have scattered--one's a judge, one's retiring--but Blue said he'll be a "Gang of One," if necessary--and show up the conservatives in this party for what they are in the bargain.

Still, unless Easley steps up to the plate and calls for new taxes, it's hard to see how anything much will get done in Raleigh this summer. Take for example, the situation faced by Sen. Eric Reeves, another Raleigh Democrat.

Reeves was shaking his head the other day after a visit from a couple with two children, both severely retarded--their IQs measure below 40, he said. The couple is absolutely dependent on CAP slots to keep their children at home and out of institutions that would cost the state a lot more money in the long-run. Reeves named two other constituents, both women over 70, who care for disabled sons in their 40s. Again, he said, without the state's help, the sons would be institutionalized because neither woman, alone, could bear the strain.

So Reeves is ready to fight to stop the social service cuts and "entertain the idea" of higher taxes, he said. On the other hand, he's not going to sign on to them without some assurance that they'll actually become law. Why? Well, he remembers the attack ad Republicans ran against him a few years ago merely for co-sponsoring a tax bill that went nowhere and was soon withdrawn. And the Republicans have redrawn his legislative district to remove most of the African-American constituents he's represented for years in Southeast Raleigh, replacing them with Cary folks he doesn't know.

Still, Reeves wrote to Easley some time ago asking him to spare CAP slots. "We just have different priorities," Reeves said. "I'm not calling the Governor out or trying to start an argument with him, but how in the name of humanity is cutting the CAP program going to help anybody?" EndBlock

Pay Now or Later What happens when a state guts its social service programs? Consider this: As many as half the men and women in state prisons arrive with disabilities, addictions or mental illnesses that have gone untreated. State officials who spoke at a conference on homelessness in Raleigh last week say between 40 percent and 70 percent of homeless adults have substance abuse problems. "Substance abuse leads to homelessness," said Bert Bennett, a staffer in the Department of Health and Human Services (DHHS), "but homelessness also leads to substance abuse."
--BG

  • How Gov. Easley's new budget doesn't sweat the consequences of cutting social services.

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