Other People’s Money

What is the difference between the North Carolina state assembly and a drunken sailor on shore leave?

The sailor spends his own money like there is no tomorrow!

After several months of wheeling, dealing and discussion by the legislature, the state budget for the upcoming year is now awaiting the governor’s signature to become law. This year’s university system operating budget is merely an adjustment up from the budget proposed for the 2008-9 school year during last year’s legislative session. The proposed budget was for $2.656 billion, while the new budget calls for $2.683 billion, a seemingly modest one percent increase. Yet, the one percent does not tell the entire story; the actual increase in spending by the university system will be far more than $27 million.

Furthermore, this increase in operations spending does not include a staggering $1.235 billion in eventual spending for university system capital projects that are new this year.

The university budget already proposed for 2008-09 was $30 million higher than the $2.626 operating budget for the 2007-8 school year. This means there will be an increase of approximately $57 million, or 2.2 percent, from the year before.

And the new budget also shows a $50 million reduction that is not truly a cut in spending, but merely a shift of funding for the Education Access Rewards North Carolina Scholars Fund (EARN) scholarship program for low-income students from the state’s general fund to the escheats fund. This might very well be a good program, but it is still $50 million spent by the state on scholarships at state colleges, using state funds. (And, for the first time, an additional $6.25 million will be spent for EARN scholarships at private schools located in the state.) The removal from the operating budget is a matter of bookkeeping, not fact. So the increase over the 2007-08 budget is really $107 million, or 4.1 percent.

A substantial three percent hike in faculty and administrative salaries (and 2.75 percent for other employees) for the upcoming year was also not included in the operating expenditures total for 2008-09 as a matter of procedure (salary increases for all categories of state employees are handled separately). Yet salaries make up the bulk of operating expenses (roughly 70 percent) for the university system, and this year’s raise will add another $73 million, or 2.8 percent. Therefore, a more accurate appraisal of the budget indicates an approximate increase of 6.9 percent above the previous year.

This salary increase comes on the heels of a five percent increase from 2006-7 to 2007-8. There are also two other programs aimed at increasing faculty salaries this year: the Distinguished Professors Endowment, which is receiving an additional $4.6 million (non-recurring), and the Faculty Recruiting and Retention Fund, which is receiving a recurring increase of $3 million. (Recurring allocations are repeated annually for an indefinite period, while non-recurring allocations are for one year only.)

To be fair, $34.6 million of the increase was required to pay for an unanticipated enrollment increase at UNC schools. And the university system is taking measures to limit enrollment increases by erecting higher admissions standards. Still, subtracting this amount suggests a healthy 5.6 percent increase in operations spending.

The university system was also the beneficiary of the legislature’s aggressive program of funding capital projects. The legislature appropriated $99 million from the general fund for university capital projects and gave the go-ahead to the state to borrow another $524 milllion through bond issues.

The bonds are known as certificates of participation (COPs). Unlike the traditional funding of capital projects, called general obligation bonds, COPs do not need voter approval in a referendum. As such, they have become the legislature’s preferred form of funding—there has been no statewide referendum for capital spending since 2000.

Since capital projects are generally completed over a period of years and are funded by a variety of methods, perhaps the most important aspect to examine is the projects that are initiated by the year’s budget, and how much money they commit the state to spend over time. The new budget designates seventeen new UNC capital projects to start this year, committing the state to repay a total of $1.235 billion in the near future.

The largest new capital projects are the first phase of the Carolina North project (which includes the a new UNC-Chapel Hill law school) with a total cost of $329 million, a new $279 million engineering complex planned for N.C. State, and a $120 million science building in the works for UNC-Charlotte..

Other major new projects include a proposed data center that will be shared by UNC-Greensboro and N.C. A&T will cost $46 million, and East Carolina University’s new $47 million Family Medicine and Geriatric Center. The Morehead Planetarium at Chapel Hill will be renovated and expanded for an eventual cost of $58 million.

The UNC system also will spend a total of $47 million over the next few years to equip all buildings with fire sprinklers. University system president Erskine Bowles emphasized campus safety as his number one priority, and, in addition to the fire sprinklers in the capital budget, the operating budget includes $15 million to deal with a variety of safety issues. Of this, $6 million is recurring, and $9 million is non-recurring. (Recurring allocations are repeated annually for an indefinite period, while non-recurring allocations are for one year only.)

Returning to the operating side, the Bowles administration’s focus on research is apparent. At least eight items in the operating budget are directly related to research. This includes $6 million in recurring funds for activities conducted at N.C. Research Campus at Kannapolis, $1.5 million for a joint nanoengineering facility at NC A&T and UNC-Greensboro, and $1 million for a “Research Competitiveness Fund,” which will be used to enhance the state’s economy.

The UNC budget also continues funding for two programs for K-12 schools, for which the university system has only a very minor role. Both seek to “embed” subjects into the general curriculum, a controversial method that raises questions about its effectiveness. One is the $200,000 “NC in the World” program, based at UNC-Chapel Hill, which seeks to enhance knowledge of international subjects and languages, while the other is the $100,000 “A+ Schools” program at UNC-Greensboro, which tries to use the arts to improve education overall.

It is true that this year’s increase in the university operating budget is smaller than last year’s whopping seven percent rise. But 5.6 percent is still considerable—more than the growth suggested by the current bleak economic outlook. This would have been a very good year to look for cuts instead of expansion, particularly to programs of dubious value such as N.C. in the World and A+ Schools. And the aggressive approach to capital projects is perhaps more worrisome, since it pushes off the need to pay to until the future.

Of course, none of that matters if you’re not concerned with tomorrow, or if you don’t equate prosperity with a low tax atmosphere. At least drunken sailors can blame the alcohol.