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1 State of North Carolina Budget and Legislative Update Office of State Budget and Management Annual Conference October 17, 2007.

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Presentation on theme: "1 State of North Carolina Budget and Legislative Update Office of State Budget and Management Annual Conference October 17, 2007."— Presentation transcript:

1 1 State of North Carolina Budget and Legislative Update Office of State Budget and Management Annual Conference October 17, 2007

2 2 Presentation Topics FY Review –Employment –Economy/Revenue –Appropriations/Closeout FY Summary –Economic Assumptions –Substantive Tax Changes –Appropriations –Statewide Studies –Other Legislation

3 3 Employment Update Job Growth remains higher than national averages –In FY 2007, State had net gain of 80,500 jobs (+2%) compared with National average and median growth of 1.4% and 1.3% –Unemployment rate ticked up slightly in July 2007 to 5% from 4.8% High-end service sectors lead the way adding 46,000 jobs over year (Finance, Business, Health Services, Education) –Construction (+9,000), trade (+10,200), and leisure and hospitality (+11,100) showed gains as well –Manufacturing is stabilizing; small declines continue (1.4%) Total nonfarm employment expected to grow by an average of 1.3% and 1.6% over next two years Housing starting to show signs of slowing

4 4 State Update: Results Revenue Collections GF tax revenue collections grew by 9.9% (2.4% growth budgeted) Net changes include: –Individual+11.8% (budgeted 2.5%) –Corporate+20.5% (budgeted 12.6% decline) –Sales & Use + 2.1% (budgeted 2.8%) Total revenue surplus for year = $1.343 billion –Approximately 7.4% over forecast

5 5 State Update: Results Appropriations/Closeout Budget administration was business as usual for year (no major program shortfalls, weather-related emergencies, etc.) Total year-end fund balance (cash basis) totaled $2.3 billion. –Unreserved fund balance reached $1.221 billion up from $749 million on 6/30/06 –Reserved fund balance totaled $1.082 billion. Major components: Rainy Day Fund ($787 million) Repair and Renovation Account ($145 million) Disaster Relief Reserve ($114 million)

6 Budget Update Substantive Tax/Revenue Changes –State Sales Tax set at 4.5% (was due to decline to 4.25%) (Gain of $258.4 and $285.9 million in FY 2008 and 2009) –State and Local Swap of Medicaid and Tax Revenues phased in through FY (Cost of $60.8 million and $91.9 million in FY 2008 and 2009) –Top Income Tax Rate set at 7.75% (down from 8%) (Cost of $45.8 and $93.7 million in FY 2008 and 2009) –Earned Income Tax Credit for low income individuals and families (Cost of $48.3 million in FY 2009)

7 Budget Update Base Revenue Forecast is on conservative side of most likely –Individual 4.9% (grew 11.8% in ) –Sales & Use 2.9% (grew 2.1% in ) –Corporate (4.0%) (grew 20.5% in ) General Fund Tax and Non-Tax Revenues conservatively budgeted to grow at only 1.7%

8 8 Authorized Budget Summary FY (as adjusted for actual 2007 collections) ($ millions) Unappropriated Balance as of 6/30/07$ 0 Overcollections FY ,343 Reversions FY Earmark Savings Reserve Account-175 Earmark Repairs and Renovations Account-145 Beginning Unreserved Credit Balance 7/01/07 1,221 Tax Revenues Existing Tax Structure18,643 Non-tax/Highway Trust Fund875 Adjustments (Tax Changes/Transfers)238 Total Availability20,947 Recommended Appropriations20,658 Funds Unobligated (left on table)$ 319

9 Appropriations Major changes from Millions –Education Enrollment $218 –Disadvantaged/At Risk/Scholarships 148 –Medicaid/Mental Health 327 –Teachers/Employee Compensation 526 –Retirement/Health Plan 191 –Capital Improvements 231

10 10 Debt Update The States outstanding debt on 6/30/07 totaled approximately $6.96 billion GO DebtMillions General Fund$ 5,197 Highway Fund-Supported 702 Special Indebtedness Tax-Supported 874 Trust Fund –Supported 99 Other 86 Total $ 6,958

11 11 Debt Update 2007 GA authorized $669 million in Special Indebtedness –Projects for Higher Ed ($481 million), Land ($120 million), Correction ($33 million) and other –Issuance over 3 years; within Debt Affordability guidelines ($384 million/yr for 5 years) All remaining General Obligation authorizations to be issued in 2007 Authorized but unissued Special Indebtedness totals $1.83 billion – scheduled to be issued over 3 years

12 12 Retirement System Current market value of approximately $75 billion 11 th largest public system 1-year and 5-year returns of 14.8% and 10.3% (on June 30, 2007) Funding ratio is 108% Conservative interest rate assumptions of 7.5% ORBiT (integrated online account transaction system) final phase launched on October 1, 2007

13 13 Statewide Studies Section 6.4: Budget Realignment - Allows OSBM to make transfers among programs to correctly align positions and operating costs - Report to Governmental Operations Section 6.7: BEACON Staffing Analysis - Requires OSBM to conduct annual reviews of HR/Payroll staffing by January 1 - Also requires staffing analysis of business functions (fiscal, budget and procurement) to be completed by April 30, Report goes to Appropriations and IT Oversight Committees

14 14 Statewide Studies Section 6.18: Use of Lapsed Salary - Requires OSBM to analyze the use of lapsed salary for the past five years - Report to Governmental Operations by April 1, 2008 Section 23.3: Workers Compensation Program - Requires OSBM to do comprehensive study of program - Report to Governmental Operations by March 1, 2008

15 15 Other Legislation House Bill 1401: Internal Audit Act - Requires agencies to establish internal auditing program that 1) implements system of internal controls that minimizes fraud and abuse; 2) ensures programs and operations comply with laws and regulations; 3) reviews effectiveness of operations and service delivery; and 4) periodically audits major systems - Applies to agencies with budget greater than $10,000,000 or more than 100 full-time equivalent employees - Requires each agency to appoint a Director of Internal Auditing who shall report directly to the agency head

16 16 Other Legislation House Bill 1401: Internal Audit Act (continued) - Establishes the Council of Internal Auditing which includes the State Controller (chair), State Budget Director, Secretary of Administration, Attorney General, Secretary of Revenue and State Auditor (nonvoting) - Council responsible for preparing uniform guidelines and developing training manuals; recommending the number of auditors for each agency; administering a peer review system; and maintaining a central database for audit plans - Council is staffed by OSBM - If necessary, Council may conduct hearings, issue subpoenas and review effectiveness of any audit unit

17 17 Other Legislation House Bill 1551: Internal Control Act - Purpose is to ensure a strong and effective system of internal controls in state government - State Controller, in consultation with State Auditor, shall establish comprehensive standards and policies - Management of each agency is responsible for maintaining a proper system within their agency and may be subject to submitting periodic reports to State Controller - State Controller, in consultation with State Auditor, shall establish mechanism to allow for reporting and investigation of violations - Any willful or continued failure of an employee to adhere to these requirements may result in dismissal

18 18 Other Legislation Senate Bill 1132: Establish Program Evaluation Division of the General Assembly - Divisions duties include examining program efficiency and effectiveness; developing quantitative indicators and unit cost measures; making unannounced visits to agency to evaluate program; and providing reports on any savings achieved by implementation of divisions recommendations - Establishes the Joint Legislative Program Evaluation Oversight Committee (9 Senate and 9 House members) - Committees powers and duties include reviewing evaluation requests; establishing an annual work plan; receiving reports; and recommending changes to the General Assembly

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