School Law Bulletin #2008/01

In its 2007 Appropriations Act, the North Carolina General Assembly enacted a series of interrelated measures affecting Medicaid funding, state and local sales and use taxes, and the Public School Building Capital Fund (Medicaid funding reform legislation). The cornerstone of the Medicaid fund- ing reform legislation is the state’s assumption of a large portion of the counties’ Medicaid costs, which historically have been one of their fastest-growing areas of expenditure. The Medicaid relief comes with some costs to counties, though. To partially compensate the state for assuming the counties’ Medicaid costs, the legislation reduces the state’s allocation of revenues to counties for public school capital outlay and effectively converts a portion of the counties’ local sales and use tax revenue to a state revenue source.

What is the fiscal impact of all these provisions on coun- ties and local school administrative units? Will counties, for example, experience a net financial gain or loss? Will local school administrative units be compensated for the loss of state revenue allocations for public school capital outlay? Will the legislation affect other state and local funds cur- rently available for local school administrative units? This article addresses these questions as it examines the complex Medicaid funding reform legislation and the legislation’s effect on both counties and local school administrative units. The article briefly describes North Carolina’s Med- icaid program and explains how the program was funded before the Medicaid funding reform legislation. It then summarizes the legislation’s major provisions and details each provision’s likely financial impact on counties and local school administrative units.