Lawmakers told of bad fiscal picture

RALEIGH — North Carolina’s historic economic downturn made the job of House budget-writers harder Wednesday when they learned they’ll have to find another $1.5 billion in spending reductions or new taxes to balance next year’s government spending plan.

The widening budget gap for next year, now estimated to total $4.6 billion, is based on new projections generated after final tax payments due April 15 fell by a whopping 40 percent compared to a year ago. During the last two recessions, final tax payments fell by only half of that percentage.

For the entire fiscal year, the state is on pace to see a nearly 11 percent decline in total tax collections compared to last year, which Barry Boardman, the General Assembly’s chief economist, called “unprecedented” in recent North Carolina history. The state’s fiscal year ends June 30.

“The state has never experienced the types of shifts in revenue that we’re experiencing now,” Boardman told a joint House-Senate appropriations meeting.

The news means House Democrats, who are drawing up their version of a spending proposal for the next two years, will have to dig deeper for spending reductions beyond what the Senate found in its budget plan approved last month. Additional taxes beyond the Senate’s $550 million proposed increase for next year are possible, too.

“These figures are astounding right now,” said Rep. Mickey Michaux, D-Durham, senior co-chairman of the House Appropriations Committee. House budget subcommittee leaders should receive their spending targets by the end of the week, he added.

The deeper fiscal hole was expected.

Gov. Beverly Perdue announced last week that dwindling tax collections meant she would have to find nearly $1 billion in additional cost savings or funds to pay all of the state’s bills through June 30.

Facing a $3.2 billion shortfall for the current fiscal year, Perdue ordered state employees to take 10 hours of unpaid leave in exchange for a 0.5 percent reduction in their annual salaries through the end of June.

Wednesday’s presentation gave a more detailed explanation of the state’s recent struggles during the economic downturn, which Perdue and others have said is the worst since the Great Depression. The Legislature is aiming to assemble a spending plan for the next two years by this summer and present it to Perdue for her signature.

The latest revenue projections predict North Carolina will receive $17.52 billion in revenues during the 2009-10 fiscal year, or $1.3 billion less than projected earlier in the spring, according to a report provided to lawmakers.

Officials must add another $200 million to that gap because Perdue opted to use some of next year’s federal stimulus funds to close this year’s shortfall, said Evan Rodenwald, another legislative fiscal analyst.

The shrinking revenues mean the House will have to make deeper cuts in the $22.1 billion that Perdue’s office initially said was needed to run state government for the fiscal year that begins July 1. That figure was expected to maintain services at current levels, adjusted for inflation. Both Perdue’s and the Senate’s budget proposals used more than $1 billion in stimulus funds to narrow the gap.

The revised projections alurg, said the state would be a better situation today if it had spent less and saved more this decade. But he said now wasn’t the time to take an “I told you so” posture.

“When hard times are present, you don’t try to point a finger at somebody,” Rucho said. “You try to get together and try to solve this problem.”