RALEIGH -- Top lawmakers say North Carolina will come up $500million short of its $19billion budget by the end of June.
"It would not surprise me if it hit $600[million] or $700million," said Sen. David Hoyle, a Gaston County Democrat and co-chairman of the Senate Finance Committee. "But $500million seems like a given."
Revenue at the end of January was $35million behind estimates. The state would be in a $300million hole if not for a special Revenue Department program that settled dozens of business tax disputes, bringing in a flood of money.
But income and sales tax collections continue to trail what the legislature's fiscal staff projected.
Barry Boardman, chief economist on the staff, said the state could face a $500million gap when the budget year ends June 30. He offered a little more optimism than lawmakers, though: He said if April tax collections are higher than anticipated, the shortfall could be cut in half. Those collections, though, are so difficult to predict that they could just as easily balloon the budget gap.
Gov. Bev Perdue ordered agencies to slice 5 percent from their budgets last summer, but further cuts could be necessary.
Boardman and many economists across the country predicted last spring that the economy would bottom out late in 2009 and start rebounding by now. It hasn't. The good news is there are hints that the bounce is beginning.
"There are some glimmers," said Sen. Richard Stevens, a Republican from Cary. "For example, with temporary employment up in consecutive months ... that's usually the first sign of hiring."
Boardman highlighted a couple of troubling trends:
Estimated tax payments are below estimates by about 5 percent. Those are income tax payments, primarily from wealthy individuals, that are spread out over the year instead of paid in lump sums in April.
Also, sales tax revenue is behind estimates by about 4 percent. Because the legislature added a penny to the sales tax, that revenue stream props up an even larger part of the budget. So a lag in sales tax translates into a larger dollar figure, a bigger problem than in preceding years.
Consumer confidence remains low, so people are spending less. Part of the damper is unemployment. The state has shed 24,000 jobs since July.
The Revenue Department's one-time program to settle tax bill disputes with corporations and businesses last year raked in $427million, well above the $150million projected. Rep. Mickey Michaux, a Durham Democrat and senior budget committee chairman in the House, said the extra money was a windfall that was quickly wiped out. "We keep coming up every day with other problems," Michaux said. Unexpected expenses in Medicaid very quickly drained the extra cash, he said.
State officials received a dose of good news Friday when President Barack Obama's administration announced it was cutting what states owe the federal government in the Medicare prescription drug plan.
North Carolina received a $150million reduction in its bill.
The biggest impact on state revenue, in either direction, will come in April with the payment of individual and corporate income taxes. That's the most volatile revenue source - the "April surprise" that officials anxiously await.
Michaux expects that it won't be pleasant. "It's going to be difficult to pick up the number of jobs we need" for income tax revenues to improve, he said.
Hoyle was equally tempered, mentioning that many small business owners have complained to him about a horrible year.
"We keep hoping and praying that the turnaround is here," he said.
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