NCARF Weekly E-News

State's revenue picture is much worse than it looks
03.26.10

The latest monthly report from the General Assembly's Fiscal Research Division finds that state revenues through February were just $45 million below projections for the first eight months of the fiscal year, which may lead you to think that state revenues are finally stabilizing and the worst of the state budget problems may be over.

Don't believe it.

The revenue figures, like much of the news about state finances, are much worse than they appear. The state is $45 million short even after receiving $272 million more than expected this year from a program of collecting past due corporate taxes.

That means revenues have really come in $317 million below the already low projections for the year and budget leaders are saying privately they expect that shortfall to grow significantly as the General Assembly prepares to reconvene in May to make adjustments to the 2010-2011 budget.

And remember the lagging revenue comes after lawmakers made more than $3 billion in cuts from the state's base budget last session and raised a billion dollars in new taxes.

It is not hard to find headlines about the effect of the budget cuts. The Charlotte-Mecklenburg School Board recently voted to lay off 600 teachers. Officials in the Wake County Schools are scrambling to identify more jobs to eliminate to find $20 million in budget reductions.

More than 250 people living with HIV/AIDS have been turned away by a program that provides lifesaving medication for people who can't afford it. They are on a waiting list, not a drug regimen. Programs designed to provide services to people with mental illness or a developmental disability are unable to provide them.

Health and Human Services Secretary Lanier Cansler told a legislative committee last month the department didn't have enough money to hire people to move patients from Dorothea Dix in Raleigh to the new mental hospital in Butner.

And all that's this year, after the budget cuts and the tax increases. The news for next year is equally grim. The budget for 2010-2011 passed last session includes more budget cuts for education and human services based on revenue growth of 3.2 percent.

The last report by the Fiscal Research Division says that it is likely that projection in revenue growth will have to be lowered, meaning more budget cuts on the way.

Some legislative leaders say that funds withheld from state agencies by Gov. Beverly Perdue this year will fill the hole, but at best that will restore some funding to programs that lawmakers may have to turn around and cut again to balance the state budget.

Given the current political climate, there's little chance of bipartisan cooperation in coming up with a way to respond to the crisis. Senate Minority Leader Phil Berger recently blamed the legislature's Democratic leadership for the teacher layoffs in Charlotte, neglecting to remind people that Republicans opposed the temporary tax increase that raised a billion dollars. The cuts and layoffs would have been much worse had Berger's view prevailed.

Many state budget discussions are focusing on the year after next when the temporary tax increase expires and federal stimulus money that helped balance the budget this year goes away. There's good reason to worry about the budget cliff that's coming in the not-too-distant future.

But the challenge now is to figure out creative ways to address the immediate crisis that threatens our schools, our hospitals and the most vulnerable people in our state. The first step is acknowledging that things are much worse than they look.

Chris Fitzsimon is the executive director at N.C. Policy Watch.