A Small Light at the End of the State's Fiscal Tunnel
Here's something you haven't heard in a while: North Carolina's revenue picture is brightening slightly.
State Budget Director Charles Perusse said in a recent interview on N.C. Policy Watch's "News and Views" radio program that tax collections in the last three months show that the economic recovery has taken hold and the state is beginning to rebound.
Over that period, corporate profits are up 10 percent and withholding payments on personal income are up 4.5 percent. Perusse says those numbers represent the highest gains the state has seen in the last two years.
Sales tax collections have increased roughly 3 percent over the same period. The trends may lead to an overcollection of revenues by $300 million by the end of the fiscal year June 30.
That's a tiny fraction of the $3 billion shortfall the state faces next year, but it's not insignificant and is the latest sign that the gloom-and-doomers running for office are off base when they portray North Carolina's problems as among the worst in the country.
It's hard to understand why Gov. Bev Perdue and Democratic candidates aren't more outspoken about the positive numbers. They clearly indicate the state is on the road to recovery and not the disaster that much of the campaign rhetoric would have you believe.
That doesn't mean, of course, that North Carolina is out of the woods. Hardly. Perusse puts the shortfall next year anywhere from $3 billion to $3.5 billion, most of it due to the expiration of the tax cuts passed in 2009 and the end to federal stimulus dollars that helped the state balance the budget in the last two years.
State agencies are now busy working to identify budget cuts of 5, 10 and 15 percent as Perdue requested. Perusse says the administration's process to develop a budget proposal for next year currently assumes that no additional federal money is coming to North Carolina and that the 2009 tax increase will expire as scheduled.
He also acknowledges it won't be easy to balance the budget with cuts alone, and that's an understatement. It's impossible to imagine any way lawmakers could make $3 billion in cuts on top of the cuts already made in the last two years without decimating education and human services.
But that hasn't stopped conservative candidates for the General Assembly from signing no-new-taxes pledges. Many have also promised to lower taxes across the board, which could push the budget hole closer to $4 billion.
The same candidates have so far been able to get away with discussing many specifics about where to cut that much, but the specifics will be unavoidable if they are elected and have to put the state budget together.
Then there's the state's antiquated revenue system. Even with the recent improvements in the revenue picture, the system itself is still out of sync with the state's economic activity.
State lawmakers need to do more than solve next year's budget problem if they want to put the state on the right track and make future shortfalls less painful. They should finally overhaul the revenue system and at the very least broaden the sales tax base to include many more services.
Judging by the campaign rhetoric this fall, it's hard to be optimistic that legislators will be up to all those challenges.
But at least there's a glimmer of hope this week in Perusse's numbers. It may only be a small light at the end of the tunnel, but that's better than the darkness that has been surrounding us.
Chris Fitzsimon is executive director of N.C. Policy Watch. Contact him at firstname.lastname@example.org.
More like this story