North Carolina’s budget problems are due in part to the state overestimating its potential revenue, according to a new study. The study by economists at the Pew Center on the States and the Nelson A. Rockefeller Institute found that North Carolina had one of the least-accurate estimates of any state in 2009 – projecting revenues that were more than 25 percent over what it actually took in. It wasn’t alone: Arizona, New Hampshire and Oregon were also off by equally wide percentages. The report studied revenue projections from 1987 to 2009, a 23-year span that covers three recessions and three stretches of economic growth. The study looked at state estimates for three major revenue sources: income taxes, sales taxes and corporate taxes. “The three taxes our study examined generated $15 billion in revenue for North Carolina in 2009,” the study states. “A 3.5 percent error equates to $524 million. That is 15 percent of North Carolina’s spending on higher education, 43 percent of what it spends on corrections and nearly nine times what it spends on public assistance.”
According to the report, the volatility of those sources, which are 71.4 percent of North Carolina’s total tax revenue, caused the inaccuracies. And those inaccuracies contributed to the state’s current fiscal problems, with the state creating new programs reliant on revenues officials thought were going to come in. The state had been looking a budget shortfall of as much as $2.7 billion until last month when Gov. Beverly Perdue said the state would actually bring in an estimated $600 million in additional tax revenue next fiscal year – more than what forecasters had predicted in April. Barry Boardman, who does economic forecasts for North Carolina in the General Assembly’s Fiscal Research Division, told Pew researchers that forecasters were took a cautious approach when looking at revenue for the state’s 2012 budget.(Dome, THE NEWS & OBSERVER, 3/03/11).
