N.C. faces $3B hole (Winston Salem Journal)
A looming $3 billion hole in the state budget could mean that temporary tax increases put in place last year won’t be so temporary after all.
State legislators haven’t said yet whether they will extend the taxes as they try to balance a budget without the benefit of federal stimulus money that is set to run out next year. But it’s a political strategy that has worked in the past. How to balance the budget — with spending cuts, taxes or both — is sure to be a major issue in the coming election season.
The current budget, which takes the state through June 30 of next year, relies on roughly $1.6 billion in one-time stimulus money, plus another $1 billion or so from temporary taxes put in place in 2009 and set to expire next year.
Simply re-upping those increases — an extra penny-on-the-dollar in sales taxes and 2-to-3 percent income-tax surcharges on people making more than $100,000 a year — would make it a lot easier for legislators and the governor to balance next year’s budget.
“That’s one way of doing it,” said state Rep. Henry Michaux, the Durham Democrat who is the chairman of the House’s budget-writing Appropriations Committee.
But Michaux said the idea hasn’t been discussed, and he doesn’t “think it’s even on anybody’s radar at this point.” Asked about the possibility this week, Gov. Bev Perdue didn’t answer “yes” or “no,” but spoke instead of a general plan to make cuts, “re-create what government is about” and “shed things that are antiquated.”
But cuts on this level would be difficult, particularly with Democrats and Republicans alike eager to protect education funding, which makes up about 60 percent of the state’s general fund. Altogether, the expiring stimulus money, temporary tax revenues and other one-time changes add up to more than $3 billion, or roughly 14 percent of this year’s budget.
Holding on to temporary tax increases has been a way out for legislators faced with an economic slump in recent years. In 2001, the General Assembly bumped the state sales tax up half a penny, an increase that was supposed to be rolled back two years later. But that increase stayed on the books until 2006, when it was cut in half.
The fourth-of-a penny increase that remained is still in place.
State Sen. Peter Brunstetter, R-Forsyth, said he thinks that “privately a number of (leading Democrats) have already conceded that that’s what their intention is” this time. But every seat in the General Assembly is up for re-election this November, and Democrats may not retain the healthy majorities they’ve built in both the House and Senate.
Calls for cuts and a hard-line on tax increases will be part of the GOP mantra this election season. Republican legislators called for the state to overhaul its budget and prepare for next year repeatedly during the last legislative session, which ended in July.
But big-dollar specifics were hard to come by. Even the conservative John Locke Foundation, which published its “obligatory list of bad and pointless spending” in North Carolina last month, recommended only about $130 million in cuts to the state budget. It targeted food banks, a dropout prevention program, several economic development programs and various energy-research programs for cuts.
Whether those are good cuts or not “just kind of depends what you think government’s core function is,” Brunstetter said.
The state’s budget picture won’t really begin to coalesce until early next year, when Perdue rolls out her budget recommendations and the General Assembly returns to work in Raleigh. But next month will be key, as the state’s official economists are expected to release a report on revenue collections.
If those numbers, or future ones, don’t show a significant uptick in tax collections, “you really are going to be in sort of a bind,” Michaux said.
Some parts of the budgeting process are already under way. Perdue said she told her cabinet this week to “begin to figure out what it is that they can get rid of.” She reiterated a desire to privatize many of the state’s technology functions, and some parts of the prison system, in an effort to save money.
Michaux said he sees “what appear to be duplicative programs” the state could cut, particularly in the education, health and human services and economic development departments.
“We may be able to shrink that budget by another billion,” Michaux said. “After that, it gets dicey.”
By Travis Fain
SPECIAL TO THE JOURNAL
Published: August 23, 2010
RALEIGH
