Budget fallout

By: JOURNAL EDITORIAL STAFF | Winston-Salem Journal
Published: October 06, 2009

North Carolina's final spending numbers for the last fiscal year are in, and they do not bode well for state programs in the future.

The recession forced a real reduction in state spending, not just a statistically manipulated one, according to figures released by the N.C. Office of State Controller. The state spent $724 million less last year than it spent in the previous year. Spending amounted to $1.7 billion less than the actual state budget for the year.

Across the state, many services have been cut. Schools, the university system, mental-health facilities and even law-enforcement agencies have been told to do their best with fewer resources. With many economists predicting only a mild economic recovery in the near future, two figures in the controller's final numbers are bothersome.

Gov. Bev Perdue and the General Assembly managed to plug much the huge budget shortfall with what is known as "non-recurring money." This is the equivalent of a family using its savings or going to a generous uncle for a one-time cash gift.

In January, Perdue faced a $3.2 billion shortfall as she looked ahead to this fiscal year's budget. (Fiscal years begin on July 1.) She closed half of that shortfall from two sources: state reserves and federal stimulus money. She took $802 million from state reserves and trusts, and another $680 million from Uncle Sam.

Here's the problem: The reserves are now dangerously depleted, and the federal government will not continue providing the stimulus money indefinitely. Considering the size of the federal deficit, it is likely that federal aid will quickly recede.

The recession hit state-tax collections especially hard. Of the approximate $11 billion in revenue from personal income taxes expected last year, $2 billion never materialized. And sales-tax receipts declined by $304 million from an anticipated $5 billion-plus.

Almost 30 years ago, former House Speaker Liston Ramsey expressed his concern that North Carolina was becoming too dependent on personal-income-tax collections. They now comprise almost 58 percent of annual state-tax revenue. The sales tax comprises another 27 percent. State leaders have steadfastly refused to reform the tax system in ways that would reduce that concentrated dependence.

Jobs for middle-class workers are expected to rebound slowly, a dire sign for growth, in the near future, of both personal income taxes and sales-tax collections in this state.

North Carolinians, therefore, should plan on tight state budgets and reduced services for at least the next several years.