Low North Carolina June Revenue may Stymie State Budget Adjustment

North Carolina's expected $151 million surplus will be cut in half. The legislature will have $70 million fewer dollars for the budget.

July 17, 2008

UPDATE: On July 16, 2008, Governor Mike Easley signed House Bill 2436, "An act to modify the current Operations and Capital Appropriations Act of 2007, to authorize indebtedness for capital projects, and to make various tax law and fee changes." The following is a statement from the Governor's Office: "The governor has signed the budget and thanks legislators for their hard work. He looks forward to the General Assembly finishing work on important remaining issues including legislation on drought, home foreclosure and mental health."

WAKE COUNTY NC NEWS -- After receiving information from the North Carolina State Budget Office, Governor Easley sent the following letter to state legislators on the status of the state budget. The contents of the letter state that due to lower than normal June revenue collections, North Carolina's expected $151 million surplus will be cut in half. The legislature will have $70 million fewer dollars for the budget.

The North Carolina Governor said, "The national economy has gotten significantly worse and although North Carolina is only experiencing some of that weakness, it will make it more difficult for legislators to balance the budget this year. We are working together in a spirit of cooperation."

Below is the content of that letter:

Dear House and Senate Appropriations Chairs:

I realize you are working hard to complete the 2008-09 budget. In order to make sure we are able to adopt a balanced budget that is fiscally sound, I want to update you on the latest data about revenues.

It has become apparent that 2007-08 revenue collections will not meet the May consensus $151.5 million surplus estimate. Our best estimate, as of noon today and with only a few days left in the fiscal year, is that we will be $70 million short of this target. Therefore, we have reduced our beginning nonrecurring availability by that amount.

The sales tax and the income tax are the major causes of this downward revision. Both withholding and sales taxes are off the pace by more than we anticipated after April collections.

Assuming that we keep on the same economic growth rate of 3.5 percent agreed to after the April collections, this decline would translate into a recurring reduction of $45 million in 2008-09 revenues which must be addressed for the budget to balance.

I and my staff stand ready to assist you in any way. We understand that this information makes your job, and ours, more difficult.

Yet, with the acknowledgment of a slowed economy the Governor made no indication of adjustments in his recommended budget (NC Governor Budget Adjustments). Specifically the 7% increase in public school teachers salaries. Obviously, the method of funding this increase, tobacco and alcohol taxation, will decrease due to the law of supply and demand. Therefore, within a short period of time, an alternative tax source will be necessary to supplement this above average North Carolina teachers pay raises.