The North Carolina Justice Center predicts the 2010-2011 budget year, beginning in June, will see a $1.6 billion budget shortfall; the following year, the shortfall is expected to grow between $3.3 and $4.4 billion.
“It’s a serious situation, and I’m afraid it’s not getting any better,” Sen. Bill Purcell of Laurinburg said.
Purcell co-chairs the Senate’s Health and Human Services Committee, which he said faced “draconian cuts” in last summer's budget negotiations.
The state budgeted for two years, he explained, and is “supposed to tweak” the second year of the budget in this year’s short legislative session.
In this case, that "tweak" means cut another 5 percent, or $216 million, in services.
“That’s not going to be easy because we cut over $1 billion in state money from health and human services in the last budget,” Purcell said. “It’s not much fun when you’re having to cut services for children and the mentally ill."
Last year’s budget session stretched on a month longer than expected after Gov. Bev Perdue rejected the legislature’s original proposal. The finalized budget included about $3 billion worth of cuts. That was offset by about $1.5 billion in stimulus money from the federal government.
There has been talk of a second stimulus package, but the federal government generated a $714 billion deficit in the first half of the 2010 budget, according to the non-partisan Congressional Budget Office.
Unlike federal officials, North Carolina lawmakers are required to balance the state budget, meaning legislators aren’t allowed to saddle the taxpayers with deficits and have to “pay as you go” for social programs and services.
The state’s two largest sources of revenue are personal income tax and sales tax, Purcell said. Last year, income tax came in about 39 percent below projections.
“When people aren’t working, they’re not paying income tax and they’re not going out and buying things,” he said.
Rep. Garland Pierce of Wagram said the state would have a better idea of it's budget once it receives tax returns are in.
"There is less taxable income," Pierce said, as fewer people are working.
In its report, the N.C. Justice Center emphasized the importance of taking “a balanced approach” to addressing the shortage of funds in the state.
That would include “finding efficiencies, tapping all available resources, eliminating ineffective tax expenditures, improving tax collections and other strategies,” according to co-author Elaine Mejia, who is the director of the non-profit’s budget and tax center.
According to the report, North Carolina is hardly alone in its budget woes, and 48 states are facing shortfalls in their budgets.
“In addition to depleting tax revenues, the recession has increased the demand for some critical public investments, namely health insurance for low-income children and adults and post-secondary education for workers who find themselves out of a job and thus turn to retraining opportunities,” a news release about the report reads.
“Maintaining investments in vital programs that educate children and retrain adult workers are effective ways to save money long-term and stimulate North Carolina’s economy,” report co-author Meg Gray-Wiehe said. “To maintain these investments in a better future, we need state policymakers to leave no stone unturned as they look for solutions to the state’s budget crisis.”
Purcell said lawmakers are turning over stones looking for ways to save money, but are running out of options. Purcell, who also serves on the Senate's education committee, said education could be the next service to go on the chopping block.
“We tried to protect education by eliminating some vacant positions and cutting elsewhere, but I think you’re going to see some cuts in education,” Purcell said.
He said in a meeting with Gov. Perdue Wednesday, she made it clear there is no money for any new programs.
Pierce, who co-chairs the Appropriations Subcommittee on Natural and Economic Resources and is a vice-chairman of the Appropriations Committee, said some of these cuts could include state employees important to safety, like health and agriculture inspectors.
Pierce expects legislators to try and preserve the budget with social services, schools and other important county functions that faced large cuts last year.
"We are trying not to affect those programs," Pierce said. "We are trying to shy away from those agencies where there are numerous service issues and not do more cuts."
He said lawmakers will cut funds from those agencies who can best absorb the cuts without affecting service.
One possible solution to the state’s budget ills Purcell has advocated is restructuring the tax base to include more services.
“The idea is to change our tax structure by lowering personal income tax, sales tax and corporate tax, and spreading your tax base over a number of services,” he said.
There are currently about 30 services the state taxes.
Purcell said political expediency may keep some legislators from doing what he feels is right for the citizens of the state, however.
“I don’t think you’ll see that happen this session because it’s an election year,” he said. “But this is something that has to be done in the future.”
Pierce agreed.
"I don't think you are going o hear much about tax increases during an election years," he said. "I think we are trying to stay clear of tax increases."
Pierce said it may not be the right time to look at a tax hike.
"Citizens are already going through a difficult time," he said, and a tax increase could make it worse.
Local impact
The state may make up for budget shortfalls by reducing appropriations at the county level, according to County Manager Kevin Patterson.
"With the projected shortfalls, assuming that the state is not going to increase its own tax revenues, the state is going to look ask continuing to reduce costs," he said.
Part of reducing expenses may be shifting costs from the state to the county.
"Where that is going to hit is the social services and health departments," he said.
Patterson said the state may also cut Powell funding, which helps municipalities pay for road improvements.
It makes the budget process difficult as the county must have their budget passed by June 30, but the state might not have a budget until August, as it did last year.0
"A lot of what we have to do is look at forecasts," Patterson said.
Agencies provide the county with data on what they think their appropriations will be, he explained.
"What we are going to have to do is try to avoid raising the property tax rate, but find ways of stretching the current budget cover the holes that are present," Patterson said. "How we do business is probably going to change. Hopefully we can do it in a way where average citizens are not going to notice."
Scotland County Schools is also preparing for what could be deep budget cuts from the state, according to school spokesman Andy Cagle.
"This isn't unexpected," he said. "We knew there were going to be more cuts."
The school system is already looking at ways to cut costs, including reducing the number of positions, to counteract a reduction in state funding.
"It's definitely not ideal, but it's been part of the planning process."
There is still a lot of uncertainty in how much funding will drop, Cagle said. The system is still waiting for "hard numbers" from the state.
With current predictions, the school system expects to handle all job cuts through attrition as employees take jobs in other districts or retire.
"People who want to work will still be able to," he said.
The Scotland County School System is the largest employer in the county, with more than 1,000 employees as of Sept. 30, according to the state Employment Security Commission.
The Richmond County Daily Journal contributed to this report.
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