Sluggish economy could drag down state budget

Raleigh, N.C. — The national economic slowdown could produce a hole in the state budget as big as $2 billion, according to some analysts, creating an immediate challenge for the next governor.

"The next governor is going to have a very difficult time," said Charlotte Mayor Pat McCrory, the Republican candidate for governor.

Higher unemployment statewide will likely result in lower tax revenues. At the same time, budgetary requirements continue to increase, such as rising Medicaid costs and resolving a projected $200 billion to $300 million shortfall in the State Health Plan, which provides coverage for teachers, state workers and retirees.

"I think everybody in this state and the country is very concerned," said Lt. Gov. Beverly Perdue, the Democratic candidate.

Most lawmakers are hesitant to talk about projected financial problems because the election is less than five weeks away. Fiscal analysts at the General Assembly said the trends are not good, but they said it's still early to predict serious shortfalls.

Gov. Mike Easley last month ordered all state agencies to cut their budgets by 2 percent, saying he didn't want to handcuff his successor with the same budget difficulties he faced when he took office in 2001.

A 2 percent cut would save less than $400 million because public schools, Medicaid and some public safety functions would be exempt.

Perdue and McCrory said they support Easley's pre-emptive cuts, but McCrory called the move "too little, too late."

McCrory blamed lawmakers for side-stepping hard issues like the State Health Plan's finances, and he said he wouldn't do that.

"As governor, I'm going to have to make some really tough decisions, including slowing the growth of some much-needed government services and cutting in some other areas," he said.

Both candidates are short on specifics about meeting the financial challenges, in part because the shortfall projections keep moving.

"This is going to be a tough job, and I know that," Perdue said. "Any good leader understands these are precarious challenges that we face."