State budget could go $3B in red in fiscal 2010

In a grim long-term forecast, Elaine Mejia said the state budget deficit could top $3 billion by the 2009-2010 fiscal year, which starts next July.

"It's going to be probably the most difficult budgeting situation our state lawmakers have faced in decades," said Mejia, project director of the NC Budget & Tax Center, a left-leaning public policy group.

A legislative budget analyst said last week that the state's deficit would likely be between $800 million and $1.6 billion during the current fiscal year. Gov. Mike Easley already has ordered state agencies to cut their budgets by 2 percent to 5 percent to make up for the slowing stream of tax revenue.

Mejia said the trend of declining taxes on sales and on corporate and personal incomes will blow an even bigger hole in the budget as the national recession continues. If spending growth stays the same and state workers get a 2 percent raise next July, she has forecast a shortfall of up to $3.3 billion, which amounts to about 15 percent of the budget.

"If we're going to have to meet that entire budget shortfall strictly with spending cuts, that's going to mean, certainly, layoffs of state workers, drastic underfunding of public schools (and) lots of things that a lot of people are going to be very, very concerned about," she said.

Governor-elect Beverly Perdue hasn't yet said whether she would be willing to consider deeper cuts or tax increases to deal with the deficit. Legislative leaders have said they want to see updated financial forecasts before acting.

State Sen. Neal Hunt, R-Wake, said the next session of the General Assembly will be a painful, but important, year for lawmakers to cut unnecessary spending.

"It's going to be hairy. It's going to be tough because we're going to have to make some hard decisions," Hunt said. "I think raising taxes would be a bad mistake right now. ... I can see no raises (for state workers)."

Mejia disagreed with Hunt on the tax question, saying lawmakers need to look at reforming the tax system to include collecting sales tax on services provided by everyone from barbers to accountants.

"They're going to have to talk about ways that we can raise revenues," she said.

Hunt said new taxes unfairly punish those who create jobs.