Raleigh, N.C. — Gov. Mike Easley on Wednesday asked state agencies to draw up a list of cuts to reduce their budgets by 3, 5 or 7 percent because of the continuing slowdown of tax revenue collections.
"The nation lost over 530,000 jobs in November, which means North Carolina's unemployment rate will spike this month," Easley wrote in a memo to department heads. "Reducing agency expenditures will be an essential component of providing a balanced budget to Governor-elect Perdue and the General Assembly."
Easley two months ago called for 2 percent budget cuts, saying the national economic crisis was crimping the state's sales tax and personal and corporate income tax revenue. He later warned departments that cuts could reach 5 percent.
Fiscal analysts have said the state budget deficit could top $1 billion in the coming months, and some have projected a $3 billion deficit for the fiscal year that starts next July.
A 7 percent cut could reduce state spending by more than $1.5 billion.
Easley wrote in his latest memo that 75 percent of the proposed cuts should be for recurring expenses, not one-time costs. Agencies also can't use cuts to capital projects to reach the 3, 5 or 7 percent marks, he said.
"Whenever you spend money on a capital improvement ... for every $1 million (spent), you create 36 jobs," Easley said in an interview with WRAL News. "Anything like that, we want to get it out there (and) get the jobs created, and these buildings and roads are necessary anyway."
Funding priority should be given to mandated or "core mission" services, he said, and agencies should look to eliminate underperforming programs, consolidate offices and services, reduce layers of management and save money through efficiencies.
"The main thing we're asking ... is hold onto your services," Easley said. "Those services go directly to people, that people need, we don't want to cut those."
He also said classroom-related spending on public education wouldn't be sacrificed.
North Carolina State University Economist Mike Walden said Easley’s move to try to reduce spending is an unfortunate necessity in these lean times.
“The government gets its revenue from the private sector. So, if the private sector’s economy is doing poorly then the government’s revenue isn’t going to do as well,” Walden said.
The proposed cuts are due to the Office of State Budget Management by Jan. 14, a week before Perdue makes her first budget recommendations to state lawmakers. She takes office Jan. 10.
"Our vision cannot be singularly focused with an outlook toward today's immediate issues, but must be forward-looking for the long-term good of state government," Easley wrote in his memo. "Those of us who have led state agencies for the past eight years are in the best position to create options for the incoming administration."
A proposed federal stimulus package to help states will take time to generate revenue for North Carolina, Easley said. He said the state budget could be helped more quickly through Medicaid relief.
"It would be nice to have about $400 (million) to $500 million of that coming to us. It would give us a bit of breathing room," he said.
Walden said the brunt of the recession will be felt the first part of next year. Some economists believe the economy could shrink by 3 percent or about $4 billion.