Local News

Analysts Predict Gloomy Outlook For Next Year's State Budget

Posted July 5, 2006

— Imagine a year where you accumulate an unexpected amount of overtime pay. Then, you invest in long-term commitments knowing you probably won't make that same money next year.

Various budget analysts warn that this is North Carolina government's situation. They say the state is using too much one-time money for long-term commitments.

For five out of the past six years, North Carolina was in a budget crisis with shortfalls ranging anywhere from $200 million to $1.5 billion. This year, it had an extra $2 billion for spending.

Flushed with the unexpected surplus, lawmakers handed pay raises to teachers and state workers, cut the sales and higher income taxes they hiked years earlier and committed nearly $1 billion in new funding for education. They also voted to borrow well over $600 million for construction projects.

Lawmakers' own fiscal research team is already projecting a $500 million to $1 billion deficit next year. The worry for some state lawmakers is that leaders tied the state to ongoing needs with one-time money.

"We expect next year that will correct itself, and there will actually be a reduction in the revenues coming in this year," said North Carolina Budget and Tax spokeswoman Sorien Schmidt. "And that's a huge problem."

Schmidt argues the state needs to alter its tax structure to reflect a shift to a service-based economy.

Rep. Nelson Dollar, R-Wake, and others call it a structural deficit.

"I think this budget puts us in trouble for next year," Dollar said. "With a $2.4 billion surplus, there's no reason we should be looking at a deficit the very next year."

Budget architects point out they stashed tens of millions of dollars in savings. But funding a growing state with growing needs is tricky.

"If the economy holds, I feel very comfortable," said Rep. Jim Crawford, D-Granville. "If the economy doesn't hold, there's nothing we can do."

Despite the gloomy budget forecast for next year, lawmakers found it far more important to fund the state's needs. The budget passed both the state House and Senate by overwhelming margins.

The final vote is expected on Thursday.


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