Local News

State Budget Woes Could Return If Taxes Expire And Spending Remains

Posted November 23, 2004

— North Carolina's economy continues to show signs of recovery, but the state budget is not improving right along with it.

Ongoing spending obligations and taxes set to expire are clouding the state's fiscal future.

When lawmakers finalized the current state budget, they welcomed a nearly $200 million tax surplus.

Less than six months later, a legislative research report now projects more than a billion dollar deficit for next fiscal year.

"There's election times of the year and there's governing times of the year," said Rob Schofield, North Carolina Justice Center Policy Director. "So, it's not surprising that we're now starting to hear about budget deficits."

Schofield said the explosion of new students entering public schools combined with rising Medicaid costs keep driving up budget demands and the need for tax reform.

"We've got a 20th Century tax code hoping for a 21st Century economy," Schofield said.

"It's kind of like a household ran short of funds and they borrowed from Cousin Harry and took the kids out of school so they wouldn't have these expenditures. Maybe worked 60 hours a week rather than 40," said Mike Walden, an NCSU economist. "You can't do that forever."

Walden says Gov. Mike Easley and legislators used up nearly every one-time money maneuver to cover spending.

"And now the chickens have come home to roost," Walden said.

One dilemma is the temporary sales tax hike and income tax increase for the wealthy are both set to expire June 30.

Unless lawmakers keep them alive, the state misses out on more than $500 million in revenue.

"The point is, of course, we have to deal with the pain," Walden said.

State budget analysts point out their projections could go up or down depending on tax collections in the coming months.

Easley and his staff had no comment Tuesday on the budget deficit predictions.

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