State May Have to Revise Revenue Projections

The House and Senate had estimated revenue growth at around 5.4 percent in the new fiscal year in designing their separate $14 billion budget proposals. Now, legislative analysts are trying to determine whether the figure should be revised downward, given that several other Southeastern states are projecting revenue growth of around 4.5 percent.

A difference of .9 percent would translate into roughly $140 million.

"We're going to have to do something. Obviously, we're going to have to either raise taxes or do something else with the state agencies," said Senate leader Marc Basnight, D-Dare.

Basnight said he would like to see the House accept some of his ideas to reorganize state government in order to save money, but doesn't think that is likely.

Instead, he said a sales tax increase may be the most politically viable option.

Earlier this week, the state's largest business lobby, the N.C. Citizens for Business and Industry, endorsed a penny sales tax increase to help state and local government.

Many of the tax proposals that have been discussed involve allowing local governments to raise the sales tax a half penny while pulling back $330 million in local reimbursements now provided by the state.

In addition to a sales tax increase, lawmakers also have discussed a proposal to raise alcohol taxes in order to avoid cuts in social programs. The Senate also included $190 million in targeted tax increases and tax loophole closings in its budget plan, measures that were dropped in the House version.

Legislative analysts were expected to have revised figures next week. Negotiators from the House and Senate, meanwhile, will have to factor those projections into their discussions as they try to reach a deal on the budget.

Sen. John Kerr, D-Wayne, co-chair of the Senate Finance Committee, said the state's spiraling unemployment rate, the worst in more than a decade, is weighing the state's revenue picture.

Dan Gerlach, head of the nonprofit N.C. Budget and Tax Center, said any revision downward will increase the pressure on lawmakers to pass a tax increase.

"The idea that they are going to revise downward shows that they are taking the idea of the bond rating problem very, very seriously," said Gerlach, referring to the state's triple-A bond rating.

The high credit rating allows the state to borrow money cheaply, and any revision downward could cost tens of millions of dollars. The agencies which set the bond rating look carefully at whether state's revenues are sufficient to meet their expenses.

"They've got to do corporate loopholes. They should do all of them, then we can go home," Gerlach said.

But House Republicans have indicated they won't go along with many of those proposals. They have been more sympathetic to proposals that would give local governments the ability to raise sales taxes while taking back the local reimbursements.

The possibility of a downward revision in revenue didn't come as a surprise to some House Republicans.

Rep. Art Pope, R-Wake, and Rep. Connie Wilson, R-Mecklenburg, mentioned during last week's budget debate that rising unemployment could undermine revenue projections.

"Businesses looking to move to North Carolina have dropped off tremendously," Wilson said. "It's a different economic environment than it was in past slowdowns we've had."