State News

NC business leaders get dire forecast for 2011 economy

Posted January 3, 2011

— North Carolina business leaders heard Monday from lawmakers, an economist and others about the grim picture for the state and national economies in the coming year.

Former University of North Carolina President Erskine Bowles, who recently chaired a commission appointed by President Barack Obama to find ways to cut the federal deficit, said the country is in "abysmal" financial shape.

National debt is now almost $14 trillion, and Bowles said all tax revenue covers only mandatory spending like Social Security, Medicare and Medicaid. The money to pay for defense, homeland security, education, research and infrastructure is borrowed, he said, calling it a "formula for failure."

"That debt is like a cancer, and it is truly going to destroy our country from within," Bowles told the estimated 1,000 people who attended the ninth annual Economic Forecast Forum sponsored by the North Carolina Chamber and the North Carolina Bankers Association.

"When it happens, it's going to happen so quickly that it's going to catch us by surprise," Bowles said. "The problm is real, the solutions are painful, and there's no easy way out."

If no action is taken, he predicted, the U.S. will be paying $1 trillion a year in interest on the national debt.

Wells Fargo economist Mark Vitner was more optimistic in his assessment, calling for a slow economic recovery. People have yet to feel any change in their lives since the statistical end of the so-called Great Recession 18 months ago, he said.

Vitner predicted that the national unemployment rate will remain above 6 percent for the next decade.

Wells Fargo economist Mark Vitner Economist, Bowles give 2011 economic outlook

State Budget Director Charlie Perusse, Sen. Peter Brunstetter, R-Forsyth, and Rep. Harold Brubaker, R-Randolph, provided an overview of the state budget picture during the forum.

The lawmakers and Perusse, who helps Gov. Beverly Perdue prepare her proposed budget, said the 2011-12 state budget would include $3.7 billion in cuts to erase a growing deficit. No new taxes would be included to close the budget gap, they said.

"I would prefer to make changes like we're going to have to make over a multi-year period and phase things in to avoid the shock waves through the system," said Brunstetter, one of three GOP senators designated as the next co-chairmen of the Senate budget-writing committee. "It's just I don't think that's the current economic environment we're in.

"We have, for whatever reason, put decisions off year to year," he said. "The stimulus package was a blessing and a curse in that regard because it helped us get through last year. On the other hand, it's going to make the mountain we have to climb that much bigger this year."

Republican leaders have been meeting together and with Perdue to discuss possibilities. Perdue already has rolled out the structure of a government reorganization plan she said should save hundreds of millions of dollars. She's also ordered state agencies to hold back up to 3.5 percent of their spending to save at least another $400 million that can be used to close next year's gap, Perusse said.

"It is incumbent upon all of us to have a budget that is structurally sound," he said. "We know that we've got a tough couple of years ahead of us."

Charles Perusse State officials provide 2011 economic forecast

Rep. Jim Crawford, D-Granville, who was a senior budget writer for the past decade, said he supports extending $1.3 billion in sales and income taxes set to expire this year to lessen the need for drastic cuts.

"If they insist on cutting the entire $4 billion, there will be deep pain and suffering," Crawford said after attending the forum. "To keep those jobs and to keep from hurting the economy more, we're better off to pay a small amount of tax."

Brubaker said he expects increased use of "zero-based budgeting," through which state programs will have to justify their existence. It's been a favorite idea of Republicans, and Brubaker said across-the-board cuts aren't as feasible after budget reductions in 2009 and 2010 and don't root out inefficient or wasteful programs.

"We have to rethink the purpose of state government," he said.

Privatizing more government services, trimming non-mandatory Medicaid services and finding more government waste and fraud were mentioned as possible savings options.

"There's really no sacred cows at this point," Brunstetter said.

These and other changes will affect the state government work force, Brunstetter said, but it's unclear right now exactly how. Perdue has said layoffs are likely.

Bowles said balancing the federal budget will require a mix of growth, cuts and tax increases, but he said the General Assembly should be able to handle its deficit through cuts alone.


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  • Alex25 Jan 4, 2011

    We have to CUT (across the board) Govt Income Transfer Programs: Medicare, SS, Medicaid, Farm Subsidies, Free Health Care, Pell Grants, etc. Every SINGLE dollar Govt spends (local, state, fed) takes out a single dollar from the private sector. Govt spending assumes they can do it better.......and they cannot.

  • davidgnews Jan 4, 2011

    "the politicians need to stop playing games with peoples lives!"

    It will only get worse as the debt to China rises. The only thing we can manufacture anymore is war. Now we're one of the greatest debtor nations. Politicos keep people sharply divided, and this is where we end up.

  • lkanzig Jan 4, 2011

    lets see, we are fighting in iraq and afghanistan putting our fellow americans a risk. lets bring them home! im sure paying all kinds of money for wars that were politcally motivated are a needed expense. our service people have done a great job over there, but they need to come home to their friends and family. the politicians need to stop playing games with peoples lives!

  • Alex25 Jan 4, 2011

    "Demand for their products and services" comes from increased production, capital formation and investment incentives - known as supply side econ, which many (most) folks simply have little understanding.

  • Jim Britt Jan 4, 2011

    Businesses would be doing better if there were more demand for their products and services. Go back to sleep.

  • Alex25 Jan 4, 2011

    Businesses would be doing better than great if Govt as usual wasn't mucking things up. Wake up.

  • csmac99 Jan 3, 2011

    I recommend reading "The Big Short" by Michael Lewis - excellent written documentary about some of the players of the subprime debacle and how it helped drive the real estate bubble and subsequent crash.

  • whatelseisnew Jan 3, 2011

    At what point do you think the light bulbs go on for Washington and this State? We need massive across the board cuts in EVERYTHING. The next budget that Congress books and the next budget that our State books not only has to be in balance, it needs to show debt pay down. If those fools in Washington raise the debt ceiling again, it just gets worse. The same goes for here, this State has got to stop borrowing money.

  • solocousa Jan 3, 2011

    It,s ok, Walden says $4.00 gas prices is a good sign. He must own stock in oil. If gas goes any hire then things are going to get much worse then they have been and are now.

  • GWALLY Jan 3, 2011

    ..."$14 TRILLION.....that's $14,000,000,000,000. It MUST stop...

    .....But it's ALL Bush, Cheney, Haliburton or Sarah Palins fault fault don't you know!!!!!