Raleigh, N.C. — State lawmakers heard both good and bad news in revenue and budget forecasts delivered Thursday by legislative economists.
Chief Fiscal Research Division economist Barry Boardman said he expects a $271 million shortfall in the current year's $21 billion budget.
"The main reason that we’re having a shortfall at this point is simply because wage growth hasn’t been there," he explained.
Boardman said the so-called "April surprise," when final tax payments and refunds are figured, is "a little bit more" important than usual this year.
"We project that we’ll see higher final payments. Those that were experiencing refunds will have smaller refunds," Boardman said, explaining that the tax changes made in 2013 made for more accurate income tax withholding. "You're not having as much taken out, so you don’t get as much of a refund."
In his forecast, Boardman projected slow but steady growth in the state's economy for the next two-year period – growth that will eventually put upward pressure on wages.
"I can say that we are gaining momentum. It’s still at a modest pace, but it’s at a far steadier pace than we’ve seen," he said.
The budget outlook, delivered by Fiscal Research Division economist Karen Hammonds-Blanks, was similarly mixed.
Hammonds-Blanks predicted the 2015-16 fiscal year budget would be about $21.4 billion. Using the current year spending as a base, that would leave about $541 million in additional revenue.
However, she explained, public school enrollment growth and other commitments will likely wipe out most of that balance.
Hammond-Blanks projected lawmakers will need $218 million more for growth in Medicaid enrollment next year, $127.5 million for enrollment growth in schools and universities and $45 million for cost increases in the State Health Plan. Plus, they're already committed to spend about $42 million to bring starting teacher pay up to $35,000 a year and about $26 million for other projects.
That adds up to $458.5 million that's essentially already spent, leaving only about $82 million for other budget pressures, such as salary step increases, raises, court and prison system needs, economic development and capital investments. For comparison's sake, an across-the-board 1 percent raise for teachers and state employees would cost $134 million.
House Senior Budget Chairman Nelson Dollar said there are always more needs than resources.
"The list is always longer than the revenue you have, no matter what the year is. So, that’s normal," Dollar, R-Wake, said. "Today, where we are, based on where we were four years ago – it’s light-years better. We’re in a much better position. Revenues are growing, We will certainly be able to more than meet our most critical needs of the state."
Rep. David Lewis, R-Harnett, said he believes the state will be able to cover the $271 million current-year shortfall without a problem.
"Certainly we’re concerned about anything that has impact on state revenue," Lewis said. "I do think it’s important, though, that the people of the state understand that, while revenue projections are below where we had thought they would be, we’re largely on track.
"I’m optimistic after talking with our budget-writers that everything’s going to be OK," he added.
Rep. Paul Luebke, D-Durham, had a less rosy outlook.
"I don’t think there’s any question that the budget pressures, as they’re called, are greater than the amount of revenue that will be available," Luebke said. "This is particularly the case because the impact of the tax cuts is hurting revenue much more than was initially thought in 2013. Right now, we’re talking about a bigger chunk of money missing."
Without big cuts to existing programs, he warned, the current system won't supply enough money for the growing state's needs.
"For many of us, the only way to fund teachers, child care, et cetera, is for them to raise some revenue, to retract the huge tax cuts that they gave to the wealthy in 2013," he said.
Gov. Pat McCrory is expected to roll out his budget recommendations near the end of February. After that, it will be the House's turn this biennium to begin the budget-writing process.