Forecast: $5 billion state budget hit from COVID-19
Posted May 22, 2020 4:50 p.m. EDT
Updated May 26, 2020 7:38 p.m. EDT
Raleigh, N.C. — State budget writers got some brutal, if expected, news Friday: North Carolina's tax revenues will likely come in nearly $5 billion below what lawmakers expected just three months ago because of the ongoing coronavirus pandemic.
This blows a massive hole in the state budget, endangering employee salaries, education funding and a host of other priorities.
It may also be an optimistic view. Economists for Gov. Roy Cooper's administration and the General Assembly, who worked together on a consensus forecast released Friday, factored in the impact of the pandemic, but they did not account for a potential second surge of the virus this fall, which many public health experts fear.
"That possibility represents an economic risk that is not contemplated in this consensus forecast," the group wrote.
The new forecast means North Carolina's general fund would have about 8 percent less money flowing through it over two fiscal years than once expected. But one of those fiscal years, fiscal 2020, only has about a month-and-a-half left, so the brunt of the $4.2 billion hit would come next year.
That's for the state general fund, which totals about $25 billion a year and represents the bulk of money lawmakers appropriate each year.
The state also expects its Highway Fund and Highway Trust Fund, drawn from gasoline taxes and used to build and maintain roads, to collect $774 million less then budgeted for, General Assembly leaders said in a joint statement Friday afternoon.
"The global coronavirus pandemic has sent the economy into a recession unlike anything seen before," the consensus report says. "Forecasts predict U.S. GDP to drop by 7% - 10% this quarter, compared to a 4% decline during the Great Recession."
This consensus forecast is built on a number of assumptions, and the outlook is more uncertain than in years past, the authors noted. Experts differ over how quickly consumer spending is likely to rebound as the economy reopens following state-mandated closures meant to stem the coronavirus' spread.
The General Assembly is in session now, and lawmakers plan to rewrite the state budget before the July 1 start of a new fiscal year, but forecasters also plan to revise their forecast in early August. By then, economists will have more information on tax collections because the state and federal income tax deadlines, normally on April 15, were pushed back this year to July 15.
Lawmakers also expect to get more information on federal bailouts. The state has some $2 billion in federal stimulus money that it may use to brace its budget, but states are waiting on more guidance from the federal government on how that money can be used.
It's also possible that Congress will pass more stimulus funding.
House Speaker Tim Moore and Senate President Pro Tem Phil Berger said in a joint statement Friday that they will work with the governor on a spending plan, much as they did over the last month, when they passed a $1.6 billion pandemic relief bill. That bill, built on federal stimulus money, passed nearly unanimously.
"We look forward to receiving the governor’s budget recommendations as soon as possible to move forward with a plan of action," Berger and Moore said in their statement.