Too Early for Budget Alarm

By Scott Mooneyham
September 29, 2008
RALEIGH -- Economic downturns always translate into tough times for state government. State government, unlike the federal government, can't run up huge deficits. The North Carolina Constitution requires that the budget be balanced, and when tax collections don't come in at anticipated rates, the governor has to take steps to make up the difference.

That's what Gov. Mike Easley did last week when he order some state agencies to begin holding 2 percent of budgeted revenues. He took the step because, less than three months into the fiscal year, tax collections are already estimated at $70 million less than projections.

The result: Vacate state jobs will continue to go unfilled (always the easiest, most effective way for government to make up for small shortfalls) and some travel will be restricted. You see, $70 million isn't that much on a $21 billion budget.

Still, the news created some sky-is-falling talk, as it always does when this kind of thing happens. The talk may be warranted if more banks fail, the credit crunch doesn't ease and national leaders worry more about a pending election than the interests of the country. But how do you prepare for a Great Depression? You don't.

Assuming a Great Depression doesn't occur, we'll all be OK. State government will be OK too. Still, inside-the-Beltline types began throwing around a $2 billion figure last week when talking about a potential state budget shortfall.

Here's why the talk makes no sense: The $2 billion figure referenced was for a budget shortfall in the next fiscal year. But you can't have a budget shortfall when you have no budget.

Legislators will return to Raleigh next year, as they do every year, to put together a new budget. It will, as it does every year, take into account the estimated taxes expected to be collected, and spending will be adjusted accordingly.

If the economy further tanks, it won't be pretty and won't be easy. Some state employees could lose their jobs. Some state government programs that benefit people in real, tangible ways will be cut.

But that's what the North Carolina General Assembly does. That's its job. A budget shortfall will occur in the current budget year. As already noted, tax collections are failing to keep pace with estimates. Easley, as per his duties laid out in the state constitution, is taking appropriate action.
Beyond that, state government is much better positioned to handle a shortfall, even a substantial one approaching $1 billion, than when Easley took office in 2001.

The state's Rainy Day reserves are up to about $800 million. The tax collection estimates upon which the budget is based are more conservative. Other pots of state government money are flush.

Unless we face an unprecedented financial crisis, the sky isn't falling and the majority of the population will see few differences in state government services and programs.