Joint Legislative Commission on Governmental Operations

Tuesday, November 18, 2009

Co-Chairs: Joe Hackney, Speaker of the House of Representative

Marc Basnight, President Pro Tempore of the Senate

Speaker Hackney –Presiding

 

National Conference of State Legislatures Report on Fiscal Condition of States

Corina Eckl, Group Director, NCSL Fiscal Affairs Program presented on the other states dire fiscal situation. To date, states have reported a total estimated budget gap of $386.8 billion (FY 2008-through FY 2012). There were 31 states that already know they will have a budget gap for 2010 and 17 states will declare a deficit for 2011 of 10 percent and above. Florida reports that annual revenues today compared to 2001 and are not expected to return to peak levels until 2013. Colorado reports that annual revenues today are similar to amounts collected in 2005, while the general funds revenues in Kansas are coming in at 2006 levels. During the 2001 recession the 2003-2004 years were the most challenging, financially. Therefore the prediction is that 2011-2012 will still have similar budget challenges for all states, as the federal ARRA funds are no longer available to the states to help fill the budget gap. Several U.S. maps were provided showing the percentages of the various actions developed by states to address their upcoming budget shortfalls. Twenty-two states indicated they raised taxes to meet budget shortfalls (NC increased them 21.6 percent). Results from the NCSL survey indicate the projected budget shortfall to be $145.3 billion in 2010, $65.1 in 2011 and $46.9 billion in 2012.  The States are facing a “cliff” once the ARRA funding ends in 2010. They will continue to face budgetary problems at least 12 months after the US recession ends and they are actually bracing for prolonged fiscal problems across the country.

 

General Fund Revenue Outlook: FY 2009-2010 Dr. Barry Boardman, Economist Fiscal Research Division followed with more bleak forecasts regarding a budget shortfall for NC.  The State’s collections are $95 million below the $5.9 billion targets for the first four months of the fiscal year. The baseline sales tax growth is down 11.7 percent vs. a 2.7 percent decline last year, withholdings continue to erode and are 3.5 percent below last year and employment continues to lag. In addition, sales tax collections continue to perform very poorly, the 1-cent increase (added in this year) adds pressure to getting the sales tax to rebound even with the budget forecast that included a 4 percent decline. Personal Income Tax withholdings are also down 3.5 percent and the changing economy will continue to impact the more volatile taxes in the second part of the fiscal year. In order to meet the forecast, employment losses must decline and business hiring must pick up, wages and salary incomes will need to show improvements by last quarter and consumer spending will have to rebound by early 2010.  The extension and expansion of the home buyer’s tax credit appears to be improving the housing market. While most economists agree the recession has ended, they caution that a very slow recovery is underway. For North Carolina the intensity of the recession appears to be easing but a full recovery is probably several years away.

 

Budget Management Activities for FY 2009-10 (G.S.143C-6.2) Charles Perusse, Director, Office of State Budget and Management discussed the Governor’s actions on August 14, 2009 only 10 days from the General Assembly adjourning to require funds be held by various areas in state government. These include DPI, Community Colleges, Universities, Justice and Public Safety, General Government/NER and Debt Services. When asked if the Governor had declared an emergency the members were told no, that she simply modified an earlier order to the state agencies on holding back funds. If she had declared an emergency it would have given her extensive authority to change the new budget just approved by the General Assembly. There appeared to be a great deal of concern with members of the House on what authority the Governor had to supercede the legislature’s budget and cut various agencies and not others and by differing percentages. Representative Stam referenced the Constitution as did Mr. Perusse on who was held harmless (Public schools) and who was not (DPI). Mr. Perusse struggled to answer the series of questions including those by Speaker Hackney and finally Senator Nesbitt referenced the General Statue 143C section 6-2(a) and the language that as he read it appeared to provide her with all the authority she needed to make cuts of any percentage to the state budget. It was an interesting and sometimes testy exchange with members and the Governor’s person in charge of the Office of State Budget and Management, Mr. Perusse. Rep. Rapp asked what the Governor’s plan is to address the $95 million shortfall if it continues through the year or gets worse. Mr. Perusse told the members they plan to review the second quarter numbers in January, since there are other key collections at the end of the calendar year and determine what they believe the extent of the shortfall will be by June 30, 2010. They hope it doesn’t get any deeper and that the $468.7 million they have held back from the state agencies will cover the deficit that accrues. They also have $150 Million in the Rainy Day Fund, if needed. Stay Tuned for January.

 

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