NC Fiscal Research Division Budget Forecast Summary

December 16, 2010

On December 15, Dr. Barry Boardman and Richard Bostic, fiscal analysts, presented to members of the General Assembly on the state of the NC Budget. Collections through the end of November are meeting the $7.5 billion, 2010-2011 budget target. In March 2010, fiscal staff had projected a growth of 3.5 percent, but this was revised downward and right now the growth is projected at 2.7 percent for 2010-2011. Growth projections for 2011-2012 are projected to reach 5 percent at this time, but it is still too early to count on that number. Unemployment in NC is still an issue. The job losses have ended, but there are less job opportunities available in the public and private sector. Private employment numbers are still down. Home sales are showing some improvement, but they are moving up and down. Eighty seven percent of the general fund is based on the following collections: personal income tax, sales tax, and corporate tax, all of which are showing growth numbers: Personal-3.0 percent, Sales-1.5 percent, and Corporate-3.6 percent. Last year personal income was down 2.8 percent, while the number so far this year has shown a modest increase of 0.8 percent and withholding is up 1 percent.

State Budget Gap – The Federal Recovery Funds are gone for 2011-2012 and nationally there are 35 states with projected budget gaps. Twenty-one states, including NC, will have a budget gap exceeding 10 percent ($3.7 billion). Nationally, in 2010, 15 states have budget gaps, while 43 of the states cut higher education, 34 states cut K-12, 29 states cut the disabled and elderly, and 11 states instated or increased Medicaid provider assessments. North Carolina closed a budget gap in 2009-2010 of $4.6 billion and will need to find $5.8 billion in 2010-2011. The budget gap is caused by the following funding losses and requirements: $2.4 billion budget adjustments, $1.6 billion ARRA (Federal)) funds, $1.2 billion in temporary taxes, $0.1 billion in fees, $0.5 billion in other availability. Estimated budget availability for 2010-2011 is $18.2 billion. The projected funding needed for the budget is $21.9 billion, leaving a gap of $3.7 billion. Education accounts for 57 percent of the budget in 2010-2011 ($10.8 billion) with Health and Human Services, and Justice receiving the next two largest percentages of state funding. The top three individual funding programs are K-12-37 percent, higher education-20 percent, and Medicaid-12 percent. Suggested budget changes in public schools include: adjust class sizes, eliminate optional spending (salary supplements and capital), and review the role of non-instructional staff. In addition to the spending requirements in the budget, there are other funding pressures for economic development, the rainy day fund, transportation, and debt. NC has borrowed more than $2.35 billion from the Federal government to pay unemployment claims and the interest on the borrowed funds begins in January 2011, with final payment due September 2011. These and other funding concerns will challenge the Republican majority with reduced revenue and funding requirements. The power point can be viewed by clicking the link below:

GENERAL FUND REVENUE AND BUDGET OUTLOOK FY  2011-2012

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http://www.ncga.state.nc.us/fiscalresearch/frd_reports/frd_reports_pdfs/Session%20Briefings/2010_House%20Briefing_12-14-10FINAL.pdf

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