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A growing sense of dread on Jones Street

Posted on September 25, 2008 by Staff

Chris Fitzsimon

The possibility of a national economic meltdown and the debate over a government bailout of Wall Street is understandably dominating the headlines these days. But there is also a growing sense of dread among some state lawmakers about state budget prospects for next year.

Behind the scenes there is now talk of a revenue shortfall in the next fiscal year that could top $2 billion. That is 10 percent of the state budget, quite a hole for the next governor and the next General Assembly to fill.

The latest figures from the legislative staff show revenue collections for the fiscal year that began July 1 are as much as $70 million less than predicted and that’s after lawmakers lowered revenue projections this summer.

Sales tax collections have not increased at all. They grew 4 percent for the same period last year. The 6.9 percent unemployment rate is the state’s highest in almost 20 years.

The housing slump is deepening and wages in the state are not keeping up with increases in food and energy prices. Legislative economists point out that in May, many national economists thought the economy would be improving by now, but that was premature.

Economist Dean Baker, co-director of the Center for Economic and Policy Research, says things will get worse before they get better, regardless of what happens with the Wall Street bailout. Baker appeared at an NC Policy Watch luncheon Tuesday and blames lack of federal oversight of the finance industry for much of the current crisis and says housing prices haven’t reached bottom yet.

North Carolina was one of the last states to feel the effect of the national economic troubles, but the state is feeling it now. The shrinking revenue growth is only part of the story.

State lawmakers bear some of the responsibility too, using $166 million in one time money to pay for recurring expenses in this year’s budget, borrowing close to a billion dollars that will cost $100 million a year to repay, and ignoring a shortfall in the state health plan that could grow to $200 million.

Add in enrollment increases in public schools, expected increases in health care costs, a small cost of living raise for state employees and teachers and other inflationary increases and mandated expenses and a $2 billion hole doesn’t seem out of the question, especially when you consider that revenue collections are unlikely to meet even the conservative estimates made a few months ago.

It means either deep budget cuts or tax increases next year or some combination of both. That is especially bad news for the 29,000 kids on the waiting list for a child care subsidy or the thousands of families living in substandard housing because lawmakers have yet to invest enough in the Housing Trust Fund that builds affordable housing and creates jobs.

The average salary of faculty members at North Carolina’s community colleges ranks 45th in the nation, despite all the rhetoric about how important the community college system is to the state’s future.

Public schools are still scrambling to find enough money to pay for increased fuel costs. Teacher bonuses were underfunded last year when there was a small budget surplus and the General Assembly still hasn’t restored the sales tax exemption taken away from schools several years ago that reduced local education budgets by $33 million. Not to mention the $750 million the courts say the state owes schools for withholding money from fees and penalties.

No one believes that the mental health system is adequately funded and there is a growing consensus that low staff salaries are part of the problem at state mental hospitals.

The courts are overcrowded. Alternatives to incarceration that keep people out of prison are woefully underfunded. The probation and parole system needs millions to reduce the caseload. Child protective service workers and other social services investigators also have many more cases than they can reasonably handle.

No one disputes that the state bridges and highways are crumbling too. The list of underfunded state programs and services goes on and on. Some of them received a little help in recent years. Others were ignored completely.

And now the state faces a $2 billion shortfall at exactly the time when the need for human services is on the rise. And nobody really wants to talk about it. Not state lawmakers, not the media and not the candidates for governor.

Charlotte Mayor Pat McCrory always talks about what he says is the “culture of corruption” in Raleigh, but this fall it feels more like the culture of denial.

Chris Fitzsimon is the director of NC Policy Watch.

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