The economy, NC budget and debt
Gov. Easley chatted with reporters after yesterday's Council of State meeting. AP moved a story yesterday with Easley's comments that he may ask state agencies for further reductions in spending as a hedge against a weakening economy.
North Carolina, Easley said, finished the fiscal year that ended June 30 with a bit of a surplus, which was uncommon except for states that don't produce oil. But caution is warranted.
"We've got to believe we're not going to be immune from the impact of the national recession and this downturn," he said. "So what I want to do is hold back enough so that I know the next governor will not step into an unmanageable mess, keeping in mind unlike '01 when I came in we do have a rainy day fund."
Actually, when Easley came into office he had "negative reserves," a nice way of saying the back account is empty and you've put some big purchases on the ol' credit card. Right now, the state's rainy day fund is about $800 million.
The idea, he said, is if all this turns out to be unnecessary, the next govern can give back the money to agencies. If belt tightening is called for, then the next governor will have 12 months of savings to work with rather than just six.
"It's a whole lot easier to be Gov. Santa than Gov. Scrooge. If the next governor comes in and I have held too much and they're able to release that money to the agencies and the projects, that would be good for them," he said.
Easley said he is waiting to see numbers for September before ordering further cuts or deciding to stand pat. A decision could come before the end of the week, he said.
The current cuts, he said, ad up to about $700 million that would be available in addition to the rainy day fund if tax collections really tank.
For a look at what has been held back so far, click here for an MS Word document. The table shows both percentage cuts and real dollars.
The governor's office also made a memo on the economy available, which you can read by clicking here. That memo has two rays of sunshine. One is that the state gained jobs over the past year, measured from August to August. I'm betting those gains are going to be wiped out by the Wachovia mess. And there's this:
National and state forecasters anticipate the economy will strengthen in early 2009 as the credit crunch stabilizes. This would allow the next Governor to loosen restrictions and release additional funds if revenues begin outperforming expectations.
I'll let you evaluate whether you think that's a bit too hopeful or not.
One other note from Tuesday's council of state meeting:
The state issued some non-voter-approved debt, borrowing to do things like build buildings and put sprinklers in dorm rooms at UNC-CH.
"The total debt of the state is still within acceptable levels," said Treasurer Richard Moore.
Other members of the Council of State asked Moore if now was the best time to be putting limited obligation bonds on the market and Moore said he wasn't having any problems moving the debt. That's despite a credit crisis that making it difficult for businesses, homeowners and just about anyone else to get a loan. North Carolina, I guess, is a safe haven for investors.
And by the way: we're doing "limited obligation bonds" now rather than "certificates of participation." What's the difference? Not a whole lot. It's still debt issued by the state without the full faith and credit of its taxing power, which means the interest rate is a bit higher.
"It's essentially the same thing," Moore said. "It's just got a little better label on it." That better label knocks a few basis points off the debt issue. You still don't get to vote on it, though.
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It's a good thing Sen. Phil Berger put out this statement on Oct. 1, but I don't recall it being reported anywhere ...
BLEAK GENERAL FUND FISCAL PICTURE
Overspending, Inflated Revenue Projections, Borrowing to Blame
Democrat Governor Mike Easley last week directed state agencies to reduce spending by 2 percent to prepare for a probable state revenue shortfall. The 2 percent reduction is not applicable to public education, student financial aid or Medicaid funds; as those areas make up the majority of state spending, the amount saved will only total approximately $200 million from the $21.4 billion state budget. The North Carolina General Assembly’s Fiscal Research Division recently released information disclosing that revenues collected during the first two months of the current fiscal year are running $112.8 million short of projections made barely eight weeks earlier by the Democrat-controlled General Assembly. Revenue for the current year is even behind the amount collected during the same period in the 2007-2008 fiscal year, setting up the prospect that rather than a budgeted 3 percent plus increase in revenues, actual collections may be less than the amount collected in the just completed fiscal year. With budgeted spending almost $1 billion more that last year, the state’s fiscal picture is far from healthy. Add major financial troubles on the national level to the substantial increases in prices for food, fuel, and housing and many economists conclude that North Carolina’s financial situation will likely get worse before it improves.
Senate Republican Leader Phil Berger (R-Rockingham) made the following statement:
“With concentration on the national financial picture, it is possible for North Carolina’s real and growing fiscal difficulties to get lost in the shuffle. There is no question that the Governor’s 2 percent reduction is too little and, unless further steps are taken soon, we will find that it is too late to avoid either substantial tax increases or curtailment of government functions. We are impacted by the Nation’s financial situation and have already seen significant increases in unemployment and painful hikes in necessities such as food and gasoline. Monday’s buyout of our state’s second largest bank will likely bring more financial hardships for our people and will be felt across the state. While I applaud the Governor for addressing the issue, I believe we must be more aggressive in reducing spending; a savings of $200 million will not be nearly enough in light of a probable shortfall of $1 billion or more.
“Unfortunately, at the same time they adopted a budget that was severely unbalanced, the Governor and his fellow Democrats limited the options available to the next General Assembly to deal with this situation. Their 2008-2009 budget ignored core state obligations and infrastructure needs while borrowing almost to the limit of the state’s debt ceiling. Meanwhile, North Carolina’s roads and bridges continue to deteriorate and congestion in our urban centers chokes off commercial and job growth. The state’s failing mental health system was provided a temporary ‘band-aid’ fix leaving our most vulnerable citizens at risk, and the state’s teachers and employees were left with the knowledge that their medical insurance plan was substantially under funded and likely to finish the year in a $250 million hole. This on top of ongoing, growing, and well-documented deficiencies in the state’s education system which was shortchanged by those very politicians who every election year claim to have education as their top legislative priority.
“Should the current economic situation continue, or worsen, and substantial savings this year are not realized, we will return in January facing a deficit for this fiscal year of more than a billion dollars. If past actions are any indication, Democrats will respond with even more spending and by increasing the already high state tax burden on families and small business. Such a rise in taxes could not come at a worse time considering how many families are already stretching their budgets to the maximum. Governor Easley should take further and effective action now to curtail spending is this fiscal year, before it is too late.”
Posted on October 8, 2008 11:55 AM
Thanks for the good summary of the bleak financial picture. Despite Mr. Syke's channeling of Phil Berger, the cause of North Carolina's economic distress lies squarely at the feet of George W. Bush and the imperial-then-obstructionist Republican Congress.
Keep it coming ... I wish you had time to blog more often. We could all use a more measured alternative to your Dome counterparts in Raleigh.
Posted on October 8, 2008 4:32 PM