12/10/06 — Legislators get first look at budget projections

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Legislators get first look at budget projections

By Matthew Whittle
Published in News on December 10, 2006 2:00 AM

GREENVILLE -- As the North Carolina General Assembly begins preparing for its 2007 session, the biggest question facing legislators seems to be whether there is going to be a budget shortfall.

Many agencies that watch the state government, such as the N.C. Justice Center, say that the legislature could be short anywhere from $1 billion to $2 billion when it begins putting together the 2007 budget.

Many legislators disagree.

"We're not going to have a shortfall," state Sen. John Kerr said. "We are right on target. In my opinion, things look good."

Kerr spoke at a legislative briefing session hosted by the Justice Center and the United Way of North Carolina Friday morning.

State Rep. Marian McLawhorn, D-District 9, agreed.

"We do not think the picture is bleak. It's not going to be $2 billion in the hole. I think we're going to be OK," she said.

Elaine Mejia, project director for the N.C. Budget and Tax Center, disagrees.

According to her estimates, she said, after the state experienced a $2.4 billion surplus this year, it's looking to be about $1 billion short next year.

"The budget needs to grow by about 6.5 percent just to do what we're doing now," she said. "I think there's going to be a shortfall. It's going to be a very tight year without money to do anything new."

The problem, she explained, is that even though the majority of the surplus was directed toward non-recurring expenditures, the legislators would like to be able to continue to fund many of them.

Adding to the shortfall are rapidly increasing health care costs and the cyclical nature of the state's tax revenues. Last year, the government's revenues outpaced the economy's growth, a situation likely to correct itself this year. Several temporary sales and upper income tax increases also will continue to phase out in the coming year.

"It could be that I revise that (prediction) down somewhat, but it could also go up," Ms. Mejia said. "Exactly how large the shortfall will be, we don't know."

Beyond the shortfall, but still directly affected by it, are several other issues.

Topping that list is Medicaid.

"That's the No. 1 issue," Ms. Mejia said.

For many North Carolina counties, Medicaid has become a crippling problem.

"You actually have several counties spending more on Medicaid costs than they can afford to spend on public schools," she said.

Last year, she explained, the General Assembly put a one-time cap on the counties' expenses, and while several long-term solutions are being discussed, none have been implemented.

Also expected to be a hot-button issue once again this year is the lottery.

"There seems to be no end in sight. This is not going away," Ms. Mejia said. "It's just not raising as much money as it was supposed to be raising."

Plus, the formula used to decide how much school construction money each county receives is based on a formula that gives preference to those with property tax rates above the state's median average -- a fact that angers those below it, she said.

"This could get interesting," Ms. Mejia said.

The good news, though, she continued, is that the state's economy is doing well with growth sitting around 17 percent -- on pace to create 700,000 new jobs between 2002 and 2012.

But the problem with that, though, she said, is that the nature of North Carolina's jobs are changing from manufacturing based to retail- and service-based. Hourly wages are not keeping up with inflation, and more people are being forced to turn to part-time jobs. Because of those influences, since 1999, the state's poverty rate is up by .7 percent to 13.9 percent and the number of those near the poverty level is up by 2.1 percent to 20.3 percent.

Both legislators pledged Friday that the General Assembly would be looking at those problems -- and the issues of education, health care and affordable housing that surround them.

"I'm not a big spender, and I'm not a liberal at the least, but we've got to do something to help these people," Kerr said.