12/08/08 — Officials: Shortfall will hurt families

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Officials: Shortfall will hurt families

By Matthew Whittle
Published in News on December 8, 2008 1:46 PM

Focused largely on helping struggling working families, officials with the North Carolina Justice Center presented their thoughts on the current and upcoming state budget situations Friday, and like many watching the state government, they were not optimistic.

Using numbers generated by legislative fiscal analysts, the group is projecting a budget shortfall this 2008-09 fiscal year of $1.85 billion -- $1.6 billion in the general fund and $250 million in the state employee health plan.

Fortunately, however, said Elaine Mejia, director of the N.C. Budget and Tax Center, Gov. Mike Easley's authorization of $287 million from the rainy day fund and 5 percent across-the-board budget cuts "should be enough to get through the current fiscal year."

The story for 2009-10, however, is different, and might require more drastic cuts or tax increases.

"Anything and everything is in play," she said.

For the 2009-10 fiscal year, the total projected shortfall is more than $3.3 billion -- 16 percent of the current budget.

Contributing to that expected gap are recurring items currently being paid for with non-recurring dollars, non-recurring items that are historically funded every year, the planned implementation of the 5 percent earned income tax credit and the elimination of the gift tax in the 2009-10 budget, the first year of payment on new state debts, and projected adjustments to the continuation budget because of increases in school and Medicaid enrollments.

Also expected to contribute to the shortfall are the continued deficit in the state employee health plan, a 2 percent inflationary pay raise for state employees and teachers and the continued drop in revenues.

But, Ms. Mejia said, realizing those problems exist and then dealing with them in a way that doesn't hurt working families are two different things.

"We definitely have our work cut out for us," she said. "We're not looking at a one-year problem. We're looking at a problem for the next two to three years. Right now it's rough, maybe even a little worse than in 2001-02. "

And, she explained, that problem is not only in the state's budget, it's also in the state's working families -- those considered "low- to middle-income" -- who are in worse shape today than they were seven years ago at the beginning of the latest economic recovery period.

"Our labor force grew faster than our jobs did, and that's driving a lot of these numbers," Ms. Mejia said.

Among those numbers are North Carolina's median household income, which was about $1,100 less in 2007 ($45,513) than in 2001; the poverty rate, which was 14.3 percent in 2007, compared to 13.1 percent in 2000; those without health insurance, which grew from 15.1 percent in 2005 to 17.2 percent in 2007; and the state's October unemployment rate of 7 percent.

Two even better barometers of the state's struggles, she said, are its 11 percent underemployment rate -- the number unemployed plus the number involuntarily working part-time jobs and those marginally attached to their jobs -- and the estimate that one-fifth of the state's unemployed workforce has been jobless for at least six months.

And, Ms. Mejia explained, it's because of those numbers that the Justice Center is advocating a comprehensive examination of the state budget.

Among the areas the Center wants the Legislature to focus on are continuing to provide child care subsidies, continuing to fund the N.C. Housing Trust Fund, expanding home foreclosure prevention programs, funding more workforce development efforts at community colleges, recruiting and developing "green" jobs, protecting Medicaid from budget cuts, expanding health care for children and funding dropout prevention programs.

Another goal is to increase the minimum wage, which senior policy advocate Louisa Warren said would have to be raised to $9.88 just to match the buying power of the minimum wage in 1968.

She also advocated the state going ahead with the planned 5 percent earned income tax credit, which would "get money into the hands of working families who need it the most."

And finally, the Center wants the state to work with the federal government to provide additional weeks of unemployment insurance and a temporary boost to Food Stamp benefits -- moves that bring $1.64 and $1.73, respectively, into local economies for every dollar spent.

However, Ms. Mejia admitted, while they feel boosting funding for many of these programs would go a long way toward helping residents, their real goal is to protect them from cuts.

"In reality we need to protect what we've got. We want them (legislators) to think about what would be the impact of balancing all this by cutting," she said.

Instead, she believes that the shortfall should be made up by finding ways to save money through better and more cost-effective methods -- one example in particular being in the state's prison system -- and by finding ways to increase revenues.

That means, she continued, raising taxes.

In 2001, she explained, approximately a fourth of the budget shortfall was closed when a top income tax bracket and a half-cent sales tax increase were temporarily approved, and a similar plan needs to be in place this time.

"There has to be an appetite for looking at revenues," she said.

But unlike 2001, she doesn't want to just see a "temporary Band-Aid."

"That just temporarily masked the problem, and now we're in a situation where our tax code is even more outdated and over-responsive to changes in the economy," she said.

And so now, she sees this as an opportunity to overhaul the state's whole tax system by lowering rates while broadening the scope of the sales tax to include services, adding more progressive income tax brackets and requiring better reporting of corporate profits earned in North Carolina.

"Everybody has to share in this," Ms. Mejia said.