01/18/09 — State losing ability to help counties

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State losing ability to help counties

By Steve Herring
Published in News on January 18, 2009 2:00 AM

RALEIGH -- When the state's county commissioners gathered two years ago for their legislative goals session, North Carolina had a budget surplus of nearly $350 million, and the state enjoyed a debt capacity of about $200 million a year.

Then, commissioners were talking about infrastructure -- some $9.7 billion for schools and $65 billion for transportation, as well as funds for water and sewer and other needs.

But when the 2009 conference convened Thursday, instead of looking at a $350 million surplus, commissioners learned that the state is now facing a potential $2 billion shortfall this year, and one well in excess of $3 billion next year.

"We talk about our goals and objectives and this is what this conference is about," said Association Executive Director David Thompson. "But the economy is going to overshadow everything we do today, everything you do with your budget, and probably for the foreseeable future in county government, everything you do as county commissioners.

"The General Assembly session is going to be about the economy. It is going to be about money. The conference is not about the economy, but it is driving everything right now."

The infrastructure needs talked two years ago have not diminished, but the state's debt capacity is maxed out and cannot be utilized for things such as education or to help county government, Thompson said.

It is estimated it will cost $300 million just to fix the state's struggling health plan for this fiscal year, and another $500 million for the next two years, he said.

Already for this year Gov. Beverly Perdue has asked state departments trim their budgets by 7 percent.

"We don't know, and state agencies don't know, what impact that will have on county government," Thompson said. "Unlike municipalities, county governments are tied in directly to the state budget streams and what it does and the state is tied to what the federal government does."

The downward spiral happened quickly, he said.

In October it was estimated the gap would be between $800 million and $1 billion.

"But the estimates are drastically increasing," Thompson said. "The real figures through October showed the actual shortfall then was around $320 million.

"The actual collection numbers through December show the actual general revenue collection gap is approaching $520 million. That is a tremendous negative development. The nationwide recession has definitely hit North Carolina."

Especially harmful to the state and its counties are the falling sales tax collections -- down 3.6 percent in the first quarter, as much as 7 percent in the second, and even steeper declines expected when the figures for the one ending last month are released.

Because of the declining revenues, Thompson said counties need to be very cautious about administrative costs and shifts in responsibility for which there are no funding mechanisms.

"What we really have to worry about in the next General Assembly session is county commission autonomy -- your ability to have flexible revenue streams," he said.

Because without other options, he explained, the only recourse is to raise property taxes.

"You especially don't like raising property taxes in a recession," he said. "It is better to have some flexibility. This recession could be ongoing for some time and we don't want the full burden to come on property taxes.

"Even more importantly we believe county commissioners should be able to make the decision in their communities because they are the ones closest to the people they are serving."

Thompson was making reference to the association's priority legislative goal "to allow all counties to enact by resolution or, at the option of the board of commissioners, any and all revenue options from among those that have been authorized for any other county, including local option sales taxes, prepared food taxes, impact fees and real estate transfer taxes; and to preserve the existing local revenue base."

That goal was adopted Thursday afternoon.

Thompson also said the association has received numerous questions about the proposed federal stimulus package -- expected to be about $800 billion -- and what influence it might have on county budgets.

Thompson said he and other association staffers were able to meet with members of President-elect Barack Obama's transition team, but that no clear picture has emerged of the package and its potential affect -- though the goal is to have it approved by Feb. 13 and money flowing by March or April.

And while they expect it could include as much as $300 billion in tax cuts and perhaps $100 billion Medicaid, there are concerns that it could end up costing county governments.

"Remember, a lot of services are countercyclical to the economy," he said. "Your demand for services will go up as long as the recession lingers.

"So while everybody else is with cutting costs you are probably going to be taking on some new costs in administration. What we need to be aware of is shifts in responsibilities from state and federal to the local level without funding."

He also said that it's unlikely that many infrastructure needs will be addressed.

"It is premature, in my opinion, to believe your infrastructure needs are going to be addressed by the stimulus package -- a lot will be human services infrastructure and tax cuts," he said. "If you are waiting for grants from the federal government to build a courthouse you might want to monitor this closely. It probably is not as much as we would want to put people back to work in construction."