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 We Can’t Cut Our Way Out of this Mess
by Tom Campbell
April 2, 2009
In the late 1980’s North Carolina experienced one of the recessions we have almost every ten years. Jim Martin, in his second term as Governor, faced the problem of a budget swimming in red ink.
Martin went to work to cut all the fat he knew existed in proposing the coming year’s budget. After several frustrating weeks he reported to legislative leadership that he couldn’t cut enough to present a balanced budget for the coming year.
North Carolina is now in the throes of another recession. Nobody can predict with certainty the exact amount of the deficit for the fiscal year starting July 1, but informed estimates range from 3 to 4 billion dollars. Personal income tax returns, due April 15th, will help in knowing what revenues will be available, but rising unemployment, falling retail sales, and lower corporate profits make projecting revenues for the coming year difficult for even the most seasoned experts.
A growing number are coming to the same conclusion Martin reached: we can’t (or won’t) cut our way out of this budget crisis and will need some combination of budget cuts and revenue increases to balance the budget.
Governor Perdue’s budget projected next year’s revenues to be the same as this year’s, numbers that now appear optimistic. She called for tax hikes on cigarettes and alcohol, but it is unlikely her dollar a pack cigarette tax increase will pass. Many believe we will pass no more than 300 million dollars in these so-called sin taxes. Added to the 1.7 billion in projected federal stimulus funds will get the state half-way toward the anticipated deficit. To cover the other 2 billion in projected deficits would require almost a ten percent reduction from this year’s 21 billion dollar budget, another unlikely scenario.
And this just addresses the first year of the two-year budget to be passed. In the second year, federal stimulus funds are expected to disappear. Economists predict the recession should end late this year and we can hope to see some improvement in state revenues next year, but we should not count on much growth. Since next year is re-election time for lawmakers, any pain in higher taxes or budget cuts will be passed this year in hopes voters might forgive and forget come election time. The bottom line is tax increases are virtually guaranteed.
Citizens of this state recognize that our leaders have a difficult job in trying to continue essential services while keeping the budget balanced. Here is what we request from our leaders. First, give us the facts so we can understand what you are dealing with. Demonstrate that you are serious about cutting spending for programs that are not essential and make those cuts without using “smoke and mirrors” tactics or yielding to special interests. We expect and deserve sunshine and honest debate in the process of crafting a state budget. And if taxes must be increased, do so fairly and equitably. Our state is in a mess and we expect our leaders to act responsibly and honorably. |
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