Reserves can't cover revenue hole
Published May 9, 2014
Editorial by Winston-Salem Journal, May 8, 2014.
Gov. Pat McCrory and legislative leaders must determine the root of the state’s revenue problem, and fix it. They cannot rely on reserves to cover the gaping hole in the state budget.
The Associated Press reported Friday that the governor’s budget office and the legislature’s fiscal analysts have agreed that there is a $445 million revenue shortfall for this fiscal year. That means the state will collect that much less this year than legislators estimated when they wrote the budget a year ago.
It does not mean that the state is operating in a deficit. That’s because legislators left reserves in their budget calculations, and McCrory ordered state offices to refrain from spending up to their budget limits.
It does mean, however, that the state has a serious revenue problem, one that cannot be explained away by the national, or even state, economy. The most likely source of the problem – in fact we would argue that there is a slam dunk case to that effect – is the 2013 tax plan that went into effect on Jan. 1 of this year.
That plan cut personal and business income taxes while expanding the sales tax to services that had not been previously taxed. While it appears that the sales tax is raising the revenue that was anticipated, collections for the income tax are way below projections.
McCrory sounded almost unconcerned last week when questioned by the AP. The state can cover the revenue shortfall with budget reserves, he said.
Yes, the state can cover this shortfall with reserves. But the governor’s solution won’t work for long. There is something seriously wrong with an income tax structure that -- in just the first four months of 2014 -- has produced hundreds of millions of dollars less than projected.
The leaky revenue situation threatens to persist longer than the reserves hold out. And speaking of reserves, it is best to hold onto them just in case a hurricane hits.
Someone messed up here, and our leaders must find out how, and they must fix the problem.
May 9, 2014 at 10:36 am
Robert Brawley says:
We have had an experience with using reserves , In the 90's we used the Employment Securtiy trust fund reserves by cutting taxes until the fund was too low to meet the needs of this economy beginning in 2008. And we faced a $2.7 billion deficit where there had been a $1.8 billion reserve. When we use our rainy day fund we need proof there will be no more rain.
