Gov. Perdue was reportedly “over-the-top happy” at the news that North Carolina’s state budget deficit is now being projected to be “only” $2.7 billion, down from the previous estimate of $3.7 billion.
A substantial share of the decline in the projected budget hole comes from new revenue projections coming in $600 to $700 million higher than previous estimates. This scenario seems a tad bit familiar to me.
Prior to Perdue’s first budget proposal in 2009, I warned about unrealistically optimistic revenue projections:
In spite of an unemployment rate in North Carolina hovering around double digits, the governor’s budget office projects increases in state income, sales and corporate tax revenue for the coming fiscal year. For example, sales tax collections are estimated to rise at a healthy five percent pace.
Note also that the state budget office doesn’t have a very good track record of late. For instance, this time last year the governor’s budget proposal predicted a 5.5 percent unemployment rate in North Carolina for 2009. Also predicted was a “modest” 3.5 percent growth in General Fund revenue for the current fiscal year – in stark contrast to the actual 6.3 percent decline being realized. Such misjudgments are a large reason why state government is facing such massive deficits.
Needless to say, the Governor’s office projections were way off. Unemployment in North Carolina peaked at 11% in 2009 – twice the 5.5% predicted – and never dropped below 9.2% for the year.
In terms of actual versus projected revenue for FY 2009-10, the “experts” in the Governor’s office were similarly way off target. Their revenue projections predicted $19.4 billion in state revenue for FY 2009-10 (see pg. 11 of report). Actual state revenue (not counting stimulus funds) for the fiscal year came in at $18.3 billion (see pg. 4 of report). Their projections were off by more than $1 billion.
Given this recent history, I would recommend not relying too heavily on the newly more optimistic revenue projections for next fiscal year.