In a presentation this morning to the Appropriations Committee, Fiscal Research updated their revenue projections for the upcoming fiscal year. Long story short, it's ugly.
The Governor and Senate budget plans relied on overly rosy revenue projections (as I pointed out) – predicting revenue for the coming fiscal year of $18.86 billion. The revised projection now being discussed is $17.5 billion. In other words, the projected budget deficit for FY 2009-10 grew by another $1.3 billion, and now stands at $4.6 billion.
Part of that hole will be plugged by the federal stimulus dollars. For the coming year, those funds are estimated to be $1.6 billion, but Governor Perdue is raiding $200 million of that to fill the current year's deficit. Good luck to the House in trying to balance their budget proposal with $1.3 billion less in revenue and $200 million less in stimulus funds than the Gov. and Senate had to play with.
Perhaps in light of this mess, N.C. lawmakers may want to consider another method of budgeting their expenditures. The current method of using statistical forecasting is completely unreliable. Basically, "experts" make their best guess as to how much revenue they believe North Carolina state government will collect, and then the General Assembly goes about budgeting to spend that amount. Unfortunately, these predictions are more often than not off by a significant margin.
As Hayek taught us years ago, a complex economy can not be predicted with any accuracy through utilization of measurable data regarding past behavior:
actions of many individuals, all the circumstances which will determine the
outcome of a process, for reasons which I shall explain later, will hardly ever
be fully known or measurable.
Perhaps a better alternative would be to set revenue projections on the actual revenue of the most recent calender year, a proposal contained in Senate bill 1052.
While also an imperfect method, this would no doubt be much better that the current method, which has given us both wild surpluses during the boom years and the massive deficits we are currently facing. Large surpluses mean that taxpayers were overcharged during that year, while deficits lead to panic in Raleigh – and that type of panic typically results in tax hikes.
Oh, and of course, it might be a good time to instill some strict fiscal discipline – setting aside more of the surpluses when revenues are high so that there is more savings set aside for the down times.