Each budget year in North Carolina as the fiscal year enters its last couple of months, budget writers anticipate an “April surprise.” This surprise depends on tax collections for corporations and individuals filing their tax returns near the April 15 tax deadline. Sometimes the surprise is greater tax revenue than anticipated, other years the surprise is less tax revenue than expected.
According to the Fiscal Research Division’s chief economist Barry Boardman, however, this year there was no such “April surprise.” In his May 2010 Revenue report, Boardman reveals that April tax collections came in “as expected.” (The report should be posted sometime today to the Fiscal Research website)
This means that state revenues are still on pace to fall $390 million short of budgeted revenue for the current 2009-10 fiscal year, which ends June 30. Deepening the budget hole for this year is Medicaid expenses that are estimated to come in $250 million more than budgeted. Combine these two, and the anticipated budget deficit for the current fiscal year comes to $640 million. Fortunately, Gov. Perdue anticipated a possible shortfall of this nature, and last August issued an Executive Order mandating that “The Office of State Budget and Management shall reduce monthly allotments by five percent of each State agency’s certified budget. Special exceptions may be made for constitutionally mandated or entitlement programs as well as urgent situations related to direct classroom instruction, economic development opportunities, law enforcement, health care, and public safety.” (Interesting how she included corporate welfare in the list of “urgent situations” like classroom instruction and public safety.)
I would love to see a report on just how exactly state agencies have been getting by with a five percent reduction in their budgeted monthly cash flow. Last year when a similar order was in place, we saw a glimpse of how agencies were “cutting to the bone” in order to make ends meet, by taking such drastic action as limiting travel only to the agency’s “core mission” (why else would they travel?) and shutting the computers down at night when the office is empty.
Going forward, according to Boardman, the consensus estimates for 2010-11 include a revenue forecast revised down by nearly $800 million compared to what was budgeted in last year’s two-year budget bill. Stay tuned to see how they deal with that.
And these fiscal woes are just the tip of the iceberg, as I lay out in detail describing the “fiscal tsunami” facing North Carolina state government.