State budget still on shaky ground

A new report from the Fiscal Research Division of the General Assembly shows tax collections were 1.5 percent below projections, or about $95 million short, through the first four months of the fiscal year.

A one-cent increase to the state sales tax rate went into effect in September, but analysts said sales tax collections have plummeted in recent months. Collections were down 11.7 percent in July to September from a year ago, which was a much sharper decline than the forecasts used to craft the state budget.

"This has been a horrible recession for retailers, and we're seeing that reflected in sales tax revenue, even though the state did increase the rate," said Mike Walden, an economist at North Carolina State University.

Withholding and personal income tax collections were 2.7 percent below projections during the first quarter of fiscal 2010, compared with 2.4 percent a year ago.

"Until the employment situation improves, withholding taxes will continue to weaken," the fiscal research report states.

The state has lost almost 270,000 jobs since the start of the recession last year, but analysts said signs point to renewed hiring in the coming months. Temporary employment is up, and the housing market appears to have stabilized, the report said.

"The caution is it's going to be a modest turnaround," Walden said.

Economist Brent Lane, of the Center for Competitive Economies at the University of North Carolina-Chapel Hill, paints an even gloomier picture. He said the state budget picture will be even worse than this year, when lawmakers had to erase a $4.5 billion deficit.

For one thing, officials won't have federal economic stimulus money next year to help balance the budget. This year, about $1 billion in stimulus money helped ease the budget crisis.

"Those are very difficult, difficult decisions," Walden said of balancing the budget. "So I don't think it's going to get a lot easier anytime soon."

Senate Majority Leader Tony Rand said he sees the clouds hanging over the state budget and said climbing out of this budget hole won't be like past years.

"Even if it's a recovery, you still have significant problems," said Rand, who plans to resign his legislative seat in the coming weeks to become chairman of the state Post-release Supervision and Parole Commission.