State lawmakers will be watching national economic news closely for any effects on revenues as they return to work Tuesday on the state’s $20 billion budget.

“I think the big issue will be the economy,” Senate Majority Leader Tony Rand, D-Cumberland, said. “We’re extremely concerned about the national picture and what impact this will have on North Carolina. And so we’ll try to get a pretty quick grip on that.”

North Carolina’s revenue forecast has been running slightly ahead of projections. The state collected about 1.25 percent more money, or a total of $140 million, than expected through February. Budget analysts have warned that an economic downturn could cause the surplus to disappear.

“We still are facing some big risks in [2007-2008],” economist Barry Boardman of the General Assembly’s Fiscal Research Division warned in a budget briefing earlier this year. “The headlines are clearly stating that the nation is facing an economic slowdown.”

Slumping housing sales, the national subprime mortgage crunch, and “elevated” energy prices all could affect North Carolina’s revenues, Boardman told lawmakers. Conservative budget projections should help. “We had a modest forecast going into the fiscal year,” he said. “We took a very, very cautious approach with the most volatile sources of revenue.”

North Carolina is “far more fortunate” than many other states, Rand said. “California’s budget deficit is greater than North Carolina’s budget,” he said. “We’re trying to be conservative, and we’re trying to make sure we get the most value for our money.”

Rand’s Republican counterpart said a “significant carryover” from last year and the recent revenue numbers could help the state avoid major budget problems. “I don’t think [Democrats] would be willing to engage in tax increases or the euphemism ‘revenue enhancements’ in an election year, but they might,” said Senate Minority Leader Phil Berger, R-Rockingham. “I would say that if the method that is selected to get more money to projects is a tax increase as opposed to spending what we’ve got where it needs to be spent, I think you’re going to see some opposition to that.”

One potential casualty of a slow economy is a potential bond package. Lawmakers left Raleigh last year without addressing a proposed statewide bond referendum for roads, schools, or other priority items. “We’ve talked about that, and we’ve looked at it, and we’ll look at that and see, but I don’t know,” Rand said. “Borrowing money right now is kind of a suspect operation, and I’m not sure we want to get into borrowing right now with our economy like it is.”

Problems with the state’s mental-health-care system are likely to draw lawmakers’ attention. It’s “probably a pretty good guarantee” the Assembly will take some action, Rand said. “We’ve got to really get serious,” he said. “We haven’t done well, and so we’ll have to do something about that.”

Berger uses stronger criticism. “I think everybody pretty much agrees that we have seen the state government — largely through administrative incompetence — turn North Carolina from a state that did a pretty good job of taking care of mental health issues into a state that wastes hundreds of millions of dollars and really does not do a good job at all.”

Despite his assessment of the problems, Berger said he gives “all the credit in the world” to Dempsey Benton, who has overseen the state’s mental health programs as state Health and Human Services secretary since September. Benton outlined in late March a series of reform measures that could cost up to $70 million a year.

“I think there’s been a total absence of a plan or a roadmap or some idea of what we could do to get this thing taken care of and fixed,” Berger said. “I do think we’re getting closer to that point. And if, in fact, we do have something, I think you’ll see broad support for doing that.”

Recent rain has filled most of North Carolina’s reservoirs, but lawmakers are likely to get proposals from Gov. Mike Easley to increase state involvement in drought management. “We’ve been through a tough time, but if we use this as an incentive and a good reason to really get serious about our natural resources, we’ll be much better off,” Rand said.

Berger disagreed. “I think we are in large part missing the bigger picture as far as the drought is concerned,” he said. “I don’t think the answer to ensuring an adequate and appropriate supply of water for our citizens is to impose additional regulation that gives a government power over everybody’s life as to how many times you can flush a toilet, how many times you can turn a faucet on.”

“Where we are not doing anything is on the supply itself,” Berger said. “We need to find ways to plan for our supply to be adequate, because even if we effect conservation measures that save us 20 to 25 percent of the water we’re using today, if we grow our population by 30 percent, we’ve still got a problem. So what we’ve got to do is we’ve got to look at the supply side of the equation. I don’t think the governor has even touched on that.”

Education remains “our most important issue,” Rand said, and lawmakers might make some efforts this year to address recommendations from the 21st Century Transportation study group. But property rights advocates have some work to do, if they hope to get the Senate to endorse a House-approved ballot measure targeting eminent domain abuse.

“There have been no problems in North Carolina that I’m aware of,” Rand said. “We’re reluctant to change our constitution unless it’s a compelling reason. And there have been no cases in North Carolina. We want to make sure that North Carolina’s people are protected, but that we don’t just pass some constitutional amendment simply because somebody proposed one.”

Berger said he hopes colleagues from both parties will reject efforts by the state’s community colleges to permit enrollment of illegal immigrants.

“There’s opposition to that from just about every corner except the bureaucracy, it seems,” he said. “But I’ve been around long enough to know that the bureaucracy usually doesn’t do something unless somebody’s giving them the nod. We’ll see, but that is certainly an issue that I think the people would want us to take care of.”

Last week, state Attorney General Roy Cooper’s office advised the community college system that they could not admit illegal immigrants because federal law seems to prohibit it. Gov. Easley publicly disputed Cooper’s position, and on Friday U.S. Immigration and Customs Enforcement officials also disagreed with Cooper, saying the Department of Homeland Security “does not require any school to determine a student’s status.”

The House and Senate will resume work tomorrow and will aim to finish their work by July. “It will certainly be called the short session,” Rand said. “Who knows what it will be? I hope it will, in truth, be the short session.”

Mitch Kokai is an associate editor of Carolina Journal.