RALEIGH — In recent years budget watchers annually have warned of coming fiscal train wrecks because members of the General Assembly, and Gov. Mike Easley, have spent what are considered to be one-time revenues to finance annually recurring expenditures.
Every year since the turn of the millennium has brought the warning, and every year lawmakers have put off a solution to the shortfall by extending or raising taxes.
The most commonly recognized one-time revenue source was the “temporary” one-half cent sales tax increase that lawmakers implemented in 2001, which was scheduled to evaporate on July 1, 2003. Last year, lawmakers extended his “one-time” revenue by two years, to end in mid-2005, so by next year legislators must decide whether what was really “second-time” revenue should be continued as permanent or “third-time” revenue — or if some other solution should be implemented.
When the General Assembly passed the biennial budget plan last summer, according to legislative staff, the budget relied upon nonrecurring funds of $618.2 million in fiscal 2003-04 and $698 million in fiscal 2004-05. The total $1.3 billion was mitigated by nonrecurring expenditures of $197.2 million over the two years. Lawmakers knew then that in 2005 they will need to replace what amounted to a nonrecurring $1.1 billion in revenue in the 2003-05 biennium.
In addition to the half-cent sales tax, a temporary hike in the personal income tax on top wage earners is scheduled to drop off in January 2006. When other upcoming changes (that are tied to the federal code) in North Carolina tax law are added, lawmakers will need to find roughly $500 million in FY 2005-06 to make up for lost tax revenue.
State budget adjusters this year reaped the benefit of $100 million in unexpended money from 2003-04, and $198 million in over-realized revenues.
Upon completion of the two-year budget plan last June, lawmakers had taken $130 million from two of the state’s trusts that were funded by its share of the 1998 tobacco lawsuit settlement. Of those two funds the Health & Wellness Trust Fund, which was to finance public health programs, lost $50 million over the two years. The Tobacco Trust Fund, which was established to give tobacco farmers relief for their productís diminished demand, lost $80 million.
Among other one-time money, budget writers also took: $10 million from funds recovered as the result of the attorney general’s lawsuit settlements; $58 million from taxes earmarked for the improvement of the 911 emergency telephone system; $109 million from the Hurricane Floyd Disaster Relief Funds; and $40 million originally headed to other special funds.
Lawmakers in recent years have transferred increasing amounts from the Highway Trust Fund. The reserve was sold to taxpayers as a way to finance special road projects through gas taxes and car taxes. To balance the budget for the current two-year cycle, the legislature moved $252 million out of the designated fund. Most of this amount has been a recurring stream of funding from the trust fund to the General Fund since the former was created in 1989 legislation that transformed the sales tax on automobile sales into a “highway-use tax” earmarked for roads.
The state also received $551.6 million in one-time federal relief last year.
The fact that Easley, in his mid-term adjustment recommendations, didn’t try to address the problem of spending one-time revenues meant that he and legislative leaders — or perhaps their successors — will keep to the usual timetable of “fixing it” after this year’s election. Whether such a fix will consist of extending the prior tax increases remains to be seen.
Paul Chesser is associate editor of Carolina Journal. Contact him at [email protected].