RALEIGH — Last summer, Gov. Mike Easley picked a high-profile fight with leaders of the North Carolina General Assembly over the state budget package they were in the middle of completing for the 2003-05 budget biennium. Among other concerns, the governor argued that lawmakers’ intention to project a 3.5 percent growth in state revenue in 2003-04 and 5.5 percent growth the following year was too rosy a scenario for comfort.
Easley went so far as to essentially issue a veto threat against a state budget that, in his words, wouldn’t really be balanced. It never came to that. His fiscal aide, Dan Gerlach, and legislative staffers worked out a compromise that include a grant of some additional budgetary flexibility in case the governor needed to deal with another shortfall.
Now, with state revenue collections in from the first quarter of the 2003-04 fiscal year, it’s worth takng a look back at who said what to whom. House Speaker Jim Black and House Co-Speaker Richard Morgan were on record as stating that the 3.5 percent projection for state revenue was sound. Easley thought the number should be adjusted downward, at least to 3 percent. He had grown more pessimistic since presenting his budget plan at the beginning of the year. Some believed that the governor’s latest, lower number represented little more than an attempt to strong-arm lawmakers into supporting his state lottery or higher taxes.
But it turns out the governor was probably right, if not himself too optimistic. According to an Associated Press article, revenues for the first quarter of the fiscal year are lower than projected, coming in at only a 1.8 percent growth rate. This translates into about $43 million less than expected, which doesn’t sound like much. But revenues were projected to be much larger in the other three quarters of the year, due to the schedule of tax collections and Christmas shopping revenues. If the shortfall rate continues, the dollar amount will grow much larger.
It’s too early to know for sure. There are unmistakable signs that the national economy is about to enter a period of rapid growth, if it hasn’t already done so. North Carolina may lag behind the national curve — uncharacteristically and unfortunately — but surely some improvement in the rate of recovery is possible. If so, the revenue picture may brighten.
Right now, though, it’s worth noting that the governor was correct to advise caution, legislative leaders were irresponsible to ignore his advice, and North Carolina may once again have a budget hole to fill in 2004.
Hood is president of the John Locke Foundation and publisher of Carolina Journal.