RALEIGH — The governor confirmed today what many political insiders have been expecting for weeks: another revenue shortfall. State tax revenues were off $70 million in April, following a similarly poor performance in March. For the 2002-03 budget year ending in June, it is likely that the state will be hundreds of millions of dollars in the hole, again, leading Gov. Mike Easley to seek additional economies within the budget to even things out.
As I have previously written, this shortfall in the current fiscal year has dramatic implications for the 2003-04 fiscal year beginning in July. The NC House and Senate have both passed state budget plans based on revenue availability now likely to be off by $283 million or more.
There are several ways House and Senate conferees may choose to respond. One would be to go back into their nearly identical spending plans and excise more. I doubt they will do this, though they certainly could. Another would be to add new tax or fee increase into the mix, such as the long-discussed excise-tax increase on cigarettes, a similar proposal for alcoholic beverages, or some additional “loophole-closings” on corporations.
Here’s another scenario. Citing a lack of support in the House for additional taxes, Gov. Easley may urge legislative leaders to insert his old stand-by, a state lottery, directly into the conference report of the budget. The expected take from the first full year of a lottery would roughly approximate the expected increase in the budget hole for FY 2003-04. Of course, a lottery couldn’t begin operation so quickly, so this trick would require lawmakers to make a one-time transfer out of a trust fund, or impose a temporary tax surcharge, and then promise to replenish the money with lottery proceeds later on.
Sound implausible? Perhaps it is. But it may be the only way this governor can get his pet idea through this legislature. A separate bill to create a lottery or approve a voter referendum on the issue will almost certainly fail this year in the House and possibly even in the Senate. Forcing lawmakers to defeat a lottery only by voting down a hard-won budget compromise could offer some members cover to vote yes.
My personal view is that if Easley pursues this strategy, it would be a serious miscalculation. Moreover, a more straightforward and salable course remains: to take the state lottery issue to the voters in his 2004 re-election campaign and in a serious effort to elect pro-lottery lawmakers in newly redrawn legislative districts. If the notion is as popular as Easley believes it to be, he should seek popular support for it through the normal electoral process.
As far as the prospect of tax increases goes, I suspect that most conferees will be unwilling to resist them. They’ll say that they’ve already cut the state budget too much as it is — you know, when they reduced the increase in state spending next year to just 5 percent, or $726 million — and that “leadership” means confiscating more of the taxpayers’ money. So in addition to extending tax increases on income and retail sales in North Carolina, imposing new tax burdens on families with children, hiking taxes on candy and soft drinks, and wishing $87 million in new revenues into existence through better “tax compliance,” the General Assembly may now hit consumers and businesses with new excises.
Expect a downpour of political rationalizations over the next few weeks. Take shelter — and smoke ’em if you’ve got ’em.
Hood is president of the John Locke Foundation and publisher of Carolina Journal.