The majority leader in North Carolina’s state Senate offered his colleagues good advice for this year’s legislative session.
“We’re going to have to say no a whole lot of times in the next few months.”
Sen. Harry Brown, R-Onslow, offered that assessment after hearing details of the state’s latest budget projections. In the earliest stages of a slow reopening from pandemic-induced government lockdowns, the state’s budget experts project a nearly $5 billion hole. That’s how far the state is likely to fall short of earlier projections for North Carolina’s General Fund, Highway Fund, and Highway Trust Fund between now and June 2021.
“It’s going to be tough to balance,” said Brown, who also serves as a top Senate budget writer. “The thing about state government, just like local government, you have to balance your budgets. So we’ll be working hard to figure out a way to do that.”
“But it’s going to mean saying no to a whole lot of people,” Brown added. “You need to understand that as we move forward.”
If Brown and his colleagues can adopt — and stick to — that approach to upcoming budget decisions, state government will avoid setting North Carolina up for even more long-term problems than it faces today.
The headline numbers are bad enough. Forecasters project a drop of $4.2 billion in the General Fund. That’s $1.6 billion, or 6.6%, less than projected for the budget year that ends later this month. The other $2.6 billion would be lopped off projections for the new budget year starting in July. That’s nearly 10% of the revenue government had expected for the next budget year.
The rest of the $5 billion hole comes from $770 million in projected declines in gas tax, highway use fees, Division of Motor Vehicles charges, and other money flowing into the state’s transportation funds.
Taken together, the hole represents roughly 8.4% of revenues government had expected to flow into the state treasury through next summer.
“Obviously, it’s a grim picture we’re looking at,” said Rep. Donny Lambeth, R-Forsyth, a top House budget writer. “Some might even say it’s a pretty daggone scary picture.”
The picture could get even worse.
“I think it’s a good forecast given where we are, where we stand today,” said economist Barry Boardman of the General Assembly’s Fiscal Research Division. His budget team worked with counterparts in the governor’s Office of State Budget and Management to crunch the numbers. “We also think it’s a cautious one.”
“It’s not a worst-case scenario forecast,” Boardman warned.
The $5 billion estimate does not account for any second wave of COVID-19 cases. It makes assumptions about the state’s economy reopening in the coming months without unforeseeable snags or obstacles.
Like most of the rest of the state’s population, budget forecasters have been coping with unique conditions. After a clear economic decline in this year’s second quarter — May through June — “things get a little murky,” Boardman explained. “Agreement on where we move forward in the economy differs from forecaster to forecaster.”
Some experts expect a quick bounceback that transitions into slower overall growth. Others expect a deeper trough, followed by more rapid recovery. “Typically, OSBM and Fiscal Research are grappling over whether wages and salaries are going to rise by 4.9% or 4.7%,” Boardman reminded legislators. “Those arguments were off the chart when we start looking at information like this.”
Despite unprecedented uncertainty, budget forecasters assume that the N.C. economy will move out of lockdown mode at some point in the third quarter that starts July 1. That doesn’t mean that business will return at “100% level” right away, Boardman said.
“Plus we know there has been some destruction of business,” he added. “There’s been some restructuring of business.”
“Even though we started out with a health crisis and not a structural economic crisis, … there’s been some structural damage to the economy as well,” Boardman said. “We assumed that there’s a full reopening of the economy, but that doesn’t mean that you flip a switch and go from here right back up to here,” meaning pre-COVID-19 levels of economic activity.
At this point at least, legislative leaders appear to be heeding their forecasters’ warnings. Lambeth promised budget recommendations in the coming days that will “try to balance out and meet the minimum requirements for the state.”
“We’re going to have to be very fiscally prudent and make sure that any dollars we spend we spend on absolutely necessary services,” he added. “We’ve been a very frugal General Assembly. … We will continue to need to do that.”
Part of that frugality must mean that legislative budget writers follow the Senate majority leader’s advice: Learn how to say no “to a whole lot of people.”
Mitch Kokai is senior political analyst for the John Locke Foundation.