NC forecasts budget surplus for year beginning July 1

by Colin Campbell, News and Observer, February 12, 2015.

Legislators head into budget talks with a surplus – estimated at about $540 million – for new budget priorities in the coming fiscal year, according to an analysis from the legislature’s fiscal staff that was presented Thursday.

That figure was characterized as likely being used to cover increased Medicaid expenses, growth in public school and university costs as well as to provide teacher raises.

For the budget year that begins on July 1, fiscal analysts are forecasting a modest level of growth.

Legislative staffers estimate that the base budget – the amount needed to continue funding at last year’s levels – will be $20.87 billion.

Based on revenue projections, $540.8 million more than that will be collected by the state.

Thursday’s presentation included a lengthy list of “budget pressures.” Some – like $218 million in expected new Medicaid costs and $70 million to cover school enrollment growth – aren’t optional. Others are top priorities, such as teacher and state employee raises, more court funding and driver’s education money.

Add them all, and it’s a big number.

“You’re talking about $900 million right off the bat,” said fiscal analyst Karen Hammonds-Blanks.

Sorting out the state’s budget priorities will dominate legislative debates in the coming months.

Gov. Pat McCrory is expected to present his proposed budget later this month, which begins a process that will lead to lawmakers passing a budget, likely in June.

Rep. John Torbett, a Gaston County Republican, pointed to numbers showing North Carolina’s financial position is still better than other states, with a projected surplus for the coming fiscal year.

“We can take some solace in being one of 15 states in this great republic that’s not facing a budget shortfall or overspending,” Torbett said. “There’s much to be said about the fiscal responsibility we’ve taken as a body to get there.”

Current year shortfall

The projection for the budget year that begins on July 1 comes as the current fiscal year is expected to close with a shortfall of $271 million, or 1.3 percent of the overall budget.

“The forecast envisioned 4.5 percent growth, mostly driven by wage growth, and that hasn’t materialized,” said Barry Boardman, the legislature’s chief economist. He said the numbers could change in April when tax returns are due.

Republican leaders say they aren’t concerned by this year’s shortfall, which they see as a minor impact on the overall budget.

“Contrary to the situation two years ago when we had a $2.5 billion shortfall, we now have revenue that is there, and I think we’ll be able to tie those ends together rather well this year,” said Rep. Nelson Dollar of Cary, the senior appropriations chairman.

Democrats had a less positive outlook on the numbers. “It’s always concerning to see a $271 million shortfall,” said Sen. Floyd McKissick of Durham. “With the revenues we have, it’s manageable.”

Still, McKissick said the Republican-led tax changes have “potentially significant implications in the years to come.” He worries that raising starting teacher pay to $35,000 won’t be enough to fix struggling schools.

“It’s about targeting significant resources to our failing schools,” he said. “That’s deeply concerning that that isn’t on the list.”