Lawmakers in the last two years have changed the revenue game in North Carolina. They rewrote most of the tax code and introduced new variables. They may have eliminated some unpopular elements, but that put everyone on unfamiliar turf.
Anyone who knew the odds under the old rules could offer a good prediction for state revenue monthly and annually. That's much harder to guess now.
Unfortunately, the stakes are too high for this to be just a game. The state's entire budget was based around forecasts for revenue and costs. But tax collections and other revenues from the first two months of the fiscal year are about 1.7 percent below expectations.
When the expected revenue is $2.96 billion, that percentage means losing $50 million in two months and can add up quickly. If the new tax model is off by the same amount every two months, we could have a $300 million shortfall by July.
That doesn't mean the new tax system is broken. As the new state budget director, Lee Roberts, explained, it's impossible to forecast revenues for the full year based on two months alone - especially because July and August are always slow months and the arrival of the larger tax payments would begin in September.
The actual revenue picture could be much better or even much worse than it appears at present. We just don't know.
But it is a good reason to keep options open. "If we are materially short, then we'll have to start thinking about what that means for spending," Roberts said. Or some relatively minor adjustments in the new tax code could reverse those low-percentage errors.
Another news item also has to be taken into consideration.
Much of legislators' budgetary hand-wringing during the recent session was over the difficulty of getting a good lock on funding Medicaid. In recent years the Department of Health and Human Services had faced Medicaid shortfalls. Some state senators even wanted to take Medicaid away from DHHS to get better control.
But the agency announced last week that it finished the fiscal year with $63 million to spare and won't have to ask the General Assembly for more money.
That good news on expenditures partially offsets the revenue shortfalls.
But the real lesson is that we're still not sure how much all the tinkering has unbalanced the game. Lawmakers should pay attention. Be prepared to roll out a patch to bring revenues back in line.
