NCGA: State Budget Deficit Update October

This week members of the Government Operations committee received an updated report from fiscal staff on the state of the budget deficit for fiscal year 2011.

The presentation stated that the overall economy is in a stagnant, slow growth pattern. This slow growth trend will be with us through the remainder of 2010 and well into 2011. This trend will also show elevated unemployment rates for all of 2011.
In a recent report the North Carolina unemployment rate dipped from 9.7% in August to 9.6% in September. However, new unemployment claims rose. This is what the report stated we should expect to see continue through all of 2011.

Overall collections through September are running $18 million below the $4.5 billion target due primarily to processing delays. Dr. Barry Boardman (fiscal research staff), stated that we are poised to turn the quarter on tax revenue collections but that is was to early to say we are off and going toward sustained growth.”

Even with all the tempered positives we are still facing between a $3.2 to $4 billion deficit as we enter into the 2011 fiscal year.

Here are some of the other statistics presented to the committee:

Sales Tax:
Starting in July collection declines came to an end as year-over-year collections were up in each month, but by less than 1% (baseline).

Withholding and Employment:
Recent withholding collections (wage & salary income taxes) offer a glimmer of hope that this key revenue source (40% of total General Fund revenue) is poised to move into positive growth territory.

Through September, net withholding (all wage & salary withholding less refunds) was down 0.5%. This time last year, net withholding was down by 3.5%.


How we get to a $3.2 – 4 Billion Deficit:
Total General Fund Availability for FY 2010-11 was $18.956 billion (S.L. 2010-31)
• Includes $1.6 billion in federal dollars (ARRA Funds)
• Includes $1.3 billion in temporary Sales Tax & Income Surtax
• Includes other one-time items totaling about $300 million

In addition to the $3.2 billion less in FY 2011-12 availability, the General Assembly will face:

• Mandated spending pressures from Medicaid and Public School Enrollment
• Additional spending pressures include
An estimated $572.4 million is needed over the next biennium to maintain
current benefit levels and anticipated growth in the State Health Plan;

Additional funds may be needed to increase the State’s employer contribution to the State Retirement System depending on the results of the System’s annual actuarial valuation. (This may possibly be as high as 1.2 billion)

Post-Secondary enrollment growth

To view the power point presentation on the budget update-go here.