The NC Budget & Tax Center has finished its analysis of the 2008-09 state budget, and it looks like lawmakers will face a difficult fiscal situation going into the 2009-11 biennium. North Carolina will need revenues to grow by more than $1 billion in 2009-10 in order to pay for a reasonable continuation budget – and that does not include pay raises for state employees and teachers.
Revenues will need to grow by at least 4.66% to fill the billion-dollar hole this year’s budget created. Considering that growth in tax revenue, particularly the sales tax, is expected to continue to be sluggish, 3% is a more realistic growth rate. A 3% rate would result in only a projected $623.5 million in new revenue, or $343 million less than needed to sustain current spending. This means lawmakers will need to think seriously about some combination of new taxes – or preferably, comprehensive tax reform – and budget cuts next year.
Tax reform may not be a popular, headline-grabbing issue, but lawmakers will soon find themselves unable to make new investments or fulfill their campaign promises if they don't take action to create a tax system that is stable, fair and grows with the economy.