Lawmakers face more than $3 billion budget gap in 2009-10

Lawmakers face more than $3 billion budget gap in 2009-10

Estimates from the Budget & Tax Center show how the shortfall could expand even further next year

If current economic realities remain unchanged, North Carolina's budget gap could balloon to more than $3 billion next year.

A new brief from Elaine Mejia, director of the N.C. Justice Center's Budget & Tax Center, outlines how this might happen. Under this scenario, the budget shortfall confronting the new governor and legislature is more than $3 billion — more than 15% of the current state budget.

Legislative fiscal analysts say that the state's budget shortfall may exceed $1.6 billion during the 2008-09 fiscal year. But state analysts either have not forecast the numbers for next year, or have not released those forecasts publicly. Mejia's brief projects how the shortfall might look during the 2009-10 fiscal year.

The BTC forecast makes the following assumptions about spending:

The 2009-10 budget will continue current services and the 5% across-the-board agency cuts taking place mid-year are restored'

The budget includes the basic inflationary and enrollment-related increases that typically require at least $500 million in additional spending;

The State Health Plan will need at least another $500 million in 2009-10 to meet its obligations and avoid passing on additional costs to state employees;

State employees and teachers will get a 2% inflationary pay raise. Funds may not be available to do so, but failing to ensure state employees’ wages keep pace with inflation should be considered a budget cut;

The state proceeds with issuing authorized debt; however, it is likely all new debt will be delayed.

Assuming these spending patterns occur, that would create a shortfall of more than $3.3 billion.

One factor that might mitigate the swelling budget gap: federal aid. Mejia's projections do not assume a relief package from the U.S. government being delivered to states including North Carolina. If an aid package takes shape, this would relieve some of the budget burden.

It could also get worse. The BTC forecast does not assume increases in what's termed “counter-cyclical spending.” Examples of this include additional residents becoming eligible for Medicaid or a spike in enrollment in the community colleges. These costs usually rise when the economy slows and unemployment grows.

Click here for the BTC Brief: Understanding the Current and Upcoming State Budget Shortfalls