State has big budget surplus

Much likely to go to urgent concerns

North Carolina has seen an "explosion" in tax collections, giving the state its healthiest budget surplus in years, a report released Thursday says.

The state will bring in about $1.1 billion more than it had planned for the fiscal year that ends June 30, according to a new estimate from the legislature's fiscal research division and the state budget office.

Those extra collections, combined with money set aside for growth or cash not spent by the state this year, will push the expected surplus for the coming year's spending plan to roughly $2 billion, according to fiscal researchers.

The surplus had been estimated at $1.3 billion just a few weeks ago. The state's budget is about $17 billion.

But the earlier forecast had not taken into account closely watched collections that came in last month, which include taxes filed April 15.

When legislators return to Raleigh next week to begin a biennial "short" session, largely to adjust the budget for next year, a focus will be on deciding what to do with the extra money.

Some legislators, mostly Republicans, suggest giving it back to taxpayers in the form of tax cuts or a rebate.

Others, generally Democrats, say the state has not kept up with needed improvements in recent years and the large surplus will allow legislators to tackle pressing concerns.

Some commitments, such as required spending to replenish the state's rainy day fund, will carve into what is ultimately available.

Gov. Mike Easley is due to outline his budget plans soon. He is expected to include significant spending increases in education, salaries and health care that would use up much of the extra money.

The new budget report says the state's growth will be 12 percent this fiscal year compared with a budgeted amount of 5.3 percent.

That growth is reflective of what is happening elsewhere in the country, with states from coast to coast enjoying budget surpluses as the economy hums along.

David Crotts, the legislature's chief economist, wrote in the report that the surplus is North Carolina's "largest since annual budgeting began in the early 1970s."

He said in a memo to lawmakers that several factors produced the surplus, including:

* More people are employed.

* North Carolinians have continued to spend their money, which affects sales tax collections, despite higher interest rates and gas prices.

* Corporate profits are up by double-digit margins due to downsizing efforts and increased demand for products and services.

* The stock market has been in a recovery since March 2003.

* The housing market is healthy, especially high-end homes in the state's urban areas and resort communities.

* The 2005-06 revenue estimate was cautious.

Attempts to reach several key Republicans in both the House and Senate for comment were unsuccessful Thursday.

Julie Robinson, a spokeswoman for House Speaker Jim Black, a Democrat, pointed out that the state is growing fast. She said that leads to more tax collections but also more demands for roads, schools and health care.

Rep. Jim Crawford, an Oxford Democrat and key budget writer, said the report is evidence that the state is doing well.

He said that once legislators try to cover increases in school enrollment growth, teacher and state employee pay raises, mental health and court system needs and "a couple of other things," not much money will be left.

"A lot of folks have been doing without for a while," he said.

Asked whether a tax cut would be a possibility, Crawford said it would.

"A remote one," he said.